It’s easy to fixate on what the pundits are predicting for the economy in 2014 at this time of year. My advice: Ignore them. The fate of most small to midsize firms doesn’t rest with the consumer confidence index or S&P 500. In fact, obsessing about indicators like this can give you a convenient excuse for failing to do what you need to make your company successful now.

There’s plenty of business out there. The world’s GDP is currently about $72 trillion. Even if the economy shrank by $10 trillion, there would still be plenty of customers for you somewhere on the planet. If you can’t find enough business, it’s your fault – likely a failure to adjust one or more of the four P’s of marketing (Product, Price, Place, or Promotion). You’ve probably heard the expression “the bottleneck is always at the top of the bottle!” Well, whether you grow or not is more dependent on your decisions than the direction of the economy.

Hyperspecialization

The key to growth right now is hyperspecialization of your products or services, a term popularized by a recent Harvard Business Review article by the same name. As competition increases globally, you are better off focusing your expertise on as narrow a niche as you can and then following that niche around the globe, rather than trying to be everything to everybody locally. This approach also makes it easier to maintain pricing power and focus your distribution and promotion strate-
gies.

As marketing consultant Tim Williams pointed out in a recent LinkedIn article, the number one reason marketers search for a new advertising agency is the search for “best in class” specialists. Most clients are looking for solutions – and the best answers to their problems “spring from deep areas of expertise, not from `a wide range of experience,’” as he puts it. CJ Advertising, a fast-growing agency in Nashville, embodies this trend. By hyper-focusing — and serving only personal injury law firms better than anyone else — the company is thriving.

It’s not just in advertising where hyperspecialization works. Hermann Simon, chairman of the global pricing consultancy Simon-Kutcher & Partners, found that hyperspecialization works across many industries, as he discusses in his book Hidden Champions of the 21st Century. Studying the successful middle-sized companies that have powered the German and other economies around the world, he found that most have made themselves global leaders in a relatively narrow niche, even when confronted with giant competitors.

Diversify Geographically

Diversifying your geographical base is important because it will insulate you from the vagaries of your local economy – the one that affects you the most. A big plant’s closure or natural disaster can hit your company hard if all of your customers are located in your city, whether it’s Detroit or San Diego. But if you’re also selling to customers in China or Australia, you’ll be able to keep growing. And the internet allows any firm to more easily reach into far away markets.

Of course, this also means competitors 12 time zones away can reach into your local markets. For this reason it’s ever more urgent that you stay on the offensive and enter their markets before they enter yours. By spanning the globe you’re more likely to learn about potential competitors and stop them in their tracks before they diversify geographically themselves.

Right Side of Demographics

At the same time, there is one trend you can’t ignore – shifting demographics. Winnebago is a good example. It’s hardly a new brand, but revenue and profits are booming. Why? The population in many of its markets is aging – and older people love RVs. In the real estate world, the rental market is boomin-g, because many Americans can’t afford to own a house and need a place to live. Landlords who have kept ahead of the trend are thriving.

Staying ahead of these demographic trends vs. economic predictions means knowing the data that drives the success of your business and using it to plan for growth. As the late W. Edwards Deming, the father of total quality management, often preached, the fundamental job of a leader is prediction, and when companies stumble, it’s often because leaders have failed to use the information at hand to forecast where they should be heading.

If you want to grow, this year, take your eyes off the economic headlines.Instead, pay attention to demographic trends and stay focused on getting better at what you do than anyone else. That’ll give you the calling card you need to break into new territories – and may even get some of those distant customers you need to come to you.

Download the PDF

The post Ignore Economic Predictions appeared first on Scaling Up.

Nov 1, 2013 1:00:00 PM ET

In an increasingly global economy, anyone with a laptop can become your company’s rival overnight, so it’s more important than ever to find a way to separate yourself from the pack. Viewing your market through a different lens than your competitors is an essential step in achieving a differentiated vision.

Doing this requires you to answer two strategic questions: (1) What is powering your economic engine? You need to identify the single overarching Key Performance Indicator (KPI) that Jim Collins calls the “Profit/X.” It defines the essence of your business model. (2) Does your Big Hairy Audacious Goal (BHAG), a term Jim Collins and Jerry Porras trademarked to represent a company’s 10- to 25- year goal, align with this measure of your economic engine?

LISTEN TO CUSTOMERS FOR CLUES

Serial entrepreneur Alan Rudy knew the importance of finding a different way to approach a market when he invested in Perceptionist, a Columbus, Ohio-based call center that was serving 60 to 70 different types of companies. At the time, it was looking at its industry the same way as everyone else and was focused on trying to achieve a higher profit per minute. To figure out how to differentiate and grow the company, Rudy spent three months on the road visiting customers.

During one of these meetings, a customer began grousing about having to pay monthly rates equivalent to about $1 per minute to have calls answered, especially when someone had dialed a wrong number. The customer also waxed on about the problems of playing phone tag with customers, who just wanted to make an appointment. In his frustration, he exclaimed to Rudy, “Forget the buck per minute, I’d pay you $25 to take over my calendar and book appointments!”

A light bulb went off. Rudy knew where he needed to take the company. He sold off accounts that needed only answering services (including ours at Gazelles!) to a competitor and shifted the company’s focus to achieving a target “profit per booked appointment.” This turned around a situation in which Perceptionist had been struggling to compete with overseas rivals that could offer rates equivalent to 50 cents a minute. Focusing on the new metric and a handful of targeted industries that needed appointments booked changed the fundamental economic engine of the company – and helped it bring in revenues of $5 a minute.

Rudy eventually sold his stake in the company back to the original owner and says it is now doing well – with a single minded goal of booking as many appointments as possible. Meanwhile, he tripled the value of his investment in the firm.

