Stop managers from gaming the system!

Posted on August 18, 2022 by Dave Berkus

Does this really happen?

Business unit managers are under lots of pressure to perform, and occasionally are tempted to step over the line finding ways to look better than reality reflects.  Of course, this has never happened to you, and you have never done this in your past.  So, we are speaking of a theoretical manager here.  Of course.

Well, how to prevent it from happening?

Here’s a way to prevent such behavior and create a tool for organization – and transparency at the same time.  Create a “balanced scorecard” or single place to review a manager’s performance and / or that of the department.  Use the four most important measures of success as the basis.

Financial perspective:  financial statement showing key indicators such as revenue, expense, net income or other measures important to success.

Customer perspective: Ratings of customer satisfaction, statistics of customer retention, market share and even brand strength.

Internal process perspective: Measures of cycle time, response time, waste, purchasing effectiveness, and improvements and innovations.

Learning / growth perspective:  Measures of employee satisfaction, employee turnover, employee education and skill advancement.

The result of this effort?

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Having this information and sharing it with the manager(s) empowers everyone to come up with solutions to problems, emphasizes common focus upon strengths and weaknesses, and eliminates surprises when formally reviewing performance.

You’d probably be doing many of these processes anyway, just not aimed at assembly into a single file or report for review by all.  And this might be the prod you need to increase the quality and perhaps the quantity of customer and employee surveys.  A real win for all.

Posted in Depending upon others, Protecting the business, Surrounding yourself with talent | Leave a comment

HIRE for talent. RENT for experience.

Posted on August 11, 2022 by Dave Berkus

Want the best way to create your core competency quickly and inexpensively?  

Think like a startup, with little resources, a limited window of time, and few dollars to spend on expensive experts.

Divide the hiring decision into two boxes.

This insight comes from a fellow CEO who explains that he leverages his financial resources for growth by dividing his hiring decision into these two boxes.  He interviews for adaptability, creativity, intelligence, drive, and a cultural fit.  He believes that he or his managers can teach processes, taking advantage of the new hire’s fresh look and open mind.  He believes that the core of his company is the creative process, and therefore that must be his focus.

Then he turns to contracted outsourcing for his routine processes, those that require no creativity and are repetitive in nature.

Here’s an example that should resonate.

[Email readers, continue here…]   Our CEO cites the example of computer programmers.  He hires for creative ability, people who can be the architects as opposed to the simple coders of routines.  If properly supervised and quality controlled, he finds that it is easier and cheaper to parcel out projects to programmers or programming groups to perform the actual coding of projects pre–defined by his insiders.  He divides the tasks so that no subcontractor has all the core knowledge in house as a protection against theft of intellectual property.

The punchline. Creativity.

And he concentrates on the management of creativity, the core of his business.

There are obvious advantages to this. 

Costs are variable and can be curtailed easily in tough times.  Management time is focused upon the creative aspects of the business.  On the other hand, depending upon the length of a project, an inside employee may be cheaper in the long run, and quality control easier to manage.

Business management is a series of tradeoffs. Here is one to consider carefully as you leverage resources including cash to grow the business.

Posted in General | 1 Comment

Why should you explain WHY?

Posted on August 4, 2022 by Dave Berkus

Remember the five “W’s?”

In my early journalism classes, I was taught the five “W’s” of good news stories, and that most should be in the first paragraph at that.  Who, what, when, where and why are the five, with sometimes a “how” thrown in for those followers of the macabre.

Which of the five is most important for you?

But of the five, “why” is by far the most important for business leaders to consider and communicate.  Employees, contractors, even investors want to know why they are asked to make use of their valuable resource to support your effort.

So now: Why explain why?

Failure to explain why will scare away potential investors – other than closest friends and family.  The same failure will disenfranchise your workforce to a degree that most will give less effort to a project, and certainly with less enthusiasm.

What about hiding the “why” from employees or investors?

[Email readers, continue here…]   Especially if a company is in trouble, perhaps with an urgent need to make a deadline, or facing a cash crisis caused by something your employees can help control, explaining the importance of the action required empowers all to work smarter and harder to achieve the stated goal.

A personal story to illustrate

I’ve recently experienced an example of this. One of my companies where I have an investment and am on the advisory board was in the midst of a sprint to close its acquisition by a larger company before the cash ran out and enterprise value plummeted.  Do you tell the employees about the pending acquisition early in order to focus them on increased performance to increase cash flow, or just keep the secret and hope that all would turn out OK and the acquisition proceed to an orderly closing on time?

Our solution

We chose to tell the employees, with the obvious risk that some would be scared into looking for another job right in the middle of the acquisition process.  The effort worked, and all did come together to make it happen. No–one jumped, and the buyer closed the deal without a question.

