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 | Leave a comment

Why bother with a board of directors?

I hope you enjoy this new format – with its larger type and easier navigation. – Dave

No matter what your size, if you intend to grow your business into more than just a lifestyle workplace, you should create a board of directors. If you take money from knowledgeable investors, you will be required to create a board as a part of the investment process.

Building Great Boards available at berkus.com and Amazon Kindle Singles

Building Great Boards available at berkus.com and Amazon Kindle Singles

Boards perform two important types of task. They protect the company by overseeing the expenditure of company money for expansion, acquisitions, purchases of large assets, hiring of senior management and more. A board is usually composed of a mixture of the senior executives or the CEO, at least one representative of the investors, and at least one industry expert from outside the company. The usual size of a board is five, but legally the number in most states is equal to the number of shareholders up to a maximum of three board members required by law. With three or more shareholders, you must have a three person board of directors in most states. The average board for a company taking outside investment money is five. Beyond seven members, a board is often too cumbersome to be at the most effective value to the CEO.

[Email readers, continue here…]  Each board member is legally tasked with two duties: the duty of care, and the duty of loyalty: care for the living entity that is the corporation itself, and loyalty not to the board member’s constituency, but to the corporation itself. Sometimes, these duties conflict with the best interests of

the board member personally or his or her co-investors. This could happen when a board votes to take in new money at terms that would be unfavorable to the class of investor represented by the board member. It could happen if some early investors and board members want to sell the company at a price below the objective of the later board member, where the relative returns are excellent for the early investors and marginal for the later ones.

There is no legally-mandated requirement that members of the board help a corporation to grow. But it is certainly the goal of the investors, the CEO and even the board members individually, when assuming the position of board member. Often, a board meeting is entirely devoted to issues of growth, with members chiming in to help the CEO with marketing issues or customer acquisition.

It is important to make time for the required duties at board meetings. Approving the budget and watching over it during the year, and approving any actions that would dilute ownership including stock option grants, are two examples. Much less understood are issues that address the management of risk, such as review of corporate insurance policies, adherence to OSHA safety regulations, and oversight of the terms of real estate and large equipment leases that could affect a company’s ability to maneuver in times of crisis or extreme growth.

Many entrepreneurs would rather not have to answer to a board, and resist creating an entity that could have the power to check management actions, and even to fire the CEO in extreme cases. Yet, the establishment of a proactive board is the first step toward professionalizing the company and its management. Properly handled by the CEO with adequate time allocation for individual and group board member updates, the proper use of the board will help control risk and provide resources to management that will pay back in better overall management of the company and more efficient use of its resources. More importantly, no entrepreneur or CEO can do it all alone, especially in a rapid growth scenario. Too many things can go wrong, many of which are things that one or more board members have already dealt with in their business lives.

Take the establishment and nurture of a board of directors seriously. It is much more than a legal requirement to be resolved. It is the creation of a vital part of the organization, one that could be of great help in both protection and growth of the enterprise. Great boards create value for shareholders while protecting them at the same time.

Posted in Depending upon others, Surrounding yourself with talent | 1 Comment

It’s about time!

While we are revisiting the issues raised by my (newly revised) book, Extending the Runway, we should examine the challenges to a CEO in making use of enterprise time, one of its most valuable and often misused assets. Enterprise time, as opposed to personal time management, is defined as the sum total of resources available to a company expressed in terms of time – time to develop, to debug, to produce, to deploy, to respond to issues, and to make changes in plans that are not working.

Extending the Runway book available at www.berkus.com

Extending the Runway book available at www.berkus.com

By reducing the amount of time to perform any of these actions, the company saves fixed overhead and increases profit or reduces cash burn. So this issue becomes one to be dealt with by every manager at every level of the organization. Building efficiency into every corporate activity should be a corporate mandate, one to be discussed interdepartmentally, to be refereed by the CEO.

[Email readers, continue here…]  There is the flip side to making efficient use of time. I’ve labeled this time bankruptcy to make the point as dramatically as possible that this is a critical, company-threatening sinkhole that must be avoided at all costs.

Time bankruptcy is the ultimate result of the deliberate over-commitment of a company’s most valuable resource(s) by the CEO or a department leader. There are many ways to fall into this trap. But the first thing to do is to identify what those critical resources are in your company. Most often it is the time of the chief architect of the product or service you provide, or of the best developers of that product. Sometimes it is the time of the CEO, which when overcommitted, prevents others from gaining access to solve critical problems or continue the flow of production.

One way to fall into the time bankruptcy trap is to release a product too early, and pay the price by forcing the architect and most skilled developers to drop off of their important tasks to put out fires in the field and fix problems one at a time.

Another is to fail to complete a contracted service for one customer and to do so multiple times, until many customers begin screaming for attention, drawing away all available talent from new, income earning tasks.