PROFIT PER X

Rudy changed the fundamental economic engine of the company, the Profit/X, and it paid off. This metric is valuable because it provides the leaders with a single KPI they can track maniacally to monitor the progress of the business, a great luxury to have. Though the numerator can be any metric you choose – profit, revenue, gross margin, pilots, routes, etc. – the denominator is fixed and represents your company’s unique approach to scaling the business.

Southwest Airlines offers a good example. Most airlines focus on profit/mile or profit/seat. Focusing on the big expensive hunks of metal it flies around, Southwest instead laser focuses on maximizing profit per plane. That drives the rest of its strategic and tactical decisions.

BHAG

It’s also critical that you set the right BHAG. Many companies make the mistake of pulling a random number or statement of aspiration out of thin air. The trouble is when it has no real connection to the company’s underlying strategy.

There has to be tight alignment between your Profit Per X and BHAG. In fact, your BHAG should be measured in the same units as the X. Southwest Airlines, for example, set a goal in 2000 to have a certain number of planes in the air by 2010. For Perceptionist, long-term goals were all related to booking as many appointments for clients as the company could – which aligned nicely with the needs of its niche of customers.

Naomi Simson, founder of the fast-growing firm RedBalloon – a marketplace of more than 2,000 interesting experiences like hot air balloon rides that can be given as gifts – set a 10 year BHAG for her company in 2005 to sell 2 million of them. As the column was going to press, RedBalloon was on track to reach that goal two years early. And the company’s BHAG has aligned perfectly with its tracking of “profit per experience,” something that Simson’s team maximizes through negotiations with contractors.

Again, it’s this specific focus of driving the business around a key unit – planes, booked appointments, experiences – and then making your long term goal some aspirational number of these units – that makes for a simple, cohesive and powerful vision for 2014 and beyond.

The post 2 Critical Vision Decisions – Profit Per X and BHAG appeared first on Scaling Up.

Oct 1, 2013 1:00:00 PM ET

Companies that build teams with strong moral character win. Their teams are happier, perform better and are more successful overall.

This bold claim stems from the work of Jim Loehr, renowned performance psychologist and author of the book The Only Way to Win. Loehr´s research, which in part is based on his experience taking 16 world class athletes to number one in their sport and working with thousands of “corporate athletes,” shows that the satisfaction we get from achieving extrinsic accomplishments (number one in tennis, a new job, winning a deal, building a company) is mostly shallow and fleeting. Instead, what gives us a long lasting feeling of fulfillment and happiness is having practiced character strengths in the pursuit of these goals.

But not all character strengths are equal. We need to distinguish between moral strengths (e.g. love for others, kindness, integrity, generosity, gratefulness, humility) that govern our relationships with others from performancecharacter strengths (e.g. perseverance, focus, resilience, self-discipline, capacity to work hard, commitment) which determine the relationship we have with ourselves.

Performance strengths are great to have and necessary for most kinds of extrinsic accomplishments. Kenneth Lay, Bernie Madoff and Lance Armstrong have lots of them. But their lives became huge public failures because they lacked critical moral strengths. “To live a truly successful life […] one must have a solid number of moral character strengths. These are not negotiable,” writes Loehr.

CHARACTER STRENGTHS WIN IN SPORTS

To test his own theory thoroughly, Loehr founded a junior tennis academy at his Human Performance Institute recently. On their first day, the students hear: “We care about your tennis but care more about who you become because of tennis. Our most important imperative at this academy is winning with character.”

Working from a list of moral strengths, the students are required to journal about lessons learned that day, on and off the court. Not surprisingly, this has helped their performance. All 15 students going through the program are currently nationally ranked.

… AND IN BUSINESS

What Loehr has learned works in business, as well. Recent research suggests that companies that hold high moral standards clearly outperform general business indexes. For example, companies that made the Fortune list of the 100 Best Companies To Work For, a recognition based on factors such as trust, respect and camaraderie, produced between 1998 and 2009 annualized returns three times better than the S&P 500, according to the Great Place To Work Institute. A similar level of performance can be observed in “ethical” companies like the ones identified by the Ethisphere Institute or the “Firms of Endearment” described by Raj Sisodia in the book by the same name. Granted, these companies are not only successful because they foster moral character strengths among their employees. But ethical, fair and respectful treatment of all stakeholders is a common trait and recipe for success for companies that come out on top in these rankings.

THE TRANSFORMATION NEEDS TO START AT THE TOP

Leading ourselves is the greatest challenge we face as leaders. Only if we grow and develop as human beings can our companies flourish. Personal growth of the leader often becomes a condition for the growth of a company, as John Mackey, co-founder of Whole Foods, describes in his book Conscious Capitalism, where he describes his own story.

But “conscious leaders” don’t focus only on their own personal development. They also seize the unique opportunity to serve those they lead and help them become the best version of themselves.

After the tragic loss of his wife, Jay Steinfeld, founder and CEO of Blinds.com, reached such a turning point. “My future really began to take shape only when I began to define my success as being in the act of continuous improvement and improving the lives of others around me,” he recalls.

Realizing, as he put it, that he was “an overly burdensome micromanager, always finding fault in others,” he concentrated on identifying and recognizing the successes of his team. As he became more empathetic, his team relaxed – and performed better. To help his employees to stick with their own self- improvement goals, he put up a white board where individuals could share such commitments.

As the company has grown increasingly successful – it is now the world’s largest nline retailer for window blinds and shades, with $120 million in annual revenue and 180 employees – Seinfeld has tried to help his team stay true to its humble beginnings. He personally brings new recruits to a run – down alleyway in Houston where the thriving company had its first office back in 1996. There, he shares the history and core values of the company. He even built a reproduction of the alleyway at the company’s new offices.