When in doubt, don’t be shy.  Tell them why.  Your people will rise to the occasion.

Posted in Depending upon others, Protecting the business, Surrounding yourself with talent | 2 Comments

Are you the leader if no-one follows?

Posted on July 28, 2022 by Dave Berkus

Here is a variation of the “tree falls in the forest” question. 

In past insights, we’ve looked at leadership skills, ways to enhance effectiveness, and how to develop creative ideas that motivate and propel your organization to greatness.  Here is the ultimate question for a leader…

You’ve heard the old saying that you can lead by fear or lead because people want to follow.  And you can lead by example as well.

Which style works best in the long run?

I know from observational and personal experience that in normal situations, a leader is a consensus–builder, sure that everyone understands the mission and goal, and knows which duties each must assume to make it happen.  There are times when this obviously isn’t appropriate, such as in an emergency, financial or physical.  Then your associates will expect strong, firm leadership as reassurance.

The military leadership example

Even in the military, the best leaders, no matter what the rank, lead by consensus and by example – except perhaps in battle. Those in any enterprise who lead by fear find that they may be effective in the short run and completely the opposite over time.  Yes, there have been military dictators rising on occasion who did lead by fear.  Most all lost their positions, their following, and some even their lives.

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The object is to have people follow, willingly. 

Sometimes we call this “servant leadership,” the skill of subordinating yourself to the greater good, serving those who serve your customers or constituents.

Here’s a simple test. 

Do your people come up to you as you walk among them, or lower their heads, turn away, or find a way to look extra busy?  Even if you think otherwise, if your constituents do any of these things other than look up or approach, you should identify this as an indication that you are a leader using fear.

It is never too late to change, even if it will take many interactions for your people to believe the impossible may have happened.  And if you are the charismatic leader that people follow willingly, keep on doing what you are doing.

Posted in Depending upon others, Surrounding yourself with talent | 2 Comments

Learn the power of NO!

Posted on July 21, 2022 by Dave Berkus

Over the years I have counseled entrepreneurs to think of a “no” response in terms of “yes, but…”  There is always another way to say “no” that leaves the door open for creative thinking.

Well, almost always. 

Sometimes, you just have to suck it up and say “NO” with strong conviction.  It usually happens after several attempts to find a “yes, but” solution to a problem or issue that just can’t be resolved.

What about “Yes but…?”

Assuming that you have the “yes, but” tool on your belt, then an occasional “NO” will resonate through the halls and be much more effective than if used often as a leadership tool.

Capitalizing on “Yes but…”

Now that we have that out of the way, how can you capitalize on the use of “yes, but?”   There should always be an alternate solution that responds to the needs of both parties, even if not completely so.

An example

[Email readers, continue here…]  How about: “May I take five weeks of vacation this year?”  Especially for a person badly needed within the organization, this is a conundrum for management.  “Could you take them in two week increments if you have that many weeks coming?”  “Is there a way to take less this year and spread this over two years?” “Policy says ‘no,’ but if you’ll tell me some good arguments and accept unpaid time off for the extra unearned vacation, let’s see what we can do.”

“No!  You don’t have that much coming. Go back to work. Please.”

Which of these leaves the direct report more satisfied, even if the later answer is “Can’t do it because…?”  Leadership often means leading with compromise, not just by the book.  “Yes but” is almost always the best way to respond to a request.  Try it…

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Employee vs. contractor: Here we go again.

Posted on July 14, 2022 by Dave Berkus

Why revisit this issue now?

Several years ago, I wrote an extensive article on the ten most important tests of a company in classifying a person as an independent contractor.  See https://berkonomics.com/?p=662 for that important insight.  But things have gotten much more complicated over the years, partly because of the Uber, Lyft and other new generation of GIG workers and the best description of their class as “semi–independent.”

Enter the Department of Labor…

But now we must weigh in with the U.S. Department of Labor definitions as well as the Internal Revenue Service and try to make sense of the mix.  So here goes:

The Department of Labor (in its Fact Sheet #13) lists six classes of test for independent contractors:

  1. The extent to which the work performed is an integral part of the employer’s business. (If high, then employee.)
  2. Whether the worker’s managerial skills affect his or her opportunity for profit or loss. (If high, then employee.)
  3. The relative investments in facilities and equipment by the worker and the employer. (If worker is even remotely high, then independent.)
  4. The worker’s skill an initiative. (If initiative high and unsupervised, then independent.)
  5. The permanency of the worker’s relationship with the employer. (If high, then employee.)
  6. The nature and degree of control by the employer. (If rules are great and control is high, then employee.)

