Most of your big problems start as small problems.

Let’s talk about surprises. And whether to warn your superiors or your boards about these unraveling events early.

You have a dashboard or KPI’s, don’t you?

Every good executive has a set of critical data points that best alert him or her to the changes in the flow of business most important to note and in many cases to curb a negative trend early in the game.  By now, most managers at any level have created a set of key performance indicators and even a dashboard to help follow trends and warn of excursions.

The “rule of excursions.”

There is a truism you should internalize: Most all big problems start off as small problems.  We’ll call this the “rule of excursions.”  Small deviations from the trend or norm if unchecked often become much larger over time.  A missed cash discount by your accounting department probably means that cash flow is getting tighter.  Are receivables collections slowing?  If so, is it one critical customer or a trend?  Is it time to focus more resources upon collections, credit research, or even time to “fire some customers” who continually break your rules or take up too much of your resources?

Keep the information to yourself?

[Email readers, continue here…]  Whatever the problem, the person or board to whom you report does not want to hear about it after it has become a threat to the enterprise.  If you are the head of sales and the pipeline is emptying or sales have slowed for any sustained period, the red flag must be raised, even if the focus is on you as a result and not upon the problem when the news is first delivered.

And if you’re the CEO, your board definitely does not want to hear that revenues are about to fall through the floor because bookings for the past two periods have been so far below forecast.

What form should an alert take?

 An alert does not have to be too detailed or too long.   It should be sent to your superiors (and everyone has one or more) quickly, often with a short “and we are working on finding the cause and redoubling our efforts.”  That’s like a promise to self as well as to those who need to hear.  And of course, a promise not kept is an indication of a lack understanding of the problem or of care for the solution.

Another of my board learning experiences

I have been a board member a number of times when either the board discovers a surprise or management delivers the news too late.  Neither are good recipes for CEO survival.   I recall that the board of one of my companies sat through an extended meeting just eight months after receiving a significant eight figure VC cash injection, reviewing income statements, budgets, sales statistics, Internet customer trends, and more. We discussed these with management thoroughly for a total of four hours.  Three weeks later, the Board received a communication from the CEO that the company had only weeks of cash left and immediately needed another round.

Can you guess the mood of the board members? 

Management must have had some or total knowledge that cash was critical.  But not a word was said, nor a discussion of alternatives suggested by the CEO or CFO, both present throughout the meeting. Well, both the CEO and CFO were soon gone, and the VCs reluctantly passed the hat well before the budgeted cash-out date.  And the terms of the new round were ominous, reflecting the anger and obvious catbird seat control the VCs had with no competition for their investment and too little progress to show from their last round.

Bad things happen to good people. But good managers do their utmost to make sure there are no large surprises such as that one.

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Can you just tell little business lies?

Are any of these little lies worth worrying over?

“He’s not in right now.”  “I am going to the doctor at that time.”  “I paid only two dollars a unit to your competitor.”  Whether not true and used to avoid hurting someone’s feelings, or whether used to gain an advantage in a negotiation, these little business lies are acceptable because they achieve their intended result without actually hurting the other party.  Right?

Wrong – in the long run, even if apparently harmless at the moment.  One problem, as demonstrated in so many movie scripts, is that you sometimes need to tell another lie to cover the first, and then another. And small lies turn into habits. And habits define the individual and often the culture of the individual’s direct world of influence.

“if a tree falls in the forest…”

What if you are never caught telling these little business lies? Is there any harm?  Sometimes you will never know that you were caught. Someone sees you at another event when you told them you were out of town.  Another asks his competitor if they really did sell to the company at such a low price. Someone you told was doing a superb job and was soon fired mentions the comment to his attorney or perhaps just as damning – to former peers still in the company.

Just one instance

[Email readers, continue here…]    It takes only one instance of being caught to cause an entire group of people to question the truthfulness of all of your statements. And that is a large consequence to come from a small business lie.

So, would you tell such white lies if you knew you’d never be caught?  Never?  That depends upon how you chose to live with yourself. It certainly is difficult to be truthful or silent but never slip into little lies.