“This way, we keep our humble history fresh in our minds and it also reinforces our core value ´Help People Achieve What They Never Thought They Could,’ ” he explains.

FOSTER MORAL BEHAVIOR THROUGH SYSTEMS AND PROCESSES

Consider how you can use your company as a vehicle for building your own character strengths and those of your team. In the same way you bring core values alive, moral character strengths pick up “grip” in your organization through processes and systems (even artifacts like Blind.com’s recreated alleyway) that reinforce the desired behaviors in training and day-to-day operations.

Boston Centerless, a manufacturer of ground bars and grinding services, recently completed its first eight-month leadership program in which character building, not skill building was the focus of the curriculum. Participants developed very specific plans about who they want to be and what kind of change they want to create in their behavior.

Company policies that support ethical behavior can achieve similar results. Zappos for example prohibits its purchasing agents to accept meal invitations from suppliers. Instead the company makes it mandatory to invite the suppliers on behalf of Zappos. It is a simple way of integrating character strengths like integrity, respect and generosity in a straightforward operational procedure.

One of the most powerful routines for character building used at Loehr’s academy – also a key practice at the Boston Centerless program – is journaling. Research shows that writing, especially by hand, about one´s thoughts and feelings, is one of the most powerful exercises to provoke lasting character change.

Martin Seligman, the father of Positive Psychology, suggests a simple but effective journaling routine: Every night, write down three things that went well that day and why they went well. Reflecting about the why helps the writer to identify personal patterns of success and highlights how moral character strengths make good things happen in business and in life.

Andre Agassi shares in his memoirs how writing down his goals every morning and his plan for achieving them that day helped him gain that “steely resolve” that brought him back to the #1 spot in world tennis. “After putting them on paper, saying them out a loud, I also say aloud: `No shortcuts.’”

RE-PURPOSING EXTERNAL ACHIEVEMENT

Striving for external achievements is vital for a fulfilling life. The point is not to pursue such goals for their own sake, but use them as means to help us become the person we really want to be.

Agassi’s reinvention of himself – from an obnoxious player who became number one but hated his fame and wealth and at one point battled drug addiction – to “the compassionate, generous, thoughtful and humble person he is today,” as Jim Loehr puts it, shows how moral character development ultimately supports performance. When Agassi focused on improving himself as a person, he came back as number one and was happier.

Leaders should proactively embrace this duality also in a corporate setting. At Next Jump – a New York City based e-commerce Company that runs employee reward programs for 70% of the Fortune 1,000 companies – to be considered a successyou need to combine extrinsic achievements with intrinsic moral character strengths.

“Making your father and your mother proud” is how the company metaphorically defines success, representing most parent’s desire for their children to be accomplished and considered a good person.

The highest recognition you can receive as an employee at Next Jump is the Avenger Award. The award recognizes the employee who most helped others succeed by caring for and serving those around her. In line with the company’s definition of success, the winner of the Avenger Award receives $30,000 in prize money, but must spend the amount to rent a house and fly in her mother, father and other loved ones to spend a week-long family vacation with all expenses paid.

IT NEEDS TO BE AUTHENTIC

The common thread among each of the companies we have profiled is the sincerity of their CEOs. They support employees’ personal development because they care about this, not because they are looking for superior long-term financial results. If your desire to help your team is equally heartfelt, you will be surprised at the results of your efforts.

The post Moral Character Wins appeared first on Scaling Up.

Aug 1, 2013 1:00:00 PM ET

Successful leaders know they need to balance the needs of employees, customers, and shareholders to build a thriving company. Many firms excel at tracking key performance indicators (KPIs) like profits, as well as customer feedback on a weekly or daily basis, but they fall flat when it comes to monitoring employees’ morale – and it shows. New research by Gallup found that 52% of American workers are not engaged in their work, while another 18% are “actively disengaged.”

Many CEOs think that they can keep an eye on morale with annual employee surveys, but that is like driving your car by only looking in the rearview mirror. By the time you get the results, most of the “accidents” have already happened: Grumpy employees have alienated good customers, incompetent managers have killed productivity, and the best talent has left for the competition. You need to measure your employees’ morale at least weekly. As a growing body of research has found, employees’ happiness has a direct impact on your company’s performance.

THE “ULTIMATE” HAPPINESS QUESTION

Tracking employees’ happiness doesn’t have to be arduous. There are some cutting edge tools to simplify your efforts. Apple and Rackspace use the employee Net Promoter System (eNPS), a metric that is picking up traction, as Fred Reichheld, the intellectual father of NPS, mentions in his book The Ultimate Question 2.0.

While the well-known NPS tracks customer loyalty, the eNPS measures employees’ engagement and happiness, asking them in a confidential survey: “On a scale of 0 to 10, how likely is it that you would recommend your workplace to a friend or family member?” Employees have room to comment, providing qualitative data, too.

What is the right frequency for posing the eNPS question? That depends on what is going on at your company and the pace of change within your culture. Apple asks the question every quarter. Buuteeq, a Seattle-based marketing automation software company, pops the question every month. It increased its headcount from 25 to more than 100 people in a little over a year. Quadrupling staff in such a short time is a huge challenge for a culture. The eNPS is a great way to monitor how well the integration of the new recruits is going.

Fred Reichheld has recently launched a new software-as-a-service (SaaS) tool that is built around the eNPS and allows team leaders to drive weekly conversations about progress toward goals, constraints and priorities for keeping customers happy. It is now in beta testing. Stay tuned.

