Stay in touch with your investors.

Investors as a group have a common gripe – almost universal.  Information flows from the company irregularly, in fact most often when the company is urgently in need of more money.

Investment documents usually call for quarterly reporting by the company to the investors.  Less than a quarter of companies receiving early stage investment voluntarily fulfill this promise.  Usually, one or more of the investors is placed on the board as a requirement of the investment documentation.  The entrepreneur often expects that Raising moneyperson to keep fellow investors informed.  And sometimes the board member does perform the service.  But most often, the CEO or founder has a much better idea of the flow of quarterly activity than a board member meeting monthly or less often, and for a relatively short period of time.  More importantly, the investors want to hear directly from the CEO.

[Email readers, continue here…]  Many times, companies need another round of investment, and the first people approached are the same ones that invested the first time.  If they have not been kept informed about the progress of the company, and if they are surprised by the fact that the company has run out of money more quickly than planned, it is a much harder sell to obtain the next round than the last.

Rob Wiltbank, Ph.D., of Willamette University, is one of several academics who have followed multiple rounds of investment in a significant group of early stage companies.  The typical finding is that second round investments are not as profitable for the investor as the first round. So investors are more cautious as a result when approached for additional money if not kept in the loop between rounds.  If a company is meeting milestones and growing as projected, and if the CEO is diligent in keeping the investors informed, a second round is much more likely to be raised from the early investors.  But the studies include all second rounds, including those that were pulled from investors reluctantly to protect their first money in, skewing the curve away from more heavily weighting successful conclusions.

Keep your investors informed. Avoid late surprises. Plan financial needs early, and inform investors early of that plan.  Explain problems encountered and solutions undertaken.  You and they will benefit by this candor and communication.

Posted in Raising money, Surrounding yourself with talent | Leave a comment

The five “Whys” a manager should ask

This is a trick headline.  There can be three “whys” or twenty, depending upon the issue and the responses.  To make the point, the word “why” has to be one of the more powerful words in a manager’s vocabulary.  Asking the question forces the other person to think beyond the usual “what” that generated a response to “why.”

It sure is a way to get to the bottom of an issue.  “I just reduced the number of ad words we’re paying for.”  “Why?” “They weren’t paying off in enough revenue.” “Why?” “Well, all we could measure is dollars of revenue against cost for clicks.” “Why?” “Well, we have no
question-markway to know which other ad words might have done a better job of conversion into revenue.” “Why?” “We have no-one on staff with enough knowledge of marketing to distinguish words from phrases, or with experience to know how to capture clicks into conversions.” “Why?”  “We’ve never thought this to be an important part of our marketing effort.” “Why?” “We just don’t know what we don’t know.  Will you stop asking ‘why’?”

[Email readers, continue here…]  How revealing! There is no better way to get to the bottom of an issue than this.  In the case above, lack of performance was caused by lack of knowledge, and inability to find resources to help.  A good manager-questioner might conclude that a small expenditure with a consultant might pay off in great rewards, before abandoning the use of ad words entirely as a result of the comment from the subordinate.

Practice your listening skills with one or more attempts at the five “why’s” and see if you find insights into answers to problems that might not have been obvious without your queries.

Posted in Protecting the business, Surrounding yourself with talent | 3 Comments

Hire slowly. Fire fast.

New hires can shore up the weak areas of a business in ways existing employees cannot, if hiring is done to fill true needs.  Some employees lose their drive, or remain behind as the company grows, failing to gain the experience or knowledge needed to manage expanded processes or numbers of subordinates.  Sometimes, there is just too much work for one person, and a second is needed to continue growth.  And of course sometimes, a person leaves the company, creating a need to fill a hole.

There is a rule few follow.  Slow down and take more care in the hiring process.  Vet the candidates well, even though you think that you do not have time enough to do so.  HiringEA-9817 is one of your most important duties, a way to increase the quality and productivity of your company’s staff.  Every hiring opportunity is a window to improve the company.  Hire slowly, with the weight of that opportunity clearly in mind.

