There is always a bottleneck. Sometimes it is you.

Posted on June 24, 2011 by Dave Berkus

At many board meetings, I can be counted upon to ask, “Where’s the bottleneck this month?”  Senior management is usually prepared with an answer, and a good discussion of resource availability and application follows.  Sometimes, the bottleneck is not so visible to the CEO.  In those instances, I follow with: “Do you notice people waiting at your door, telling you that they were waiting for your response or decision, even if you were unaware of this?” 

And occasionally, this questioning leads the CEO to realize that he or she is the bottleneck through having created a hub-and-spoke decision process, with the CEO at the center of each process.  Once the bottleneck is identified, the solution often comes quickly, requiring little if any board action as management focuses resources on the bottleneck to remove the latest impediment to efficiency.

[Email readers continue here…]   There is a great book, “The Goal – The Process of Ongoing Improvement” by Eliyahu Goldratt. The book was written to describe in simple terms the use of statistical analysis to remove bottlenecks in a manufacturing environment.  I have used that book’s lessons to teach process improvement to many types of businesses, including software development, supply chain management and retail fulfillment.  I recommend that you drop everything and buy this book, read it, and if you find it as powerful as I did, purchase copies for your management team, followed by planned discussions among team members about removing bottlenecks and improving efficiency throughout the organization.

Think of the literal definition of a bottleneck in the business environment.  Every resource behind the bottleneck is slowed from its most efficient pace until the resource ahead of it works its way through the constraint.  In a manufacturing or production environment, that means people are stuck at their positions with completed work waiting for the process to move on.  Or worse yet, more and more production is completed behind the bottleneck, only to sit as work in process, un-billable inventory of parts or services. 

Behind or after the bottleneck point are people with too little to do, just like those in front of the bottleneck.  But these people or machines have nothing to show for it, no way to accumulate inventory during the wait, just lost time waiting for the next process to squeeze out of the bottleneck.  It is the worst form of lost opportunity within a production environment, all cost and no output.

Then there is the bottleneck itself, usually operating at maximum efficiency given the present resource size and ability to perform.  If the resource is a machine and operator, would a second machine and operator remove the bottleneck and provide for a smooth flow?  Add second shift at that station only? Add faster machine or faster operator?  Allow fewer rejects from that point in the process?  Attack the bottleneck from all angles to remove it.

The amazing thing about this process is the large amount of gain from focusing resources upon a comparatively small point of constriction – small based upon cost and time to fix.  Work this question into you next management meeting and see if you are surprised by the results.

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

Create equity value with every step.

Posted on June 17, 2011 by Dave Berkus

You may be an architect or doctor or other professional managing your business, knowing that the end game value of your client or patient list is small and not easily transferred to any buyer without attrition.  In such a case, there is little advice here unless you think outside of your day-to-day profession and create a valuable leave-behind encasing your knowledge and experience that can be replicated and scaled to a large business – even if by others.

Most businesses fall into the class of those that can be sold someday to a willing buyer.  Even small community service-providers can be sold to buyers hungry to get into a business already in revenue with a steady customer base.  And many businesses are created with the express purpose of growing them in size and attractiveness to be ready to sell someday to create some degree of wealth for the shareholders.  Accepting venture or angel money is to create a contract between the investors and the entrepreneur that the business will someday be sold or even go public to create an exit for the investors.

[Email readers continue here…]  This insight covers all businesses and their management when thinking of the end game, as management should during each step in the process of building the enterprise. 

What creates value in a business?  Is your value proposition for an eventual buyer that you have some secret sauce that allows you to compete more effectively against competition?  Do you already dominate a niche, no matter how small, that a buyer will someday want for itself?  Do you have intellectual property that is valuable to you but might be more so to a buyer?  These questions are just a few that I’d ask during strategic planning sessions each year to fine tune the value proposition for an eventual buyer.  And I’d go further.  Investments into the company, whether from new money or reinvesting profits, should be directed first into areas that will increase the value of the enterprise at the end game.  You do this for yourself and your shareholders, and should be thinking of this regularly.

Posted in Positioning, The liquidity event and beyond | 1 Comment

Mind a short plug?

Posted on June 13, 2011 by Dave Berkus

Mind a short plug? If you like these insights, you can purchase a full hundred and one of these in either soft or hard cover, by purchasing BERKONOMICS – the book – direct from my web store just by clicking here.