The IRS guidelines cover the same principles, but…

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The IRS combines these into three basic classes to test that relationship and classify the person in question.

  1. Behavioral control: Does the employer have the right to direct or control how the work is performed through instructions, training or other means? (If yes, then employee.)
  2. Financial control: Does the business have the right to direct or control the financial and business aspects of the worker’s job? (If yes, then employee.)
  3. Type of relationship: How does the worker and the business perceive their relationship? (More difficult. If each considers this a contract, there should be documentation, but that would lean toward independent contractor.)

And the IRS has many more tests within this grouping. (See my article referenced at the beginning of this for those.)

Is there a “pre-determine test for independent contractor status?

The IRS helps a bit by providing form SS–8 which can be submitted to the IRS for a pre–determination of the status of a worker.

This is not a test to be considered lightly.  The penalties for misclassification are onerous, and early-stage companies usually cannot afford the risk at the very time when they are most vulnerable.  One more time:  check out the previous article listed above for the ten tests.

And now, think of Uber, Lyft, AirB&B, and all the others that try to teach and enforce consistency, adherence to company rules, management of time, and determination of the quality of the worker’s facility or vehicle or tools.  And try to classify the worker using the above questions.  It becomes very difficult, and certainly leads to conflict, potential lawsuits, and lack of easy resolution.

No–one said that managing a business is easy.

This range of issues just makes it even more difficult.  Yet, the risk of betting the farm on a wrong classification of an increasing number of workers is too great to ignore this subject or not to understand its impact upon the business.

Posted in Depending upon others, General, Protecting the business | 4 Comments

OK. Let’s AMPLIFY your three levels of leadership.

Posted on July 7, 2022 by Dave Berkus

Another leadership development bit?

Yup. But if you have no time or are impatient, here are the three levels:  visionary, strategic and tactical.  Skip or stay with me; but think about your balance in your leadership methods either way.

The conundrum of competing needs

As a leader, you must worry over issues from mundane to strategic, constantly reordering your priorities to accommodate competing needs.  Sometimes, the noisiest or most recent issue takes center stage – just because it is easiest to respond to at the moment.

But we all should be aware of the three levels of leadership that each of us experience as we create, grow and nurture our various enterprises, no matter what their size.

First, visionary leadership:

By far the most enjoyable for most of us is visionary leadership – the time we spend thinking ahead, creating new ideas for products or services, focusing on the big picture and how we can change the world with our creation.  It must be the lifeblood of a company that is going to make a difference in an industry or the world.  And each of us tasked with a senior role in an enterprise should dedicate some amount of time to just this.  Visionary leadership is not performed in a vacuum.  Many times, it is a customer, an employee, or an industry conference that sparks the idea that drives you to create and express your vision of the future for your company or product line.

[Email readers, continue here…]

Second: strategic thinking and planning

Then comes the strategic thinking and planning that leads to what must be done to achieve the vision.  Think of creation of your strategic plan as drawing the roadmap to get to the goal.  Strategic thinking is a necessary part of a leader’s mental toolkit and often requires input from those who will execute the plan.  A leader who does not periodically engage others in strategic thinking is missing the critical step in focusing the organization toward achievement of goals and the vision.

The third level is tactical leadership.

This is is the one that requires trust in your direct reports, along with the ability to delegate and empower others to execute the plan.  You should be involved in development and review of the tactics to achieve those strategies you’ve mutually created.

How do you measure tactical gains?

The best leaders find metrics to measure progress in achievement of these tactics, then don’t interfere with the execution of these tactics unless negative metrics signal a reason to do so.   Delegation is an art, requiring a form of strength that must be learned – especially by eager entrepreneurs used to tight personal control of processes.  But no enterprise can grow or succeed without the delegation of tasks and without the thoughtful use of metrics to measure progress and success.

Finally, remember the three:

Three levels of leadership to learn, practice, and teach: visionary, strategic and tactical.

Posted in Depending upon others, Growth!, Surrounding yourself with talent | Leave a comment

Leadership: Sell the dream while making the reality.

Posted on June 30, 2022 by Dave Berkus

As a leader, you set the goals, establish the strategies and tactics to get there (with help from others of course) and sell the dream to all your stakeholders.  And that includes potential customers as well as executives and employees.

Can unmanaged growth ever happen?

Sometimes growth happens without a leader envisioning it, living it daily, evangelizing it to anyone who will listen.  But not often.  More often, you (the leader) set the goal and push for achievement – hopefully establishing a realistic set of strategies and accurate metrics to measure progress along a timeline.