The Scout Law and this issue

For much of my adult life, I have been affiliated as an adult volunteer with the Boy Scouts of America, happily serving youth and adopting the Scout Law as an important part of my ethical being.  Of the twelve points of that law, none state “A Scout is truthful” because there is a greater law in Scouting: “A Scout is TRUSTWORTHY.”   And that is the bottom line for all of us in business.  We should strive to be TRUSTWORTHY in our actions and deeds.  People can depend on us to be truthful and trusted.   A simple lie caught immediately or much later, belies that trust.

Can you tell little business lies?  Sure.  But should you?

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Are your chairman and CEO the same person?

Here’s one that targets most any company that has taken investments at any stage, as well as more mature companies.

Why would you split the positions?

More and more today, shareholder organizations recommend that the positions of chairman and president (or CEO) be split, so there are checks and balances at the board level in the leadership.  This recommendation is true for all companies with outside investors who are active and have or seek board representation.

The risk of hand-picked boards by the CEO

If we examine the blowups that have been so public these past years in public company leaders exceeding their reasonable authority or exercising dictatorial authority to the ultimate detriment of the shareholders, in most cases the CEO and chairman was the same person.  When you combine that fact with the relative inaction by the board, it becomes clear that some boards are hand-picked by the CEO who is also the chairman, and those boards are the ones most likely not to challenge marginal or bad decisions.

Why this balance is important

[Email readers, continue here…]   With a balanced chairmanship and CEO separation, the chairman sets the meeting agenda, manages the meeting, allows for asking the tough questions by board members, encourages all to speak and hopefully gain consensus, and moves the meeting along to cover critical issues.  The CEO is given much of the meeting by the chairman, but it should be clear who is in charge of board meetings.

The types of chairmanships

There are two types of chairmanships: executive (paid and full time) and non-executive, the latter typical of most corporations whether private or public.  Non-executive chairmen (chairwomen) should actively dialog with the CEO before the meeting to discuss the agenda and expand time for discussion of critical issues.  Without this, it is typical that board meetings seem to follow an agenda that does not change much from meeting to meeting, and strategic issues are often ignored at the board level when a high profile, large ego combined chair-CEO is in charge.

Is there a formal method required for splitting the positions?

There is no shareholder vote required to split the positions.  Officers are elected by the board, not the shareholders.  So, it is the responsibility of a great board to explore then act upon this recommendation from the various shareholder advocacy groups and split the positions.

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The best things about your company board

For weeks, we’ve highlighted both good and bad things about boards of directors for your company (or non-profit.)  This week, let’s focus upon number one – aside from the requirements of boards to protect the company itself (not the shareholders.)

Normal functions of boards

Boards of directors fulfill numerous important functions, both legal and structural.  Boards provide or see to it that there are resources for the company (especially money) to operate.  The board selects, monitors, helps, and oversees compensation for the CEO.  The board can replace an under-performing CEO.  The board is responsible for approval of all deferred compensation for all employees at all levels, such as stock option grants, and is responsible for the vision and strategies for growth and protection of the corporate asset.

What should the CEO expect of his / her board?

The CEO has every right to expect his or her board to help with issues when asked, particularly when board members have associates, friends, or contacts that they believe would be able to help solve a problem or provide a service requested or needed by the CEO.

And now, that most important non-legal function

[Email readers, continue here…]   We used to call these personal and business contacts that all board members possess collectively the “golden Rolodex,” but long since have had to replace the name since there is an entire generation of management unfamiliar with the circular Rolodex.  (No, that is not the watch company, if you are one of those.)  Board members each have a collection of associates who, because of their relationship to the board member, usually would be willing to help provide a solution to a problem when called upon.

Some board members have a wealth of great contacts

It is one of the most useful services some board members perform in any organization.  Because of the value of these contacts to the board member, it is important that these contacts not be misused by the CEO, and that each offer is followed up with at least a first contact when a name is offered.

A CEO’s duty to respond to those offering golden contacts

Some of your board members will have and offer more relevant contacts than others, and you will soon learn the importance of keeping those board members in closer contact and better informed between meetings.  The intangible resources they provide can easily lead to finding ways to reduce time and cost to market, to find valuable new employees, and to find new customers who will listen to your pitch because of their relationship with the board member.