Soft cover $20.00 or hard cover $30.00. Optional BERKONOMICS workbook $15.00. (Makes great gifts too.) Do this now, so you’ll be ready for ADVANCED BERKONOMICS coming soon. End of plug. Thanks.

Posted in General | Leave a comment

Get to your goal by the most direct route.

Posted on June 11, 2011 by Dave Berkus

There is more money lost in businesses today from inefficient processes than any other single area.  Yet this is not a place where most managers feel comfortable deconstructing and rebuilding.  Somewhere out there is a consultant or future employee (or even suggestions from present employees) that will provide the roadmap toward making your processes run more smoothly, more quickly and more inexpensively.  As a byproduct, process quality is likely to improve as well. 

 No matter what your company produces, there is surely a more efficient way to approach the process.  Start by carefully restating the goal for the process, such as “produce 500 quality units per day” and create metrics to measure the present output and quality (rejects or time lost) with this goal.  Look inward, forming a “tiger team” from within your organization to define the steps presently taken to reach the goal, and make improvements in increments that can be put into effect and tested quickly.  The best reward for those involved in improving a process is to receive the kudos from management and themselves for making dramatic improvements in their internal processes. 

[Email readers continue here…] If internal resources cannot handle the solution, it is time to find an outside resource that can.  Either way, someone must start with creating a map of steps from start to completion, breaking it down to measurable sized increments.  Look first at whether some steps are creating a bottleneck or quality breakdown affecting subsequent steps (see insight 81 following this).  If improving individual steps are not the solution, then scrap the process entirely and attempt to define a way to meet the goal through a differing route, such as outsourcing parts or the entire process, doubling the capacity of a segment of production, or redefining the goal itself.

All of these efforts will help you to better know the process to a degree you never expected to achieve.  And meeting the challenge of improving productivity is a great morale lift for all, as well as good business practice for the company and management.

Posted in Growth!, The fight for quality | 1 Comment

Bet the farm only when the crops are on fire!

Posted on June 4, 2011 by Dave Berkus

This insight addresses the amount of risk you and your company are willing and able to tolerate over time.  Most people believe that early stage companies should take risks aggressively because there is less to lose and much more to gain with each risky bet or decision.  Common thinking goes on to address large, public corporations by expressing that the relative tolerance to risk is decreased, in favor of protecting the brand or financial health of the enterprise.

Either way, as in a Las Vegas casino, the numbers of times risks are taken directly affect the average outcome over time.  Take an extreme risk once, and you may win the bet. Your average is 100%.  But for any sized company to continue to take major risks the averages will surely catch up and the rate of success falls to the mean, which we will assume to be 50% of the risks result in failure.  Depending upon the size of each risk, this may be entirely acceptable, as in small bets at the gaming table.

[Email readers continue here…]  But this insight raises the ante by addressing those risks that are game-changing, those that “bet the farm.”  Occasionally, a CEO must make a decision that commits all of the corporate resources to a successful outcome.  Using all of the company’s cash and credit to produce a new product that is untested but shows every promise of success is one such bet sometimes made by CEO’s of companies large and small.  Automobile companies are famous for making such bets on cars that won’t be on the market for 18 to 36 months from decision date, arriving at a time when gas prices and consumer preferences may have changed dramatically during that time.  Some of those bets were unbelievably successful, such as the introduction of the Ford Mustang. Some were complete failures, such as GM’s emphasis upon design and production of larger cars and SUV’s even as consumers were voting with dollars for smaller, fuel efficient cars from foreign manufacturers.

We must assume that the auto company CEO’s made their decisions to build based upon all available information, including consumer tests and market surveys.  Many smaller companies just do not have the resources to do this in depth before committing resources which loom as massive to them toward a new product.  Whatever the outcome, it is a safe statement that a decision-maker should commit major resources amounting to a bet of the business only when there is little alternative, that there is so much to gain that it overcomes the crippling loss that could occur.  There are only so many times a CEO can get away with succeeding with such risky strategies.

Posted in Growth!, Protecting the business | Leave a comment

You are watched, mostly when decisions are tough.

Posted on May 31, 2011 by Dave Berkus

If you have been in management or an entrepreneur long enough, you will have experienced the gray area of decision-making where ethics, the law, your needs and expediency all collide.  This is the time when you are paid the big bucks, and when others aware of your plight will be watching most carefully.  It is also the time when you demonstrate your true courage to your contemporaries.

