Are you willing to hire slowly but fire fast?

Here’s a test of your patience and your willingness to suppress your tendency to avoid conflict or confrontation – all in the same insight.

First a reminder about why we hire:

New hires can shore up the weak areas of a business in ways existing employees cannot – if hiring is done to fill true needs.  We acknowledge that 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.  Hiring 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.

On the other hand…

[Email readers, continue here…]   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 almost always agree that the person would have benefited with a better fit, and the company would have surely performed better having hired the replacement earlier.

How about the bottom ten percent rule?

First, it is not a rule, just a proposition from one of the many business books dispensing advice.  Do not do it. Don’t draw a line each year to eliminate your bottom tier by firing them.  But look at it from the other side of the coin.  Some people just don’t excel or even fit into their jobs.  Even those in the mid-tier of your organization.  Coaching them to a better fit or even out the door may well be the most humane thing to do.

An opportunity to build a superior organization.

Every such move gives you that opportunity to search for (slowly) and find a superior candidate for the vacated position, improving the quality of the team.  And no doubt, most of your team members knew of that need to clear the marginal performer long before you did.

Fight that “human nature” to be expedient.

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 your marginal employees.

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Will you BURN the next manager you hire?

It seems to be a rule, not an exception. Many senior managers and early entrepreneurs create their own mess with this one. The first professional senior manager that an entrepreneur hires to share the growing workload does not last more than a year.   You as a longer-term senior manager may make the same mistake and suffer the same result.

What is the common problem?

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.  Some longer-term managers remain in that habit until needing to hire an immediate subordinate.

Why is this so often a problem?

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 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.  You may have been managing for years and need to hire that direct report to lessen your workload, setting up the same result.

The predictable result…

If this new managerial hire is the first for you or for a founder or founding partners, and if the person is expected to relieve some portion of the 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.

…which unfortunately is a general rule. 

[Email readers, continue here…]   I’ve seen this happen so many times, it is almost a rule for me.  I warn the executive or 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 sure that there is a culture fit.  But most important of all, I warn them that they must be ready and able to let go, to delegate clearly, and to establish metrics for measuring the performance of the newly hired manager – but not to interfere with that person’s day to day management unless absolutely necessary.  I urge them to coach, but not to expect the new manager to be a duplicate in style or perceived ability.

Then it happens.

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 hiring executive or entrepreneur is more willing to delegate, expecting less a duplication of self.

Could you be guilty?

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 executive or entrepreneur often coming from one more experienced in the position and in growing company leadership.

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Posted in Depending upon others, Growth!, Protecting the business | 2 Comments

Can you 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.

How do roundtables operate?

At these roundtables, members not only discuss their business issues, but significant business-changing trends 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 six hundred half-day roundtables over the years.

My motivation to spend time with this smart cohort

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 (almost a year before the crash of the stock market) 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.’

Every leader has stories to tell

[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.

How it works

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 and board member of over forty companies throughout the years, often I can help in areas not familiar to the others, when fundraising issues are on the list.

Some stories to illustrate the point. 

There is the story of the member-CEO who saved her company during the great recession by dismantling her 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.  And this was years before COVID.

Just recently, one of our own had raised over twenty million dollars to grow his company and wanted advice about filling out his senior ranks to best accelerate growth.

And sometimes we watch companies grow dramatically from a front row seat.

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.

Here’s the important theme for such roundtables.

The theme of these roundtables is to “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.

How you can do it

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.

How you can begin as an adaptive business leader.

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.

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Is your CFO a bookkeeper or a strategist?

Here’s one that most small company founders and CEO’s miss until it may be too late.  What is the role of a chief financial officer in growing and protecting the company?

How about co-strategist?

I recently coached a CFO in a small company to urge the CEO to stop working upon the operational issues and focus upon the future, even if that meant a pivot to protect the business as the world was changing in that industry at an accelerated rate.  That challenge would require vision from the CEO supported by data and what-if analysis by the CFO.  How much more valuable would the role be if not to think and work strategically?