Be prepared: The scores you get from your team are likely to be lower than you get from your customers on the traditional NPS. Employees tend to be tough critics – but if you’re willing to listen, they will tell you what you need to hear. At the same time, don’t obsess about your scores. The qualitative data is important, too and will help guide you and your senior leadership team on how to react to the data. If the majority of your team is very happy, and only 5% of your employees are grousing about random complaints, you may decide that it isn’t urgent to act on the negative feedback. However, if the comments you get suggest that the unhappy 5% are all concentrated in a particular job title or department, getting to the bottom of the situation may be an emergency.

TAKING A WEEKLY PULSE

Choosing a tool that will allow you to measure your team´s morale daily, weekly or at other frequent intervals will help you keep levels of engagement high. TINYPulse for example, a cloud-based service that sends out weekly survey emails, captures anonymous feedback from employees and offers tools to help management to visualize and analyze the data. When answering the “question of the week,” employees have space to add comments and suggestions. “Rotating different questions allows us to capture input around the various drivers of employee happiness and gives management more specific information to work with,” explains David Niu, founder and CEO of TINYPulse.

Buuteeq, which has been using TINYPulse for more than a year now, supplements the monthly eNPS survey with other weekly questions like: “How likely do you see yourself working here in one year?” “How does your manager’s leadership style impact on your productivity?” and “What is the one thing we should stop doing to be more successful?”

MAKE IT A CONVERSATION

Buuteeq is transparent about the results, even projecting them onto a wall during its weekly all-hands meeting. “Sometimes the meeting is almost exclusively about things that came up in the week’s Pulse,” says co-founder and CEO Forest Key. “It is not always easy but we talk things through and often take very specific action – ranging from switching the lunch caterer to strategic changes in our customer service processes.”No doubt, the company’s discipline in closing the loop with employees every week has encouraged employees to submit the large number of useful suggestions Buuteeq receives through the tool.

Be forewarned: The feedback companies receive from tools like TINYPulse is sometimes uncomfortable. Moz, a 140-person software company based in Seattle, uses a recently added feature of TINYPulse that allows it to customize questions and has allowed employees to come up with some that they would like to be asked. Rand Fishkin, founder and “Wizard of Moz,” says that since they started with TINYPulse in October 2012, his company has received about 500 comments,of which 25 were clearly negative. “These few negative comments have made me become more nervous and worried about our culture and team happiness,” he says. “But I prefer to know and deal with the issues.”

TINYPulse also allows you to comment directly on suggestions and initiate a private, forum-like dialogue with the employee, a feature that Buuteeq finds very useful. “It is definitely a great opportunity to learn and show that you care,” says Key. “These dialogues would never happen without the tool.”

Just make sure that you use this part of the system in a way that allows employees to remain anonymous, or they may not want to use it. In very small firms, where there may be only one person in a particular role, it may be easy to guess who made a particular comment.

A DAILY MOOD CHECK

Atlassian, an Australian software company that employs almost 600 people worldwide, created an internal app called MoodApp (great name!) for iPads and scattered them throughout their headquarters, including one to the side of the elevator. On their way out, employees answer questions like “How are you feeling today?” and “Do you think Atlassian is a fun place to work?” A question about how much feedback employees get from their managers uncovered deficits and led the company to use leadership development training to improve the situation.

Does surveying employees this often bug them – and lead them to ignore new questions in the future? So far, that does not seem to be the case. ForTINYPulse, participation rates for the weekly questions are between 55% and 75%, sometimes even as high as 90%. MoodApp has averaged a 60% response rate in its 12 months of life at Atlassian. Larger companies may want to consider sampling smaller groups of respondents to reduce data volumes and avoid survey fatigue.

NO SUBSTITUTE FOR MEANINGFUL CONVERSATIONS

If your company isn’t ready to invest in software or iPads for your team, consider a lower-tech approach. Careesma, a Barcelona-based company that runs job boards across Europe and India, put up a simple bulletin board where employees can leave post-it notes with suggestions. Every week, Tania de la Paz, head of People & Values, takes the notes to the weekly staff meeting and makes sure that the management team acts on at least one issue.

In any case, no process or technology should become a substitute for meaningful conversations with your team. Senior leaders should formally visit with one employee each week, the closer to the front lines the better, and ask three simple questions: “What do we need to start doing, stop doing and keep doing?”

Then take a few minutes at the weekly management meeting to share what you’ve learned. There is no need for formal reports. Just sharing anecdotes will do. This qualitative data, collected weekly, will give the senior team a real sense of what’s working and not working among the employees as patterns emerge over weeks and months of conversations.

Add to this feedback by looking at some KPIs such as absenteeism, attrition or tenure with the company, knowledge-sharing activities, training hours, or the number of kudos people give each other.

RESPOND TO FEEDBACK QUICKLY

Make sure that you have the management bandwidth to quickly respond to feedback you get. Gathering data is useless if you don’t act on it. Nothing is more frustrating than being asked your opinion and then seeing it ignored.

People, your most valuable asset, are intangible in accounting terms. Measuring their happiness is a way of making them tangible. It will be some time until this type of metric will appear on a balance sheet, but that doesn’t mean you should not pay attention to these measures. They’re some of the best leading indicators of a company´s overall health and value.

The post A Better Way to Measure Employee Happiness appeared first on Scaling Up.

Jul 1, 2013 1:00:00 PM ET

Kevin Sheridan, CEO of 80-employee Rutgers Permanent Painting in Vauxhall, N.J., was considering refocusing his business on selling a new, higher-quality product, yet he was hesitant to take the leap.

What finally pushed him to jump was the coaching of Mark Green at Performance Dynamics Group. Green is one of over 120 global coaching partners we have associated with Gazelles International.