[Email readers, continue here…] On the other hand, we are all guilty of hanging on to marginal employees for too long.  It is humane; it is easier to do nothing.  It is less of a drag on your time to let marginal employees continue to plug along in their job.   We have all done this.  And yet, we have all looked back after a painful separation of a marginal employee, and thought that we should have made the move to replace the person much earlier.  We agree that the person would have benefited with a better fit, and the company would have surely performed better having hired the replacement earlier.

It is human nature to hire as quickly as possible, to reduce the time taken from a busy day for interviews and reference checking.  And it is human nature to hang on to marginal employees.  Both are opposite the best practices of good management.

Try to force yourself to slow down in the hiring process, and speed decisions you know will someday have to be made about marginal employees.

Posted in Depending upon others, Surrounding yourself with talent | 6 Comments

You may burn your first professional manager.

It seems to be a rule, not an exception. The first professional senior manager that an entrepreneur hires to share the growing workload does not last more than a year.   Why?

Entrepreneurs start businesses with a strong vision of what and how, involved in every process from buying supplies to hiring and directly supervising early employees.  The culture of the company is built day by day by those actions, often centering on the founder’s vision and management style with little room for deviation.

At some point, as the company grows, either the founder’s span of control is stretched to the limit, or investors enter the picture, often with a clear idea of how they would like to

Available at berkus.com and bookseller sites

Available at berkus.com and bookseller sites

scale the company to grow quickly.  This happens predictably, either voluntarily in the case of the founder deciding that s/he needs help at or near the top, or involuntarily when investors insist upon the addition of professional leadership.

[Email readers, continue here…] If this new executive hire is the first for a founder or founding partners, and if the person is expected to relieve some portion of the that  executive workload, there is a predictable and great risk that the first person hired to do so will last only a short time at the company.

I’ve seen this happen so many times, it is almost a rule for me.  I warn the entrepreneur to be careful in the interview process, to expose the candidate to people at all levels of the company for buy-in, to be absolutely sure that there is a culture fit.  But most important of all, I warn the founder that s/he must be ready and able to let go, to delegate clearly, and to establish metrics for measuring the performance of the newly hired executive – but not to interfere with that person’s day to day management unless absolutely necessary.  I urge the founder to coach, but not to expect the new executive to be a duplicate in style or perceived ability.

It is an unhappy but common occurrence: the recently hired and trained professional manager is let go, and a new search started.  Luckily, in my experience, the second person hired for the job often is much more successful – usually not because the person is better at the job, but because the founder is more willing to delegate, expecting less a duplication of self.

If this is so common, is it not possible to be aware of the probability, and condition yourself to be more tolerant of someone else’s different style of leadership?  It might be a learning opportunity for the founder, often coming from one more experienced in the position and in growing company leadership.

Posted in Surrounding yourself with talent | 5 Comments

Be an Adaptive Business Leader.

The title of this insight happens to be the name of a CEO roundtable organization I belong to, and have been a member since 1989 (Adaptive Business Leader Organization – or ABL).  The organization, like Vistage, manages roundtables of CEOs meeting monthly in small groups, where they discuss their mutual challenges and help solve each other’s complex problems, acting as an informal board of advisors.  Unlike other groups, ABL members all belong to either healthcare or technology industry-focused roundtables.  There they not only discuss their business issues, but significant business-changing trends

Available at berkus.com , Amazon Kindle, or any online bookstore

Available at berkus.com , Amazon Kindle, or any online bookstore

facing their industry. Since I am chairman of the Technology side of the Organization, I attend more than one ABL group each month, and estimate that I’ve now attended more than four hundred half-day roundtables over the years.

Why would I spend so much time networking with other CEOs, discussing mutual problems and solutions?  The answer is that I am the recipient of many insights from fellow CEOs that sometimes strike like lightning bolts when least expected.  It was an Internet CEO roundtable in early 2000 where it became obvious before the public was aware, that the bubble was just beginning to burst for such tech businesses.  And it happened again in early 2008, as CEOs reported the first evidence of order slowdowns and issues with customer payments – right before the ‘great recession.’