You will surely be able to identify an example of time bankruptcy that you have experienced in your past or present. It is your job to drive the company out of the time bankruptcy zone and to watch for signs of it occurring in the future, stopping the process before it becomes critical. That means watching quality control efforts more carefully, developing metrics to track incomplete processes and track remaining time committed to completion, watching the number of customers exposed to a new product or service before general release, and more.

It also means being careful that you, as a senior manager, do not become overloaded to the extent that you are unavailable or inefficient in helping those who need your attention to complete their tasks. Use the term, time bankruptcy, in a planning session, and see what response you get from your managers and employees. You’ll be surprised at their understanding of the issue as it relates to their being able to complete their tasks successfully and of their contributions to solutions that will benefit everyone and increase process efficiencies.

Finally, enterprise time equates to available runway, or remaining cash and resources that you can call upon to gain market share and increase corporate value. Spending enterprise time inefficiently burns those resources unnecessarily. If you have enough reserves in cash and in time, you can dig out of the hole. But if you are managing a marginal business, the effective use of time as a resource extends your ability to make changes, reposition, react and build.

So if you wonder why we focus on this subject to the extent of seeming redundant, well then, it’s about time.

Posted in Depending upon others, Surrounding yourself with talent | 1 Comment

Extending Your Runway

One of my books, Extending the Runway, uses parallels to piloting a plane to equate to the process of creating and building a small company, making maximum use of resources to get to and beyond breakeven. It is worth revisiting the most important point of that book, which was written to prompt discussion between entrepreneurs, professional managers and their boards of directors about issues that could unite them or strain the relationships between them.

There are five types of resources a great board can add to a company.   These are: time, money, relationships, context and process.

Time: The longer it takes to produce and release a product, the more fixed overhead is consumed, and the runway of remaining cash diminishes. Expert help and good planning can reduce the time to market, saving cash in the process.

Extending the Runway book available at www.berkus.com

Extending the Runway book available at www.berkus.com

[ Email readers, continue here…]   Money: A board of directors is primarily responsible for oversight in the use of and the raising of money for the company. There is a fine line between

loading the company with too much debt, and diluting the shareholders too early with additional equity investments. But all agree that a good board will express its stewardship well by preventing the company from running out of money.

Relationships: One reason for having an effective board is to give the CEO a resource for tapping into great relationships that are owned by the various board members, so that the CEO can reach out and find help in areas most needed. If a board member has few appropriate relationships in his or her field of expertise or from past experience, then perhaps the board member is not appropriate for the company at this time. And if the board member refuses to volunteer or allow such relationships when needed by the CEO, that board member should be held to task by the other members of the board.

Context: Every good board has recruited at least one industry expert, often as the fifth or mutually-approved outside member. With expertise in the company’s industry, that person can and should provide expert advice about the timing of the company’s product entrance and applicability in the industry it addresses. A great product at the wrong time or a poor product unable to address the needs of the industry will fail in the marketplace. That board member should be actively involved in questioning the positioning, marketing and even the design of the product to avoid just such a disaster.

Process: Here, most experienced board members can help to streamline the process of product development, manufacture, channel management and marketing. Knowing how to scale from test to release or how to complete a process more quickly saves money and time, making this knowledge as valuable as raising more money for the company, but without the cost in dilution or debt.

Use your board to help you to navigate through control over these five resources. If you don’t have a viable, relevant board, build one no matter what your size and stage of development. One thing is usually sure: an entrepreneur cannot successfully do it all alone.

Posted in Depending upon others, Growth! | Leave a comment

Stealing time

It’s a big issue within any company.  With easy access to Internet shopping, games, social networks and more, employees are able to find many ways to focus on personal issues while at work, detracting from productivity and demonstrating a dis-respect for the time paid for by their employer.  In fact, if we were to be direct, we might label it “stealing time,” and consider it a crime of sorts.

Based upon the actual “loaded” cost of an employee per hour, that is certainly not an insignificant cost for the employer.  Certainly it amounts to many times the cost of stealing something tangible, such as a ream of paper from the supplies cabinet.  Yet, many of us treat the latter much more severely than the former.

Managing_force[Email readers, continue here…]  Let’s consider counter arguments.  Attracting great employees often requires us to offer special incentives, including flexible hours, unsupervised time off, and access to perks
such as free food and soft drinks.  Often, employees just expect some degree of freedom when they work, to be able to quickly shop or communicate with friends in the middle of their day.  In times past, older generations were perhaps more discrete when making personal phone calls (how ancient this sounds).  But they often did so anyway, and often spending more time and more company money in phone bills than today’s typical employee distraction.

How about the counter to the counter argument?  There is no way to sugar-coat the fact that paid time is for work, not for outside play.  The cost may seem small until someone calculates the combined cost over a year of time and screams “thief!”