Peak Performance

As Andre Agassi has said, no one can experience peak performance without a coach. Star athletes understand this instinctively. The top leaders at major companies have this support. I’m dumbfounded that most other business people don’t.

In Sheridan’s case, he knew the new product would be better for his customers – and more profitable for the business. However, to make the change, he’d need to stop doing interior painting and other work that brought in a decent amount of revenue.

“We had to say no to almost 40% of our client base to say yes to the new business,” he says.

That was hard to do. Sheridan and his executive team almost went back to their old business model three or four times. As Sheridan puts it, Green pulled the whole team “screaming” to the other side where they now have no regrets.

“We’re going to have our most profitable year in four years,” says Sheridan, easily justifying the costs of a professional coach.

Coaches vs. Consultants

Every company needs a coach. And whereas consultants are expected to bring answers to tough problems, coaches, in contrast, are expected to ask the tough questions, helping leaders face the brutal facts and uncover the real problems that need solved in the first place.

Coaches also help facilitate decision-making, challenge organizations to perform at a higher level, and hold the whole executive team (including the CEO) accountable.

In addition to a company coach, I encourage each leader to find an individual peer coach, something Marshall Goldsmith, a top executive coach and author, recommends (take a minute and search for Goldsmith’s article on peer coaching). 

Company Advocate

In my last column, I discussed how a company can be thought of as a unique living, breathing organism. As such, it needs an advocate – someone on the outside helping the CEO identify what the team can do to help it thrive – and also the ways in which the leadership team is choking off its growth.

Coaches must not be afraid to push your buttons to get to the truth. You’ll know your coach is onto something when you’re so pissed off that you’re ready to fire him or her. Of course, that’s a sign that you’re working with the right person.

You need your coach to hold your team’s feet to the fire so they do the right thing for your business as Green did for Sheridan’s business.

Accountability Driver

The accountability that a coach brings to an organization is one of the most powerful benefits. Ask Jeff Berstein, CEO of IMAGEFirst. His company, based in King of Prussia, Pa., provides medical linen rentals to outpatient medical facilities and other similar customers.

One of the biggest challenges with a growing company is communication, especially when employees are working from eight different locations, as is the case at IMAGEFirst.

To address this challenge, the company requires supervisors to hold daily huddles to keep their workers informed and engaged, but, says Berstein, “We weren’t always getting it done consistently.”

That’s where IMAGEFirst’s coach, Patrick Thean of Gazelles Systems, has helped. At Thean’s suggestion, Berstein began using a point system to track the steps key managers were taking to keep associates engaged, tabulating it weekly.

When supervisors took line workers to lunch, for instance, they’d be asked to snap a photo with the employees and email it in to get points for doing so. They used Gazelles System’s Rhythm software to document and publish their weekly progress with dashboards that were shared across all divisions of the company.

“This process allowed us to hold every GM and senior leader accountable across all locations at Image FIRST,” says Berstein.

“A” Players

Thean also worked with the executive team to put better systems in place for attracting and developing talent, helping them to tap into hiring and interviewing techniques such as Topgrading – something Green helped Sheridan do in upgrading his sales team at Rutgers Permanent Painting.

As a result, over several years IMAGEFirst has increased its percentage of “A” players from 52% to 70%.

“We weren’t going to be able to do this on our own,” says Berstein. “It’s much more effective when you bring in an outside person to keep you focused.” And an outsider can see weaknesses on your team easier than someone on the inside.

Now’s the time to get the company an advocate – a coach that will help you ask the tough questions, drive accountability, and upgrade the talent throughout the organization. It’s one of the most important investments you can make.

The post Everyone Needs a Coach: The Key to Peak Performance appeared first on Scaling Up.

May 30, 2013 1:00:00 PM ET

Remember the days when your start – up team was crammed into a single office like clowns squeezed into a Volkswagen? Now you may have 150 (or 1,500) employees and find it infinitely more difficult to know how to divide up into teams and set clear accountabilities. Worse, both customers and employees may seem confused about how to navigate your organization. 

The CEO can take a clue from nature to solve these problems. Human organisms are made up of billions of cells versus just a few specialized ones for a good reason: A cell can only get so big and stay healthy. Once it reaches that point,the outer membrane won’t have enough surface area to bring in nutrients and eliminate waste to support the cell. The cell will start to die from the inside out (like big bureaucracies!).

This means that the cell must divide. So, too, must your company or it won’t be able to function in a healthy way. At the same time, just as no cell can be too far from the blood supply, no team can be too far removed from the action of the marketplace. This is the main principle underpinning effective organizational design.

Business Units

The first natural organizational split is by functional area. At Gazelles we have a One – Page Function Accountability Chart (FACe) that helps CEOs get clear about the accountabilities and metrics for each of the main functions in a business. But once the business gets above 50 employees, you also need to start aligning teams around product groups, industry segments, and geographical regions. This is commonly called a matrix organization. Visualize functional groups running vertically and business units running horizontally.

The pressure to create these new business units will usually come from customers. They’ll complain that they don’t know whom to call to get help – or that they get the runaround when they finally reach someone. Or they may feel overwhelmed by the crush of communications that come from multiple business units. Employees may not know from whom to take direction.

Unless you get your accountabilities straight, productivity and innovation will slow.You’ll waste a lot of time oscillating between centralizing and decentralizing various business units and shared functions.

Leadership Change

To navigate this organizational transition, you need to change your leadership structure. The functional heads – like the directors of marketing and IT – who have been used to driving the business, have to step up to being more like coaches/advisors to the business unit leaders. And the business unit leaders need to start running their units as if they are mini – CEOs.