How a contact’s relationship with your board member works

People you could not reach yourself are sometimes quite willing to listen and help because of those relationships.  So, use the board for outreach.  If not overused, your board members expect to be asked, to offer and to encourage use of their valuable contacts.

 

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So, your board is dysfunctional. What to do?

It happens. Boards are elected by the shareholders, sometimes with preferred shareholders holding seats by right of their investment.  In that instance, often the investor selects the board member and the CEO goes along with the choice, mostly out of having no alternative at the time.

How the board can arrive at dysfunction

Then there comes the first – or better yet the fourth – meeting of the board following the appointment of a new member.  Remember that the board must by law be acting completely on behalf of the best interests of the company, not the investors, in all deliberations of the board.  For the first several meetings, all parties usually play nice as they get to know the company and each other.

The noisy and dominant, or bullying board member

Some board members come to the table with preconceived notions about the capabilities of current management.  And some board members show their colors in the form of being dominant, hushing their peers and often interrupting others.  Sometimes this board member or another seems to always change the subject to their own agenda during meetings, including challenging management, sometimes by attacking individuals (called argumentum ad hominem), rather than their ideas and statements of vision, fact, or judgement.  And some board members are just bullies, alienating the rest in a single sentence or meeting.

Have you been lucky with your board?

[Email readers, continue here…]    If you have never experienced such a board with members out of sync and out of sorts with each other or the rest, you have been lucky.  But you have missed one of the great challenges of your business career, depending upon the importance of the board, the size of the company, and the immediacy of decisions resulting from these events.

Who is responsible for taming the beast?

If you are the chairman, the CEO or lead director, it is your responsibility to return the group to the core issue and even move to another agenda item if running the meeting.  And if that does not work, temporarily adjourn the meeting to speak individually (and alone) with the offending board member out of earshot of the others.  Describe how the actions of that person affect you and how you see them harming the board itself.  If you get nowhere and you believe your cause to be just and perhaps representative of the group, return to the meeting and air the problem out with the entire board.

And what if the beast cannot be tamed?

What if the person continues with his or her personal agenda or continues to disrupt?  I have had this experience more than once.  The solution I chose was to approach the VC, or another partner of the angel group, and explain the problem.  I would do this only if the problem was seen in consensus by the rest of the board.  In one instance, this brought about a replacement board member much more attuned to the duties and culture of the corporation.  In the other, the offending board member did back off in subsequent board meetings.

What about designated board seats?  Can you change?

Designated board seats cannot be changed because of investment documents. In the worst of situations, you might ask another partner of the investment firm for an alternate board member. For non-designated board seats, the solution may be to propose a slate of board candidates without the offending person to present to shareholders for a vote at the next annual meeting, if board members are elected annually.

Alternatively, it is effective – even if confrontational and emotional – to just ask the board member to step down and allow for another to be elected.  And if that person is the CEO, the board will find a more effective solution not at all to the liking of the CEO.  That too has happened in my board career.

And public boards can be the worst… My story

In one extreme case, I was a member of a public board whose members could not agree on anything substantial, each claiming that the value of the company would be damaged in the market by proposed actions.  In this case, the board was not held together by a strong chairman or CEO.  I felt it my duty to suggest, then strongly support, discussions about merging with another company, which the board ultimately did.  In a merger, egos sometimes dictate who survives at the board level (and at the CEO level), and offending board members from one company are rarely retained.

Preventing a step toward mediocrity

Board members can be very professional in comportment and in their exercise of their duties.  Or not.  Putting up with bullies, or those with obvious conflicting agendas not in the best interest of the company, is a step toward mediocrity.

#Berkonomics  #Boardofdirectors  #companymanagement #DaveBerkus

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Let your board help with “what” and “why” – but rarely “how.”

I am sure you can argue with this one.

Sometimes a board member is valuable in teaching the “how” to get things done inside the company.  But experience reinforces the usual fact that a board member telling the CEO or founder “how” to perform a function crosses a line and can diminish the CEO’s confidence and denigrates his or her ability, often in front of the board itself.