Defining the expected and common role of a true CFO

There is a simple way to define the common 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 founder or CEO, but it serves a purpose.   It is the ultimate control over rampant spending or uncoordinated purchasing.

Where else would there be a knight-protector in a company?

Looking at it in that light, 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.

Another of my stories, this time about a CFO in name only

[Email readers, continue here…]  I was an early board member of a company that subsequently raised over $30 million in venture money following the angel rounds which I led, 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.

Board member orders a ramp in spending that kills the company.

First, the VC’s ordered that the company ramp its burn rate (monthly losses in cash) to over $800,000 a month, which I could not fathom.  But even though I objected, 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.  For me this was nuts.  But the CFO dutifully followed the VC command 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.

How the CFO could have saved the company.

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 board members in attendance, the board spent almost an hour with the CFO analyzing the financial performance of the company.  No talk of strategy.  No input from the CFO except to answer questions.

… and how the CFO missed the chance to be responsible.

We members of the board never saw, (never asked) and the CFO 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.

Then the bomb dropped…

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.  And how about that role we touched upon – as co-strategist?

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Posted in Depending upon others, Growth!, Hedging against downturns, Protecting the business | 3 Comments

Here are five TACTICAL skills of a great leader.

It is hard to coach or teach leadership in a few paragraphs.

But let’s try by limiting this short insight to a list of 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.

Skill number one: delegate.

Nothing is more of a turn off to a subordinate than having their leader 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.

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.

[Email readers, continue here…]  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.

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Three qualities of a great leader

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, a board, or a group of people – 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 resources, especially money and time. So, a leader who can 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.

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: Establishing and maintaining forward progress.

[ Email readers, continue here…]  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.

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Posted in Growth!, Surrounding yourself with talent | 3 Comments

Hit the hardest issues first!

Reorder your priorities for maximum impact.

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?

How about all those daily decisions?

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 is true in every business, all the time.

An example to make the point.

Take for example, solving key technology problems that prevent 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.

How about early-stage companies with unique problems?

In an early-stage 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.

The most important issue for young entities.

[Email readers, continue here…]   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.

Hiring key talent should be top of the list.

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.

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Can you stretch the truth to make your point?

How easily it happens…

Sometimes it is easy for someone 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.

What are the risks when there is no authority?

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.

Ah, but then there is the Internet.

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

Let’s examine motive before result.

[Email readers, continue here…]   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 that 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 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 stretch-the-facts 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.

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Do you really need a board of directors?

First, the short answer

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.

So, why go through the effort?

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.

Well, how many should be on my board?

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.

What are the legal responsibilities of board members?

[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.

Surprise! Board members are legally to protect, not to grow.

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.

How about legal requirements for board meetings?

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 or HIPAA 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.

But what if you just don’t want a board and have no investors?

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.

And the conclusion…

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.

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Posted in Growth!, Protecting the business | 4 Comments

Your time is as valuable as your money.

Enterprise time as a measurable commodity.

Let’s examine the challenges to a CEO in making use of enterprise time, one of your most valuable and often misused assets.  Enterprise time, as opposed to personal time management, is 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.

The relationship between time and money

By reducing the amount of time to perform any of these actions, a 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 your organization.  Building efficiency into every corporate activity should be a corporate mandate, one to be discussed interdepartmentally, to be refereed by the CEO.

The flip side of efficient time management

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 first,  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.

An easy way to fall into time bankruptcy.

[Email readers, continue here…]    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 their important tasks to put out fires in the field and fix problems one at a time.

And yet another way to make that mistake

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.

Now let’s make this personal to you.

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.

Again, it’s about you at the center of this firestorm.

It also means being careful that you 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.

Relate enterprise time to available cash runway.

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.

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Posted in Protecting the business | 3 Comments