This transition is hardest for the traditional functional leaders – especially those who were around in the earlier start – up phase. They have to go from telling to selling, as they manage their teams. And they need to spend more time outside the organization garnering best practices and then come back and spread what they’ve learned among the business unit leaders. Most importantly, they have to earn the respect of the business unit leaders because of their knowledge, not just their position. That way, if they suggest a common IT system, for instance, it’ll be an easy sell, not a battle against skeptical business unit leaders.

This transition is hard. Often, it’s best to have some of the original functional leaders transition to running business units – maybe head up expansion to a new country or lead the launch of a new product line – where they can maintain operational control. You don’t want your business unit heads to be weak “yes” people who kowtow to the functional leaders.

Who’s Boss

Once you set up these groups, you’ll need to figure out which employees belong in each. If you aren’t clear on this, your employees won’t be either.

The key principle here is being clear who decides whether an employee gets a raise or promoted. The mistake is to leave this decision to the functional heads. For instance, say Tom is providing marketing support to several product lines. The functional head of marketing for the company must see her role as a trainer/coach to Tom while making it clear that his performance is based on feedback she gets from the heads of the business units he serves and not on what she thinks. This way he remains responsive first and foremost to the business units.

Once you set up an org chart, you’ll know very soon if you’ve gotten it right. Customers will be happy, and everyone on your team will be clear on his or her role in serving customers. And when you notice a pattern of negative feedback from customers or see internal signs that your “cells” are not healthy – it’s time to revise your org chart again.

Remember, your company is a living organism that needs to survive in an environment that’s always changing. To thrive, it’s got to be able to adapt.

The post Scaling Up the Organization (Chart!) appeared first on Scaling Up.

May 1, 2013 1:00:00 PM ET

We’ve observed for decades how market-leading firms eventually fall behind startups because they just couldn’t see the future, in what Harvard Business School Professor Clayton Christenson labeled the innovator’s dilemma.

So why do leaders miss seeing sweeping global trends that are about to broadside them? I put a big part of the blame on the standard SWOT analysis used in strategic planning — the age old tool used to identify an organization’s Strengths, Weaknesses, Opportunities and Threats. It’s time to update this methodology.

“Inside/Industry Myopia”

Almost by definition, the SWOT process drives leaders to look inward at both their company and industry challenges, creating what I term “inside/industry myopia.” While helping executives see the forest and the trees, it tends to lead them to forget that there’s a world outside the forest. With this introspective focus, the SWOT isn’t the right tool to spot the trends from other industries and distant markets that CEOs need to factor into their plans.

I don’t want to throw the SWOT away. It still has its place in the strategic planning process. It’s an excellent tool for gathering ideas and input from middle managers who are more internally focused and closer to the day to day operations of an organization.

SWT Instead

For senior leaders I propose replacing the SWOT with the SWT — an updated approach that identifies inherent Strengths and Weaknesses within the firm while exploring broader external Trends beyond their own industry or geography.

As I’ve mentioned in a previous column, the strategic planning process comprises two distinct activities: strategic thinking and execution planning. Strategic thinking is coming up with a few big-picture ideas. Execution planning is figuring out how to make them happen.

The traditional SWOT is a great tool for execution planning — the focus of middle management — resulting in a laundry list of accolades for successful endeavors and planned fixes. However, for the senior team, the SWOT can be a trap. It tends to pull executives down into operational issues, distracting them from the much bigger forces around the globe that can take the company by surprise if they are not prepared.

Inherent Strengths and Weaknesses

To do the right kind of strategic thinking, the senior leadership team needs to use the SWT. What’s different about it?

In the SWT, senior leaders do a deeper dive — and face the brutal facts of their reality, as Jim Collins puts it so well. They need to call out inherent weaknesses that will likely never change — so they can say no to situations that would require the organization to be strong in those areas.

For instance, I’m leading the five-year strategic planning process for Ben Franklin International School, which my children attend. It will always lack a large corporate or government base from which to draw funds and students, given its location in Barcelona rather than Madrid.

At the same time, leaders need to be crystal clear on the inherent strengths or core competencies of the organization that have been the source of its success. In the school’s case, its fashionable location has continually driven enrollment from Silicon Valley entrepreneurs, helping it thrive during one of the worst economic periods in Spain’s history.

An organization has the same strengths and weaknesses as an individual’s,which tend to be baked in by age five. So the process is less about changing them and more about playing the hand the firm was dealt.

Trends

Instead of sizing up a company’s immediate opportunities and threats, as they typically do in a SWOT, the senior team should rise above this and look at the major trends – significant changes in technology, distribution, product innovation, markets, consumers, and society around the world that might shake up not only the business but the entire industry.

Forget about the competitor down the street. Is there a company on the other side of the globe that’s going to put you out of business? Is there a new technology coming onto the startup scene that could change the way all companies must do business overnight?

Since some of the students at our school won’t be in the workforce for more than a decade, we’re looking at positioning the school for the future. One question we’re considering: How is robotics changing the very nature of work? And how will that affect our students?

Mining All Levels

To feed the strategic planning process properly, the key is using different techniques to mine ideas from all levels of the organization. From frontline employees, ask one simple question: “What should the organization start, stop, and keep doing?” From middle management, require a standard SWOT.

And demand that the senior team to go deeper and broader using the SWT. Knowing what trends are going to shake up your industry — and having a plan for dealing with them — will help you stay ahead of the competition — and sniff out new rivals who want to take over your turf while you can still do something about it.

The post Market Myopia: Blame the Swot! appeared first on Scaling Up.

Mar 20, 2013 1:00:00 PM ET

Entrepreneurs work years building up the value in their businessonly to give a big chunk of it away when it comes time to sell. Why? Savvy corporate acquisition teams have a prescribed method for wearing down the most seasoned entrepreneurs, backing them into a corner where they have to sell for a steep discount.