As in all two-sided arguments, there usually is a middle ground. The boss who requires complete adherence to the work-every-minute ethic called for in the employee handbook generates ill will when enforcing the rule.  But the manager, who openly ignores the behavior, encourages more of it from employees who will fall in to follow the example they see openly acknowledged.

My solution is to acknowledge the fact of life, equate it to personal time once used for personal calls, and define a ‘limits of acceptability’ publicly.  “We recognize how difficult and intense your work is.   We think it prudent for you to take breaks as often as every hour if you need them.  We expect your breaks to be self-policed and no longer than ten minutes, to be used for all personal issues including personal use of your workstation.  Remember not to stray out of bounds of corporate decency and confidentiality, and be safe in protecting corporate security.”

Posted in Depending upon others, Surrounding yourself with talent | 3 Comments

Some great coaches are younger than you are.

Especially for social media-based businesses, we all need to recalibrate our thinking about who is the teacher and who is the student.  There is nothing wrong with a manager slowing a conversation to ask for more background when speaking to an often-younger and more involved associate.  You know what I mean… The conversation goes something like this: “We found it on x site and using y app with z as our data object.”

GameSpy LA Times colorFirst, managers could not be paid enough or have enough time to stay entirely current with all of the details each employee or associate deals with daily.  Yet, many times that other person tries to explain an important finding or breakthrough, or make a significant comparison, using names of destination sites or apps or tools we have never used or heard of.

Yes, age often has something to do with it.  And occasionally, a manager has to work to join the club by trying new things, learning new tasks and using new language to relate to those already in the know.

[Email readers, continue here…]  I recall vividly one such experience.  I helped to found an Internet game company, playing the role of founding investor, chairman and even temporary CFO.  The company was destined to grow into a large, very valuable enterprise that we sold for many, many times our investment.  But that first day with the new employees was a test for
me.  Many years older than any of them, their initiation was to insist that I spend no less than forty-five minutes playing for the first time first person shooter games against Internet-based foes.  I had to acknowledge the difficulty of achieving high degrees of skill, and the size and terminology of the extended gamer community.  But most of all, I had to gain acceptance as “one of us” in an environment where my CEO coaching and my money did not count.

That was a lesson for me.  Taking the time to be taught by those able to master a skill or have extra knowledge is an important step to show respect for everyone at all levels in an organization.  And that respect flows in both directions, worth so much more than the time it takes to learn a skill or terminology or meaning.

Posted in Depending upon others, Surrounding yourself with talent | 3 Comments

Two very powerful words: Great job!

The best managers we all know are the ones who take the time to praise good work in public, before an employee’s peers.  Most of us have a monthly award for the top person in a group of employees. And if we are big enough to formalize the process in a regular meeting, we make it a regular part of that meeting.

If you haven’t already discovered this fact, such a process quickly becomes routine and predicable.  Small companies have trouble finding new people to honor after a while.  Some employees even disingenuously consider the process an exercise in pandering, discounting the effectiveness of the award, and disenchanting those very managers who thought they were reaching out to do a good thing.
2014-0329_OxyTEDx-0276For all of us, we should remember that the best possible way to honor great work is to do so immediately.  A “Great job!” coming at the right moment from the boss is valued as an honest recognition of good work, especially if done in front of an employee’s peers.

[Email readers, continue here…]  At times, it is an entire team that deserves the recognition, again immediately after doing a great job.  I found a formula that worked for me where most of the employees were in several buildings on the same campus.  First arranging for my assistant to obtain the appropriate amount of hundred dollar bills from the bank, and then to follow me around checking off names, I had my own personal holiday celebrating each individual in the team with a handshake, words of thanks, and a C-note.  With lots of laughter and thanks, the celebration and words “Great Job” made for a completely memorable event.  And those pop-up thank you visits from the boss certainly contributed to the culture of the company.  Word does travel.

Remember to reward those not present at the moment, and remember that the amount should be grossed up to take care of taxes and be entered onto the payrolls of the employees so rewarded.

I’m sure you have your own way to making “Good job!” work for you and your team.

Posted in Depending upon others, Surrounding yourself with talent | 1 Comment

“Over-welcome” your new employees.

A CEO friend of mine who manages her one hundred person remote workforce as a virtual company told me her story of how she welcomes new employees as she grows her firm. Strike that. She over-welcomes her new employees.

Days before the official start date, she makes sure that the new employee’s business cards arrive in the mail, that the employee’s phone and Internet services are up and running, and that an email account is already established. But many of us do that, maybe not so timely.

Managing_forceThen she topped her explanation with: “A few days before the start, a package arrives from us at the employee’s home with a welcome letter, a copy of the CEOs book, and a giant fortune cookie, with the fortune cookie message streamer clearly visible.”