[Email readers, continue here…]  But most importantly, it is the constant hearing of stories by these CEOs of how they were able to adapt to changes in their environment and alter the course of their leadership, adapting to external influences that had changed in their industry or the economy.

At each session we hear one of the dozen or so members present in depth, requesting feedback from each member of the group in response to a list of concerns that is explained during the presentation as background for the help hoped for from the group.  I contribute my two cents of advice, as do the others in the group.  As an active, professional angel investor, often I can help in areas not familiar to the others, when fundraising issues are on the list.

There’s the story of the member-CEO who saved her company during the great recession by dismantling its fixed overhead, sending everyone home to work virtually, and building a new culture to successfully support over one hundred workers from home.  Her recruiting business survived and flourished even as others closed their doors during the recession – and have remained shuttered.

Ten years ago, a young entrepreneur joined one of the roundtables, and we followed his progress with his issues, many of them directly related to fundraising, as he grew his company from a raw start-up to an initial public offering on the NASDAQ exchange, followed by continued growth in revenues and stock price.  During the early years, he often asked for advice about funding, comparing various sources and offers, threading the needle between the wishes of the investors and his judgment as to how to grow the company.

Somewhere along the way, as he grew his company to a size larger than any others around the table had ever managed, we became the students, listening to a set of concerns that were often stunningly beyond any we had experienced.  With a small stake in his company, and monthly contact through these roundtables, I happily find myself the former teacher, now the student.

The theme of these roundtables is “adapt” – to be ready for and embrace change quickly and efficiently in the light of opportunities and changes that might be missed by other CEOs without trained antenna-like skills.

You, too, can be an adaptive business leader, if you spend time with your ear and nose to the ground, listening and looking for signs of opportunity and change, then acting quickly to accommodate or take advantage of limited windows in time.  It is a skill that can be taught.  More importantly it is one requiring that you spend some amount of your time looking for signs of change.  Many of us are locked in the daily grind of our business, and default to managing events and reacting to incoming stimuli, such as emails and internal requests for assistance.

An adaptive leader seeks out change and embraces the opportunity to take advantage of trends early in their cycle, or to reconstruct a business in response to early signs of trouble or weakness.

Start by paying more attention to indicators of change within and outside your organization. Gather information to support your observations. Then act when appropriate to secure the advantage or protect the enterprise.

Seek out a roundtable organization if you can, to find a group of fellow executives ready to share and solve your problems of the month, or share theirs with you to better inform you of those you might otherwise miss in your management life.  It is certainly worth the time and effort to hone your skills at becoming an adaptive business leader.

Posted in Surrounding yourself with talent | 3 Comments

If it can be counted, the CFO owns it.

There is a simple way to define the responsibilities of the chief financial officer.  And it extends beyond the usual interpretation of the CFO position in many companies. If it can be counted, the CFO owns the responsibility for controlling it. The CFO should question and control the number of anything, including the number of chairs to be ordered.  That may seem extreme to many a CEO, but it serves a purpose. It is the ultimate control over

Protecting your Business - available at Berkus.com and Amazon among other booksellers

Protecting your Business – available at Berkus.com and Amazon among other booksellers

rampant spending or uncoordinated purchasing.

Looking at it that way, there is a check and balance for all departments and individuals ordering materials of any size that affect the cash position and profitability of the company.  Further, the CFO should speak up in executive meetings and when invited into board meetings, making sure that any major issues are vetted by the group.

[Email readers, continue here…] I was an early angel board member of a company that subsequently raised over $30 million in venture money following the angel rounds, which themselves amounted to $6 million.  I remained on the board through the life of the corporation, a witness to some surprises along the way that were, at the least, instructional.   First, the VC’s ordered that the company ramp its burn rate (monthly losses in cash) to over $800,000, which I could not fathom.  But it was their money and they must know what they were doing, I thought, as I watched what I thought to be all-or-nothing spending.  The CFO dutifully followed the VC commands to spend, and managed the spending process well – even if it exceeded reasonable standards of control over the ever-increasing inventory, headcount, and fixed expenses as the infrastructure grew.