Here are some of their dirty tricks.

PROMISES, PROMISES

The first step is counterintuitive, which is why it’s so effective. The buyer offers the entrepreneur an insanely large price for the business and suggests the deal can close in weeks.

The offer–always expressed as some multiple of EBITDA, to condition the entrepreneur to become overly sensitive to expenditures–will be a price that is 50% to 200% more than what even the entrepreneur thinks the business is worth.It looks like the deal of the century.

Why would buyers do this? To get entrepreneurs to drop their guard. Nothing builds a temporary relationship faster than offering a premium price for the business. I say “temporary,” because entrepreneurs are not likely to stick around after the sale.

It also gets entrepreneurs and theirspouses dreaming about the life they’ll lead after the sale – the houses, boats, and vacations – and planning for what they’ll do once they have a boatload of money.

More importantly, buyers do this to entice sellers to sign an exclusivity agreement that prevents them from talking with other potential buyers for six months during the due diligence period – which they promise will go quickly. Entrepreneurs will usually sign on the dotted line, relieved that they are going to get a great price-even if it is ultimately half of what’s offered–and not have to deal with other buyers–which is extremely time consuming. But that’s the beginning of their downfall.

POWER PLAYS

Once the document is signed, buyers will drag out due diligence for months, while promising that everything should be wrapped up shortly. If I had a nickel for every time an entrepreneur heard “It’s just a couple weeks more” we could all retire.

And as due diligence gets dragged out, because the buyer tied the selling price to some multiple of EBIDTA, the CEO starts putting off key expenditures that she would otherwise make to keep the business humming along – a key hire or media purchase or training session.

PSYCHOLIGICAL WARFARE

To make matters worse, the buyer starts disrupting the entrepreneur’s rhythms and life through the infamous “emergency meeting.” The evening before an entrepreneur departs for a family vacation or major trade show, the M&A team will call to say that there’s been a problem with the deal and demand that he or she show up for a meeting the next day to straighten things out.

Afraid to derail the deal, the frazzled entrepreneur will cancel plans at the last minute. As a result, both the family and business team will start leaning on the owner to get the deal done. The pressure will continue to mount.

DIMINISHED PERFORMANCE

With the entrepreneur mentally checked out of the business in anticipation of the sale and worn out from missing vacations and the grind of due diligence—and the business suffering from a cutback in critical expenditures to pump up EBITDA-the business unsurprisingly suffers a temporary slump. It’s all part of the buyer’s game plan.

The corporate buyer wants the company’s performance tosuffer a little so it can use it as a giant sledgehammer to drive down the price at the 59th minute of the eleventh hour.

Beat up by the entire process, the entrepreneur will begrudgingly give in to all kinds of last minute demands and concessions affecting the final price of the business.

BIDDING WARS

So what do you do to avoid this scenario-and still unload your business? First, enlist a good business broker (This is no time for amateur hour) to set up an auction for you. Don’t let a single potential buyer call the shots. One friend identified 23 strategic buyers, of which 7 came to the table to bid for the business.

If a serious prospect wants an exclusivity agreement, limit it to 30 days and require a big deposit-say $250,000-that will be forfeited if the deal isn’t completed in that window. And have “the box” of materials prepared in advance so you are bulletproof during due diligence.

Last, as best you can,insulate yourself from the transaction. Have your CFO or another trusted executive work with your broker as a go-between with the buyer, so you don’t get distracted from leading your team. Push back against last-minute demands for meetings. You want to be calm and thinking clearly every time you negotiate-and not fresh out of a fight with your spouse about cancelling the family vacation.
Overall, keep your head in the game and keep running the business as if the deal isn’t going to happen up until the moment you cash the final check!!

The post Selling the Business: Games Buyers Play appeared first on Scaling Up.

Mar 1, 2013 1:00:00 PM ET

When Gabe Fasolino was hired as a plant manager at a $7 million manufacturing company, he heard rumors that there were problems with drug and alcohol use among the workers.

Clearly, this was a sensitive situation. A heavy handed approach to cracking down on the abuse could easily put Fasolino into an adversarial relationship with his employees. Wisely recognizing this, he turned to the company’s safety team, made up of hourly production workers, for ideas. They came up with what he describes as “the fairest, simplest, easiest-to-administer substance policy I have ever seen.”

That experience took place in the late 1990s, but it taught Fasolino, now a business consultant in the Portland, Ore. area, an important lesson: Engaged employees are a powerful asset. He’s since turned to workers for ideas on everything from pay scales to profit-sharing plans. “In every case, turnover dropped, while profits and morale soared,” he says. At a $10 million manufacturing firm that had lost $2.4 million over three years, Fasolino tapped employees’ ideas and generated a 25% sales increase in nine months.

Offering employees a say in the decisions that affect them is one of the best tools for engaging their hearts, minds and souls so they are motivated to give their all—and to make better choices as a company. However, many business leaders have let employee engagement fall by the wayside while trying to navigate the post-recession economy—and inadvertently made it harder to achieve the results they want.

A Towers Watson survey of 32,000 employees around the world in 2012 found that only one-third are highly engaged—excited about company goals, energized while they’re at the office and free of obstacles to getting their work done. Another global survey by the consultancy AON Hewitt in 2010 found that engagement was at an all-time low, with employees fatigued by prolonged uncertainty, stress and confusion.