A leadership goal vs. a mantra:

I once sat in on a roundtable meeting in which the executive of a company stated his goal as “educate the world.”  To be fair, he followed a bit later with a goal of thirty million dollars in revenue within five years, which got my attention.  The first statement was a mantra, a vision, a rallying cry.  But when he did state a monetary goal, he started a real conversation about how he will achieve it and with what resources, and which of several focused revenue models.

Note that “Educate the world” elicited little response until the group saw the financial goal.  Your executives, board and others will surely do the same.

So, which one is actionable?

[Email readers, continue here…]   You will have sold the dream – one that is tangible and actionable.  So that is the challenge you won’t be able to avoid.  With that number out there, you will be held accountable by your board (and hopefully yourself) to make this happen in the time period stated.

Is this different from the “vision thing?”

For sure. Leaders lead. Managers execute the plan.  You will have just set in motion a whole series of events which might never have begun without your establishing, then selling your dream that you set in a tangible form.

Make that your new reality.

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

How to solve your most critical problems

Posted on June 23, 2022 by Dave Berkus

First, the challenge

Let’s say you have been told by your board, by your chairman, CEO, or direct leader to solve three problems you identify and report back within a month showing progress – or that you have solved these three.

But wait.  You have questions!

First, you’d worry that this is an artificial way to focus management.  Why three? Why now? After a short moment, you’d turn into action mode, perhaps calling in senior staff for a brainstorming session.

So, you identify the three most critical issues, perhaps with the help of the group. What next?  Here comes the important part.

Here are the steps to do it successfully.

Define success: Think of what an ideal outcome would look like and find metrics to measure progress along the route.

Create milestones: Make them public, easy to identify when reached, and follow progress toward each, again publicly posting the progress and achievement.

[Email readers, continue here…] 

Simplify the process:  Reexamine the definition and milestones.  Find ways to make each step clear and simple enough for all to understand and follow.  Err on the side of oversimplification.  Remember that this exercise has a time limit for completion.

Set expectations for each participant, clearly listing the expected outcome for each person and department, asking them to define the steps they will make toward completion and how they will measure each.

Measure the outcomes.  Was the intent to remove a barrier?  Increase marketing effectiveness? Increase sales closing rate?  Reduce manufacturing or shipping errors?  Speed the processes?  Measure how each of the three resulted in a gain, and publicly report the outcome.

Finally, celebrate the wins with the whole team.  Never forget to celebrate, compliment, reward.   Just three critical issues that will have led to three positive outcomes.  Now that would be a good month for any of us.  Why not try it now?

Posted in General, Protecting the business, Surrounding yourself with talent | Leave a comment

How good a leader are you?

Posted on June 16, 2022 by Dave Berkus

There are many roads to Rio, so they say.  But there is one overwhelming method of appraising the effectiveness of a business leader.

Outcomes.

We can invent lots of metrics to measure progress for a leader, including revenue, profit, employee satisfaction, cost containment, percentage of available market, and more.  But these are all individual roads to Rio – which is the stated goal for the organization.

What is your leadership end game goal?

For many early-stage companies with outside investors, the goal is to ultimately sell the company or even go public, always at a significant increase in valuation over time.  For larger or later stage companies, it could be to increase market share through acquisitions with the attendant elimination of competition or increase in a company’s reach.

Have you stated a goal for others to follow?

I prefer a financial goal, such as “achieve $20 million in revenue within five years.”  That requires real thought and strategies.

[Email readers, continue here…]   More importantly, what if you as a leader haven’t a stated goal for your enterprise?  How do you begin to measure your effectiveness if you lead without corporate purpose?

So, how do you measure yourself as a leader?

If you find yourself unable to answer this question, it is time to regroup with your senior leaders, board members and investors – and look for consensus upon a goal.  With that in hand, short-term or long term, you should then be able to plot a course of strategies and tactics for you, each of your direct reports, and the entity as a whole to focus resources upon and to progress through the steps to achieve that goal.

Yes, if you are a bad leader of people, you will lose human resources and frustrate your attempt to reach to goal.  And if you rough ride through your human resources just to achieve the goal and somehow achieve just that, does that achievement make you a good or great leader?   Perhaps your investors would think ‘yes’ while your entire staff would be in the opposite camp.

Measurement of outcomes

So, outcome measurement is a more nuanced art – involving goal achievement for the entity while being sensitive to and an enabling resource in the achievement of goals for your human resources as well.  And that’s not as easy as “simply” selling the company or achieving a financial goal over time.

With this information and challenge, how would you measure your effectiveness as a leader?

Posted in Depending upon others, General, Surrounding yourself with talent | Leave a comment