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.

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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

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 | 2 Comments

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