Do people follow when you (think you) lead?

Let’s get personal.  Do you think you’re much better than a marginal leader?  Well, here are a few tests for you to help come to an answer.  And a few tips for you if you fall a bit short.

Why do people follow their leader?

Dictators are not great leaders in the long run.  People follow such leaders by fear, rarely by devotion.  Employees want to have a stake in their own destiny, and above all want to understand why actions are taken which affect them, even if the outcome is not in the employee’s favor.

Traits of the best leaders

The best leaders are those who share problems and alternative solutions with their direct reports, then seek consensus in decisions as a result.  Obviously, there are exceptions.  If the group cannot agree upon a course of action, the leader must act, even if the action taken is to defer the decision until more information or a consensus is reached.  And obviously, an emergency is rarely the time to seek consensus before acting to protect lives and assets.

And the pace of leadership

[Email readers, continue here…]   In non-profit enterprises, such as educational institutions, the pace of decision-making is usually much slower as the executive director, president or chairman seeks consensus from the community wherever possible.   Many business executives first joining a non-profit board are surprised by the slow speed of deliberation and the resulting consensus-seeking that results.   Especially in collegiate academic communities, a dictator chancellor or president rarely lasts long in the position.

Employee empowerment

And this rule becomes a part of the DNA or culture of the organization.  Employees throughout the organization want to feel empowered to make suggestions, to know the reasons for decisions that affect their jobs, to have some small control over their environment.

Your bottom line

Without a doubt, if you interview employees and managers in companies large and small, you will find that those feeling most appreciated, most productive, and most creative are the ones allowed and encouraged to participate in the decisions that affect their jobs.

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

Are your projections really realizable?

Here’s one for the ages.  How many times have you projected income and profits only to fall short, and make excuses to those depending upon you to perform?

We know the answer of course.

Lots of people do or will depend upon your leadership in driving growth, stability, and profitability. There will always be times when salespersons or associates provide you with projections for future sales that reflect their inherent optimism.

Who do you send these projections to and why?

Whether you in turn report to a CEO, a board or just your bank, you must reconcile such projections against the commitment of resources that will drain short term cash in expectation of revenues.  Hiring call center employees, building raw materials or finished goods inventory, making that decision to expand space, all are made as a result of pressures from the past or expectation of growth in the future. So, you bake some amount of these projections into your own budget and forecast and make decisions based upon the result.

The rule of the 50’s

[Email readers, continue here…]   Some of us who’ve had extensive experience in senior management have lived by a rule of the 50’s.  Fifty percent of the salesperson’s forecast rolls into cutting 50% of the sales VP forecast, making 25% of the initial salesperson forecast the operating budget.

The smaller the company, the more unreliable to data

In a smaller company, the tendency to believe the numbers originally projected is higher because there are fewer levels of management and therefore more danger of overstatement.  And some are so good at forecasting that this entire issue seems to be of no value.  I had that discussion recently with several CEOs.  I left the room wondering if they truly acted upon forecasts without change.

What if future revenues seem guaranteed?

Even if you believe future revenues to be a solid guarantee, it is prudent to discount the numbers by some percentage so that planning for expenses is more conservative.  Everyone feels great when surprises are positive.  We don’t celebrate just making our plan, we expect it.  Instead, we celebrate overachievement and all it represents.  Bankers, the board, shareholders, employees all love to see success.  Think of the public company announcements of earnings, you see them instantly compared to analyst’s projections. The market punishes anything but a positive surprise most of the time, a reflection that this insight is a part of the culture of the public markets.

Recurring revenues help but churn can be a spoiler

Many current businesses have predictable or recurring revenues each month by contract or historic performance.  Obviously, forecasts of this kind of revenues are more accurate and believable.  But churn can spoil the best of these absolutes, especially when product quality, aging systems or poor service drive customers away.  Churn should be conservatively forecast – reducing recurring revenues at least slightly more than you believe realizable at the start of the budgeting year.

The most important question

Why pressure yourself, endanger the business and lose credibility by risking missed forecasts?  We are rarely rewarded for the accuracy of our forecasts, and always are dunned when there is a shortfall.  Think like Apple, a company that historically has always exceeded its forecasts to the delight of all stakeholders and respect of investors.  We can’t all be Apple, but we can learn at least this lesson from that company.

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Posted in Protecting the business | 1 Comment

Data collection is about to get much more dangerous

On January First, 2020, California will enact the toughest data protection laws ever, far outpacing Europe’s General Data Protection Act (GDPR.)   Called the California Consumer Privacy Ace (CCPA), few of us are even aware of this and need to know.  California often leads the nation in protective acts, and it is likely that other states will soon follow.