I have a Ph.D. friend who teaches a graduate course in entrepreneurism at a local university.  He uses the case method to place as many of these types of decisions in front of his students as possible each semester.  And the responses from students are predictable.  When faced with a gray area decision, the first response is to follow the letter of the law, the rules, the ‘right thing to do.’  The professor then injects one or more new facts into the case, and the students waiver, more and more as the new facts are analyzed, reducing their fervent enthusiasm for the “always right thing” stand.  By the end of each case, most everyone has a position that has modified since the first impression.  Then the professor reveals the action the company executive took to resolve the problem, often one not considered by the students. 

[Email readers, continue here…]  Consider the case of the company with goods on the dock ready for shipment, a company with an accounts receivable-based asset credit line that is already at its limit due to the calculation by the bank of availability based upon current receivables.  The rules for “pledging an invoice” as collateral for borrowing call for attaching signed shipping documents showing that the goods have been picked up by the carrier, at which point the title transfers to the customer and the invoice from the company is “good”.  The senior manager, whether the CEO or CFO or head of shipping, walks over to the location where the shipment sits waiting for pickup, complete with paperwork waiting signature by the carrier driver.  The manager picks up the paperwork, and using a blank page inserted into the stack, signs in place of the carrier driver.  He then pulls out the now signed company copy and returns to his office with just that copy in hand.  Within an hour, the bank receives a copy of the invoice with the signed shipping document attached, along with a very standard request to borrow the 80% of the invoice amount.  The bank clerk approves, adds the amount to the loan and company’s cash account, and all is well.  Or is it? 

Invariably the students correctly point out that the company manager falsified a document, which surely is against the law since an invoice was pledged to the bank that was not represented by a completed shipment.  After this discussion, the professor adds that he forgot to tell the students that the shipment made it to the dock minutes after the day’s carrier pick-up and that payroll is due tomorrow and the cash must be in the bank today to cover the direct deposits.  The only way to get that cash today is through the credit line borrowing, and after all, the carrier will pick up the completed shipment tomorrow morning.  Now the students debate ethics against legality against pragmatism.  Some hold their positions. A missed day of payroll is a small price to pay for even this small breaking of the law.  Others state that the reputation of the company as a reliable employer is at stake, and that the employee loyalty will be shaken if payroll is delayed for even one day.  The students divide somewhat evenly over the minor infraction.

Then the professor reveals that the shipment on the dock is only a small partial shipment but that the invoice that was pledged to the bank was for the entire amount of the order.  Now the students debate whether the manager should be fired or the bank informed of the obvious falsification.  And the professor adds that the manager in this case is the CEO himself.

Interesting enough, no student has yet suggested the Kobayashi Maru solution (remember, Star Trek?) where the CEO merely thinks outside the box or changes the rules.  The CEO could have immediately called the carrier and offered a significant sum, say $500 for a quick custom pick up of the partial order, or called for the current location of the driver and found a way to load the shipment into a car or truck to meet the driver, or even plan to drive to the carrier’s dock itself.

You get the idea.  Decisions go from black-and-white to gray to black-and-white again, based upon relative knowledge of the facts and of course, the law.  Just as a personal test, what would you do if you were the manager?  Or if you were the shipping clerk observing this happening regularly?  Or if you were the bank auditor discovering that this was a regular practice?

A CEO or manager’s life is not simple. But there are lines, both ethical and legal, that just cannot be stepped over, difficult as the result may be. Each of us is tested in subtle and sometimes very public ways often during our careers.  It is a simplification to state that the “good guys finish first”, but looking back over long years of experience, there is a great deal of long term truth in that statement.

Posted in Surrounding yourself with talent | 7 Comments

Delegate and empower! Regain control of your time.

Posted on May 23, 2011 by Dave Berkus

All of us are pressed for time, always attempting to balance the overwhelming demands of business with the basic wants and needs of family.  In earlier insights, we have examined the need for and care of your corporate vision, and how to develop and nurture that vision through to creation of a corporate culture, goals, strategies and tactics.  Now we get personal.

Each of us makes many decisions each day as to where to spend the days’ time. Many of our decisions seem to be made by others, with meetings scheduled requiring our attendance, the landslide of emails arriving hourly, emergencies popping up requiring immediate attention, and more. 