HIGH ENGAGEMENT = HIGH OPERATING MARGINS

When employees are disengaged, performance drops. Towers Watson found that among companies with low engagement, the average operating margin was 9.9%. Those with high “traditional” engagement—where employees were mainly motivated with rewards like a bump in pay—averaged 14.3%. Those with high “sustainable” engagement fared the best, with an average operating margin of 27.4%. This group of companies focused on building a great culture by promoting employees’ well being, treating them with respect, coaching them to improve performance, maintaining honesty and integrity, building a strong reputation and other practices that made employees feel great about coming to work.

22% GREATER RETURNS, ON AVERAGE

These findings were not an anomaly. AON Hewitt also discovered a connection between employee engagement and performance. It found that organizations with high levels of engagement outperformed the stock market and posted returns 22% greater than average in 2010. Those with disengaged employees posted returns 28% lower than average. The survey found that the top three drivers of engagement were career opportunities, recognition at work and brand alignment.

BETTER DECISIONS

Including employees in decision making doesn’t just make them feel better about work—it leads to smoother operations. In Fasolino’s case, his team created a policy in which any workers who showed three signs of substance abuse from a government checklist would have to take a drug and alcohol test. If they failed once, they’d have to go to rehab before returning to work and would be subject to a random drug test during the 12 months after that. If they failed again, they’d be fired. When one employee failed twice, he told Fasolino, “You should fire me.” He and all of the other employees knew that was the only fair course—thanks to the policy they crafted.

UNLEARNING THE LESSONS OF BUSINESS SCHOOL

How can leaders foster greater engagement? The first step is ditching the mindset that many executives learned in business school. “They feel they can get results by telling people what to do,” says Fasolino. This stale thinking is often reinforced by their peers. A boss who complains to other execs about problems with an employee is likely to hear: “You need to fire the guy,” says Fasolino. “They’re not going to say he doesn’t have enough freedom, autonomy and purpose in his job.”

Employees want rules and boundaries, but, at the same time, need to be heard. They want to work toward a mission that’s bigger than earning a paycheck. If your employees are unmotivated and your company is underperforming, now is the time to look within—and turn things around!

The post Profit from Employee Ideas appeared first on Scaling Up.

Feb 1, 2013 1:00:00 PM ET

Your team is probably fired up about grabbing more market share this year. But if you want to achieve that goal, it’s time to look at your operation through a fresh lens. There are some great ideas brewing in the global community that will help you outdistance your competitors.

One of the most important business concepts of the century is “return on luck” (ROL) which I discussed in my last column. As Jim Collins explains in Great by Choice, all business leaders are being bombarded with both great luck and bad breaks. The smartest CEOs learn not to squander sudden opportunities and figure out how to turn dismal news to their advantage—multiplying the benefits of whatever hand they’re dealt.

Maximizing your “ROL” should be top of your list, every day. But your ROL is just part of the picture. Here are some vital ideas that will help you achieve great results in 2013 and beyond.

Big data

There’s no excuse anymore for not having the latest information about your market at your fingertips. For the first time, even tiny companies can search the vast information on the web that corporate giants use to uncover brand-new opportunities, using inexpensive cloud-based technology.

To feel the power of what big data can do immediately for your business, try SizeUp. Within seconds, this free site will tell you how many competitors exist in a specific locale, how your revenues stack up against theirs, and where to hunt for new business

Reverse innovation

It’s time to forget the days when innovation flowed one way—from rich nations to poor ones. There’s a lot we can all learn from entrepreneurs and organizations working with scarce resources, says Dartmouth professor Vijay Govindarajan. He points to a hospital in India that specializes in heart surgeries, achieving better outcomes with its $2,000 procedures than U.S. hospitals that charge $20,000 or more.

How does the hospital get such amazing results? By specializing in a niche, it runs more efficiently. For instance, while a general hospital typically needs to buy a vast array of equipment to perform every operation under the sun, this hospital needs equipment only for cardiac operations. And it gets a great return on its investment in the equipment it does buy, because it puts these tools into service all day long.

Expect to see this idea coming soon to the shores of the U.S. Meanwhile, we all need to comb the globe for other ideas from the world’s most resourceful innovators in our industries
.

Newsjacking

In today’s teeming marketplaces, you need a savvy approach to public relations to stand out from the crowd. As marketer David Meerman Scott points out in his book Newsjacking, you don’t have to bankroll a massive PR campaign to propel your company into big news stories.

By offering journalists a fresh, interesting perspective on big developments in your industry, you may be able to “hijack” media reports that are in progress and turn their focus to your company. For instance, a reporter who is looking for a colorful way to illustrate a particular trend might welcome an anecdote about your company to put in the lead of his story.

Of course, you’ve got to know what stories reporters are covering at any given moment to do this. To connect with journalists about stories they’ve working on, sign up for Help a Reporter Out (helpareporter.com), a free crowdsourcing tool. Reporters from major publications send out alerts each day seeking sources for their stories. I recommend that you monitor HARO daily to see if there are any stories where you can lend your perspective—and get your name into the headlines

Robots per capita

I’m fascinated by the ability of this simple metric to predict the prosperity of a country (and a company). It’s a great indicator of a nation’s economic efficiency and potential future growth. Thus, it didn’t surprise me to learn recently from the Institute of Electrical and Electronics Engineers that Germany, with its thriving economy, has double the robots per capita of the U.S. — Germany has 163 robots for every 10,000 workers, while the U.S. has only 86, just above Spain.

However, I was surprised that Japan, which has suffered a slow economy for decades, has double the robots per capita of every other country. This may indicate that the country is likely to experience a resurgence. And countries like Singapore and South Korea are showing sustained economic growth from their already high robot per capita ratios.

It’s a key performance indicator worth considering when looking at your own company. Are you leading the rest of the competition in dramatically automating your business?

The post 5 Big Ideas: Powering Your Business appeared first on Scaling Up.