Are we protecting ourselves against ourselves?

The CCPA grants new rights regarding personal information for California residents. But more impactful – the law creates more and more duties for companies collecting data within the state (which is most everyone.)  And of course, the fines are astronomical.  Are we going too far in this process of protecting our personal data that many of its beneficial uses will be crushed?

First, the limits upon companies

CCPA will be imposed upon for-profit companies doing business in California with gross revenues greater than $25 million (whew) that buy, sell, or receive any of the personal information for more than 50,000 consumers, households or DEVICES (emphasis mine) for commercial purposes.

Devices? You’ve got to be kidding.

Here’s something to think about just from my home: I have three Amazon Echo devices in various rooms, two Ring doorbells, “Hey, Google” on five devices, “OK Cortana” on three, three smart TV’s, one smart 4K player, three desktops and two laptops, two smartphones, and WHO KNOWS how much more.  Count two of us living in the household, and this law adds twenty-six (people and device) counts for our household. All collecting data when I type or speak (hopefully to not just near them.) By comparison, GDPR just addresses data collection and leaks with no count of sources. Now back to our story…

What’s covered?

[Email readers, continue here… ]   California is interested in protecting personal information that can be associated or linked with a particular person or household. (Think of the advertisements that follow you around various sites for days and weeks after you visit the first site and look for a product.)  And, gee, if the information is already public (from legitimate data-gathering sources such as a census) than you and the companies are off the hook.  But who relies upon up to ten- year old census data which has no IP addresses or email addresses?

The good news

This new CCPA does not restrict a businesses’ ability to collect, use, retain, sell or disclose a consumer’s information that is “deidentified” or aggregated.  Whew again.  Most of us create our data stores to identify trends both geographic and product-based, stripping individual contact data from the mix.  (But I know of at least one airline that can tell its marketing people the name, address, and more about every single ticket sold during the past ten years.  Billions of records to track your travel preferences.  But I digress.)

What does a business have to do (above GDPR notices?)

Now, businesses gathering data in California must inform consumers about what personal information is being collected and its intended use.  Wow!  Let’s hope this is not buried in one of those 2,000-word EULA’s we all agree to by scrolling down to check the box.   And businesses must offer an “opt out” option to all consumers.  Here’s a question: How many consumers will confuse this with “unsubscribe” and decimate our good mailing lists?

How about youth under 18?

Of course, CCPA protects children under 18 by strictly prohibiting the sale of any information containing data from this group.  So, do we have to ask on every form the age of the viewer?  Umm. Yes.  And consumers may request deletion of their stored information (subject to certain limitations.)  Now, there’s an opportunity for a new industry of “data deleters.”  If Facebook can hire 3,000 people just to check for false or fake postings, how many will they need to hire for responding to requests for deletion of data?

Penalties for data breach?

How about $2,500 for EACH violation (that means individual or device if unintentional, or $7,500 if intentional?  The grand “out” is that businesses have thirty days to cure the offensive act after receiving official notice.  That sounds great if the cure is related to the process and not to any previously acquired data.  If the latter, the cure will be almost impossible to address in such a short period, if ever.

What’s the conclusion?

Most of know that we are giving away personal information in return for convenience, free access or free use.  Especially our younger consumers know this and are comfortable with the trade, considering it fair.  So, are we going too far with CCDA?  Well, this is much more geographically restrictive for a few (but not for any businesses collecting customer data over the Internet.)   We’d all like not to receive so many unsolicited ads via email, placement on pages we visit and now even invading our texts.  But we’d also like to keep our favorite sites free to use (including Google search and millions of aps among the many that will be impacted.)

Very soon, you will need to make that decision again and again as you visit those sites and aps that you want and need.  It’s like a pendulum: We once had free access without realizing the data dissemination quid pro quo.  Now we’ll know and control more but pay the price if we opt out by receiving much less useful information in ads and perhaps considerably less free ap and site access.

Which will you “vote” for when asked?

And here’s a final something to think about. The law now states that covered companies must have $25 million in revenues AND collect data from 50,000 or more sources.  What if in the future, California or some other state substitutes “OR” for “AND” so that small businesses collecting data from at least 50,000 sources (remember that I have 26 people and devices in my home)?   Now, how much are you concerned by this issue?

 

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Posted in Protecting the business | 4 Comments

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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Posted in Protecting the business, Surrounding yourself with talent | 1 Comment

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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Posted in Protecting the business | 8 Comments

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

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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Posted in Protecting the business, Surrounding yourself with talent | 1 Comment

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

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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Posted in Depending upon others, Protecting the business, Surrounding yourself with talent | 7 Comments