Let’s start with the vision for the enterprise

Who is responsible for the vision that drives the company? This is arguably the primary job of the CEO, with agreement from the board.  Many entrepreneurs after taking outside investment defer to their board for matters of direction that include setting the vision, as well as executing the plan.

The general rule for founders and CEO’s with a board

Here is a general rule:  The CEO sets the sails and points the ship, creating the vision for the company.   The board provides input into that vision, testing it against their experience and reason, and challenges it as a part of its duty to protect the shareholders and care for the corporate asset. The board then assures that management receives or has resources to affect the vision, monitoring progress at each step.

What the board does not do

[Email readers, continue here…]  The board does not get involved in how the job is done, but rather why it should be done and perhaps when it should be completed.

How a board member can harm the CEO

Once the members, unless invited in a consulting role, involve themselves in execution of the plan, management is robbed of its principle responsibility – execution of the plan approved by the board.  When that happens, even a good CEO will pause and defer to the board before making strategic operational decisions, slowing the progress, perhaps endangering the company, by allowing competition to gain ground, and sometimes ceding some control to board members who are remote from the operation and may not be the wisest of advisers in each situation.

While we are on the subject, next up will be how to handle a dysfunctional board.  Stay tuned…

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Does your board give you good advice?

This may be news, but boards of directors can offer bad advice.  Having served on more than forty boards, I’ve seen such a variety of good and bad advice that my stories could fill a book.  (oh, wait. They have…)  So, lets delve into board composition, risk of an unbalanced board, and one of those stories…

The composition of your board matters

A typical board is composed of five persons in a company that has received outside funds from professional investors.  Two members usually represent the founders or management, two are from the investors, and one is often elected by the four to represent the industry in which the company works.

The financial investors typically have deep experience running companies, often in other industries.  The fifth board member often is an expert, but not an executive with operational experience.  Realizing that this description is a generalization that fits some, but not all, growing firms, the dynamics of the board are a key component in the effectiveness of advice and leadership given by the board.

Do you defer to those outside board members?

[Email readers, continue here…]  It is not uncommon for the founders or executives on a board to defer to the three outside board members, responding to questions and defending previous actions. All this is proper to the extent that the two founders or executives do not leave their brains at the door when attending a board meeting, acceding to the suggestions of board members as if each were a direction or order.

My story of an unbalanced board and influence

I still recall vividly the board of a young company that was composed of the entrepreneur and four investors, each of whom had differing thoughts on how to use resources to grow the company, giving mixed signals to the entrepreneur who wanted greatly to please each and all.  That company embarked upon an expansion drive before perfecting the operation in its first city, as a result of the board’s direction to the entrepreneur, which was against his better judgment although he remained relatively quiet and certainly compliant.

“The board knows best” is not always true.  And in this case, the company over-expanded, did not have the resources to fix problems at its new remote offices, and died a slow death from issues of control and quality, all of which might have been mitigated had the company spent more time debugging the first-city operation.

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Where’s your team playbook? Hmm?

This one comes straight from football.  From experience and from information about the competition, a coach creates a playbook that contains detailed plans for actions or plays that the entire team must know without question and execute without pause in order to win games and advance toward the playoffs.

But you know that of course.

Your team playbook

What is different about you as a manager?  If you manage with your team knowing the intended results of each action, and if the members of the team have not honed their skills at execution of their tasks, then you are the coach without a playbook.

What if you lead without a team playbook?

Well, if you have a plan but do not share it with your direct reports, then they are acting without motivation toward mutual goals, without metrics to measure their progress toward the goals, and without the leadership that makes great winners.

Contents within your team playbook

[Email readers, continue here…]   So, what does your business playbook look like?  How do you create and update it?  Who gets to see it?  Again, there is a great parallel in football coaching.  The coach creates a playbook from experience and research.  He drills the team again and again in execution of the plays from memory and without pause.  He keeps metrics for each team member to see, including yards gained, passes completed, games won.  He compares these metrics to past seasons, to competitors, to his own lifetime bests.

You are the team coach

You as a business leader are the coach for your team, no matter what the size.  Trained employees execute their tasks better than those who are not.  You are responsible for the training and for the outcomes both for individuals and the team.  You set the goals and develop the metrics by which your team is measured against those goals.  You publish the metrics and use them to focus and align your team to perform even better.