[Email readers, continue here…]  “You will be successful at our company!” the fortune states.

What a great touch – especially for someone expected to be self-motivated enough to work long hours from home, to get to know fellow employees through Skype and texting, and to be productive immediately when hitting the ground.

It started me thinking. How many days or weeks or even months do we expect a new employee to take in becoming acclimated to our company and its culture, to the marketplace, and to our ways of doing business? For example, most of us expect a salesperson to be truly productive only after about six months of building a territory or client base. But isn’t there a better way to approach this expensive process of acclimation?

For a salesperson, how about paying an override commission to another sales person for a short period to help find and close new business? Or how about helping the employee gain confidence by handing the first several accounts to the new person ready to close? How about assigning a big brother or sister to each new employee to show them the culture and process? How about teaching a class in corporate culture yourself to one or more new employees? Some of us have done one or more of these things. But what could we have done better to launch a new employee successfully?

Maybe we should start with a surprise fortune cookie with a personal welcome message.

Posted in Surrounding yourself with talent | 3 Comments

Lighting the match – going viral

It doesn’t happen by accident.  Not every new game site is a Club Penguin or Minecraft.  Not every social network is a Facebook or Instagram. Not every texting application is a Twitter.

What are the elements needed to focus upon in making the attempt to take a product viral?  Intrigued by the thought, I recently made a list. It was as much in reaction to my getting blank stares from entrepreneurs when I asked that question as it was for me to better understand the problem itself.  Here is my list.

First: Planning. Retail or end user web sites do not even receive limited notice without being discovered through a real marketing program, aimed at finding the flywheel effect (the moment

Dave's syndicated cable show: The Berkus Report

Dave’s syndicated cable show: The Berkus Report

of going viral that makes all the difference between failure and success.) In today’s world of social marketing, it takes someone knowledgeable if not expert in understanding how to use available resources in promotion and marketing.

[Email readers, continue here…]  Second: channels.  I am past chairman of a company that distributes its product through over one hundred fifty retail Internet travel channels, all websites where someone else spent the money attracting their users and attempting to go viral. We could not have begun to reach a fraction of that audience with any amount of money if we did not reach through these channels.  Sometimes, it is just the right idea to brand your product inside that of a known presence.

Third: cost. Even a great marketing plan to gain an audience fails if there is not enough money to prime the pump.  And of course sometimes that requires a large amount, far beyond the capability of small companies looking for its initial audience.

Fourth: measurement. If you can’t measure the results of your attempts to gain a viral response, how can you know when to focus upon reinforcing or changing the effort?  Well-tuned metrics are an absolute must. And the tools for most are available, sometimes free, for the educated marketer.

Fifth: reaction.  If everything goes right in finding the right plan, channel, cost and measure of success, and if you do nothing to reinforce the success or change the focus, the rest of the effort can easily die a slow death.

And sixth: the pivot.  A reaction is not often enough. Many times, it takes an intelligent repositioning of the entire offering to try again from the start with revised ideas based upon learned experience.

It’s a cycle that must be learned and followed in order to successfully maximize an opportunity in any industry and for any company.  So, where in that cycle are you today?

Posted in Finding your ideal niche, Positioning | Leave a comment

Embrace the right to pivot!

Plans don’t often work as devised. We are not always smart about the market or the product. Great teams are not bound by their original product or marketing plan. Greatness finds one definition in management’s ability to “pivot,” or change the plan in reaction to its early response from the marketplace.

Investors celebrate teams that quickly find the flaws in the original plan and reallocate resources in another direction before more wasted effort. Even the term, pivot, seems to call up images of a light-footed dancer able to move so very quickly in any direction.

My favorite example of a world class pivot comes from the CEO and board of one of my most successful investments. Green Dot Corporation was formed by an DB Concordia2entrepreneur in the year 2000 to create a product to permit those without credit cards to purchase items on the Internet. Think of it: to shop on the web, you must have a card, not a nine digit routing and bank account number. The young, inexperienced entrepreneur had two assets that attracted me – rights to use the MasterCard name on this new product, and a laser focus to make this work in any form possible.

[Email readers, continue here…]  Over the years, that vision changed dramatically several times as the world’s first debit cards were invented by the firm, positioning the card to be used by the un-bankable, those unable to obtain credit cards or in some cases even checking accounts. The firm grew to dominate its new field, create an infrastructure to allow any of its 70,000 retail stores to simple activate or load the card with money from any cash register. It replaced Western Union as the preferred way to send money across great distances. And it built a billion dollar market and then some – where it might have been restricted to a small percentage of that.

And we who held early stock celebrated together the ringing of the NYSE opening bell the day that often pivoting company went public.

Posted in Finding your ideal niche, Positioning | 1 Comment