But the CFO let the spending rate continue to increase out of balance with the board-approved budget which projected revenues to ramp, reducing the monthly cash burn.  In one four hour board meeting with all in attendance, the board spent almost an hour with the CFO analyzing the financial performance of the company.  We never saw, and he never mentioned the balance sheet and cash position.  It was eight months after the latest $11 million round and no-one thought it worth focusing on cash, since the position should have been over $5 million in cash and starting to grow – if on plan.

A week after the board meeting, the CFO emailed the board that the company was only weeks from having no cash in the bank.  Can you guess the board’s reaction?  The CFO was immediately fired.  I performed a forensic audit on behalf of the board to determine if there had been any fraud or theft; but there had been none. Spending had continued out of control, much of it for inventory and assets – neither of which appear on the income statement. So those expenditures were not reviewed by the board which had not been given a balance sheet to examine.

The moral is simple.  A CFO is responsible for all phases of cash deployment and preservation.  Failure to manage to plan, and failure to inform the board of dangerous excursions, caused this company to fail as the VC’s decided ultimately not to continue to pour money into the investment.

Maybe the CFO could not have saved this company; but he surely could have slowed the flow of cash, informing the board, and giving the board and CEO the opportunity to pivot the plan, to reduce inventory, to reduce spending, or to consider looking for a strategic partner or buyer.

Especially in companies where the CEO or founder is not a financial expert, the CFO is expected to be knowledgeable, willing to confront as well as inform, and to find early warning metrics that help in the process of effective cash management.  That person is not a bookkeeper, counting the past, but an expert at forecasting and control.

Posted in Protecting the business | 2 Comments

The five tactical skills of a great executive

While we are on the subject of great leadership, let’s list the five principal tactical skills of a great leader.  These are not the strategic visionary skills, like leading companies through risky product launches, or steering the course through economic storms where leaders become oversized personalities for their superhuman efforts. These are the skills of daily operation, the ones that make or break a company – from the top.

Think of those leaders from your past or present whom you respect most.  Compare their leadership style with these five skills.

Berkonomics books available at www.berkus.com

Berkonomics books available at www.berkus.com

Skill number one: delegate. Nothing is more of a turn off to a subordinate than having the boss do the work for that person. Worse yet, failures to delegate make the leader the principal bottleneck in the flow of work through an organization.  A great leader learns to delegate, first.

[Email readers, continue here…] Second: measure the results of delegation.  If there is no attempt to measure, no-one will know if the work is up to standards for timeliness, quality, or the vision of the leader.  There are many types of metrics, some very easy to manage.  But failure to find and use them regularly is a failure at the top.

Third: support. A leader’s duty is to make sure that anything s/he delegates and measures is given a chance of success by providing the tools required to perform the job.  Those include funding, people, training and facilities.

Fourth: reward.  A great leader is a great cheerleader, knowing when and how to reward effective achievement through all levels of the organization.  People naturally work for rewards, from simple recognition to financial incentives.

Fifth: celebrate.  There is no greater feeling than to achieve a goal and to celebrate that with some form of out-of-the-ordinary event.  It can be a simple handshake and comment in front of others who count, or an all-company celebration after achievement of a major goal.  A leader who fails to follow through and celebrate misses a major opportunity to enhance the culture of the organization and motivate the troops to further achievements.

Delegate, measure, support, reward and celebrate.

Posted in General | 4 Comments

Three qualities of a great leader

By Dave Berkus

There are lots of ways to measure a great leader.  Here are three that should resonate with you as leader and with those who follow you.  These qualities are applicable whether you are leading your company or a board, and certainly are aspiration targets for you if you are measuring yourself against the best.

The first quality in a great leader is to have laser focus.  Every organization has limited Small_Biz_Collectionresources, especially money and time. So a leader who is able to focus upon the core needs of the organization, eliminating all the surrounding noise, is one who uses the limited resources available to best effect.  McDonald’s does this by focusing upon good food, delivered quickly.  There are a million examples of great companies and their leaders focusing like a laser on core components of the business and succeeding where others failed because of the inefficient use of limited resources.