Or are you just a “fan in the stands?”

You develop, train, measure, and reinforce successes, all based upon your coach’s playbook.  Unless of course you have no playbook and are just a fan in the stands without a clue, cheering for a team you know and love but do not effectively lead.  All because of the playbook you should have created, shared, and used as your team’s guide to success.

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Can your team overcome messy problems?

Some problems seem impossible to surmount

Leaders and teams can be overwhelmed.  We’ve all probably experienced this. Several big problems hit us at once.  Or the system goes down, stranding everyone. Or worse yet, “We’ve been hacked.” Add the twist of ransomware?

The inevitability of a big problem

As we grow our businesses, we inevitably run into problems that seem for a time impossible to overcome.  Our development team is stumped with a problem; or the marketing organization cannot come up with a theme for the next campaign; or the team has hit a wall where further speed, size reduction, or other constraint seems impossible to overcome.

Limited resources are the rule

No one has the resources to solve all problems in all areas of the business.  And every department can use creative thinking from others outside the department to overcome barriers created by “inside the box” thinking.

Methods you can use to solve those problems

[Email readers, continue here… ]  There are at least three excellent methods of reaching out to solve seemingly insurmountable problems, aided greatly by virtual companies, cost-free distance communications and the newest mass communication tools such as group video conferencing.

Swarming for a solution

First: Swarming. The project leader presents a problem to the entirety of the inside network of stakeholders, including suppliers and even customers if appropriate, and opens a channel for easy communication between the players.  The group interacts quickly, and solutions seem to fly in from several sides, tested and refined by the swarm until solved.

Crowd sourcing with outside resources

Today, it is possible to easily send a problem out to the world of thinkers within and outside of our network, offering a reward in the form of money or prestige for the one solving the problem first or best.  There is no fixed cost to this network-enabled technique until the solution is offered.  And the sheer size of the open-ended workforce will create potential solutions far more creative than when the problem is presented to an internal group of departmental thinkers.

Tiger teams are a great temporary resource

No CEO wants to create a permanent team for a temporary problem.  Most of us fear that such teams or committees find their own self-perpetuating reasons to continue after the primary problem has been solved.  Tiger teams are formed with the specific purpose of focusing human resources upon a single problem, solving the problem then disbanding with a quick celebration of success.  There is no issue of leadership succession, allocation of additional regular meeting time or even of failure.  The team comes together to solve a single problem, and either solves it or passes it back for solving by an outside resource such as crowd sourcing if unable.

In each of these three methods of problem solving, the strength comes from the focus of a group that is temporary, committed, and focused.   And all three are children of the new age in which management and communications are fluid and readily available for problem solving.

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Hire for your core. Partner for the rest.

A trend for businesses large and small

There is a major trend shaping up that is worldwide, already identified by hundreds of thousands of startup and small business CEO’s.  By carefully recognizing and focusing upon the very core of the business, these CEO’s are allocating their scarce cash resources to hire the best talent they can find to support that core business, and then reaching out to partners, independent contractors, and other small businesses to provide all other functions.

What is your core competency?

There is much to reinforce in such behavior.  By definition, your core is your intellectual property foundation, the thing that makes your business most valuable to customers, investors and perhaps someday to potential buyers of the business.  Every business has an intellectual foundation where the CEO’s knowledge and vision create a barrier to entry that deflects some or much of the potential competition.

Patents, branding, marketing and more

In the patent world, we protect this intellectual core with what we call a “patent thicket,” aptly describing the attempt to surround the core patent with other patents that defend the core and further prevent competitors from attacking the central component of the business.

[Email readers, continue here…]   Sometimes we protect our core with effective branding and marketing.  Or we do so with brilliant research and development, highly trained sales forces, large advertising campaigns, or secret processes.

Using your scarce capital and other resources

Using this focused approach to hiring, companies can stretch their limited capital further, assure better protection of corporate secrets, and make use of the core skills of partners that are attractive and beyond the reach of a small company’s abilities.  In this new environment of cheap communication worldwide, it is only reasonable to leverage these advantages through partnering with those whose core complements yours.

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