[Email readers, continue here…] Second is consistency. It is more than difficult to follow a leader who changes course seemingly without reason, or sets standards that change by day or by whim, or rewards one person or department differently than others.  Inconsistency breeds fear, disillusionment, and discontent among those suffering, following this flaw in leadership.

Third, a great leader establishes goals that lead all to maintaining forward progress.  Stagnant companies lose their best employees, those wanting a challenge and upward mobility in a growth environment.  Forward progress can be felt by all and celebrated as the company reaches new milestones toward its goals.

Measure yourself against these three qualities.  Have the courage to ask a board member or even a direct report to comment on your three measures. Where do you need a bit of work?  Not one of these requires formal education. So there is no excuse for failure to be your best in all three qualities.

Posted in Surrounding yourself with talent | 4 Comments

Two reasons to attack critical issues first.

There are two reasons to consider reordering your priorities to attack your most critical issues first, before the easiest ones to knock off the list.

First, you are fresher at the start of a day, and your best efforts should come when you are best prepared to address these issues.  Remember how easy it is to put off those final decisions at the end of a tiring and long day?

But the real reason to do this is to allow most everything else to fall into place, once the critical issues are worked out.  It’s true in every business, all the time.

[Email readers, continue here…] Take for example, solving key technology problems that Managing_forceprevent a product from shipment, or from scaling to large production.  If sudden demand for a product takes management by surprise, having solved these key issues will remove the key barrier to ramping production and taking advantage of the opportunity.

In a young company, the key issue is most often finding the way to start the revenue flowing from services and sales.  With enough revenues, the young company can more easily raise equity funds, borrow money, hire top talent, and gain valuable publicity.

Next, a critical key issue is finding the way to break-even for a young business – the proxy for stability.  Working on that issue alone can drain a CEO, given its many incarnations – in marketing, sales, finding efficiencies, cutting efforts that are of lesser value, and more.

Hire key talent to develop the product, to create a manufacturing line, establish distribution channels, to organize the sales effort, and you will find that many other less important issues resolve themselves or fall into place, much less important than before the critical issues had been resolved.

Posted in Growth! | 2 Comments

Don’t make assertions that will later prove untrue.

Sometimes it is easy for someone at the top of an organization to make a statement that, in the enthusiasm of the moment or to make a point, crosses the line between fact and fiction.  Sometimes it seems to you to be just an unimportant little stretch of the facts. An estimate of the number of customers, of the amount of traffic to your website, of the numbers of products sold or hours spent in development – there are thousands of areas where a number sounds better when it is larger.

Often, the number you state cannot easily be challenged, sometimes justifying the use of a larger number as a way to impress at potential customer, or make a point at an industry meeting.

[Email readers, continue here…]  In this age of readily available information, the risk involved in making a statement that can later be proved untrue is too great.  It goes to your

Available at berkus.com , Amazon Kindle, or any online bookstore

Available at berkus.com , Amazon Kindle, or any online bookstore

credibility itself when discovered or challenged.   And often, when someone discovers or uncovers the truth, you’ll never hear of it, even as that person lowers his or her trust in your future statements by some level as a result.

Yet, we have all done this in one form or another, some harmlessly, some with intent to deceive.  An often-expressed example seems to come from the salesperson who quotes a larger number of users or customers than the facts support.  Yes, we’ve seen gray areas.  In one example in an industry I know well, there are direct customers and then central systems that in turn support direct customers.  The company in mind provides systems to serve both, but its salespeople count as customers all of the indirect customers served by the one system sold to oversee them.  The result is an inflated number of total customers, which when compared to the competition counting only direct customers, makes the company look much larger and with greater market share.

Is there any harm in this activity?  Yes, in two ways, this hurts credibility and confidence.  Competitors have every incentive to research the truth of your statements and every incentive to broadcast findings of inaccuracies.  And the creator of the knowingly inaccurate statement will always be a bit wary about being challenged, sapping just a bit of energy away from other communications with the same constituents, and knowing that a previous statement is vulnerable to attack.

It is best just to not make those statements in the first place.  They probably don’t do the job expected in enhancing the person’s or company’s reputation as intended anyway.

Posted in Protecting the business, Surrounding yourself with talent | 2 Comments