The first thing to do as a senior executive is delegate whatever comes across your desk that is not directly relevant to your enterprise’s and your own strategic importance to the company.  That means teaching others how to do some of the work you have been doing and empowering them to make the attendant decisions, sometimes loading more upon another’s full plate.  We must assume first that your delegation effort is to those lower in the food chain.  (They in turn must learn to delegate using the same filter, or if there is no next level, shed those items not in their strategic path.) 

[Email readers continue here…] Second, you have a vision for the company which you ask everyone to buy into as they plan and execute during their year.  You should remember to take your own advice, and filter your activities through the needs of your vision, again shedding even more insignificant activities that cross your desk.

Who knows? These two filters when put in place might just give you back enough time to add a few enjoyable processes to your day, just for the lift they give.  We can dream, can’t we?

Posted in Depending upon others | 1 Comment

Never handle a document twice!

Posted on May 17, 2011 by Dave Berkus

We are not dealing with personal time management with this series of insights, except when it helps immensely to make a better manager of you and me.  All of us have time management tips and tricks to help us get through the day.  I have a mantra I try to live by, and it has helped me more than you know over the years.  “Never handle a paper twice” may be extended to include reading and acting upon emails, messages, and any written distraction. 

It is human nature to filter through the stack or inbox, looking for the important items. And that certainly has defensible merits.  But to find what is important, we usually have to at least scan a document or email, engaged for no less than a short moment and perhaps for the full reading of the document before moving on to look for important issues to resolve.

But there is good research to back up the statement that returning to a reading from a distraction causes the reader to lose up to 20% of his or her time in getting back to speed in mentally processing the document and its issues.  By trying my best to adhere to the “never twice” rule, I quickly delete most copy-all emails not addressed to me, and all junk, but handle each personally addressed email as it opens in the reading pane. 

[Email readers continue here…]  The exception is an email with an attachment that appears long and involved, such as an executive summary of a business plan.  Those get shuffled into a separate inbox for later review, without exception.  Using this policy, I get through my several hundred non-spam emails each day faster than I used to, and with more focus upon those with response required than if reading and returning to the issue at a later time, especially if not in the same sitting.  Exempt emails from your superior and those marked as urgent, both of which should be either directed to a special handling inbox or culled out from the rest immediately.

Wouldn’t you like to regain some percentage of your time with little or no effort?  Try this one.

Posted in Growth! | 4 Comments

Help your associates advance their careers.

Posted on May 7, 2011 by Dave Berkus

We’d all like to retain our best managers and employees forever or at least for as long as possible.  But sometimes our corporate wants and needs conflict with what is best for an employee and his or her career development.  We cannot legally stand in the way of an employee resigning to pursue a dream, but we can leave a bad taste with that person and chip away at our corporate culture by not cooperating or even helping the employee move on. 

It doesn’t take much to publicly wish a departing employee well, to throw a small celebration, to coach the outgoing person if asked, and to listen and receive fair criticism at the moment of the exit interview.  And sometimes, the story that results is one that joins the ranks of super-tales, to be told again and again.  Here is one such departure story I tell often.

Tom rose through the programming ranks to become the chief architect of my software company, with 26 programmers in his fold.  The company had grown to 233 employees and served 16% of all automated hotels worldwide at that time.  Each week, Tom and I would have an informal lunch and discuss issues that ranged far and wide.  Tom almost always had ideas to contribute, particularly about marketing programs and opportunities.

[Email readers continue here…]  One day Tom came to me and said, “I want to transfer to marketing. I am tired of programming.”  “But Tom”, I protested,” you are in charge of the family treasure.  All of us depend upon you.  Oh, the humanity…”  Tom insisted, and nothing I could say would stop him from resigning, selling his home, and moving away. Five years later, I received an email from Tom.  I keep that email in my leather note portfolio, carrying it with me wherever I go, pulling it out often to read portions to audiences during my workshops, or just for fun to fellow private equity investor friends.  “Hello again, Dave,” it began. “After looking around a lot, I have landed as employee number seven at a Seattle-based startup called Amazon.com.”  Tom goes on to extol the opportunities, describe his job in marketing with creative opportunities at every turn, and then… “My founder is in round two of capital-seeking, looking for increments of $100 thousand, and if you’d like, I’d be happy to introduce you…”

In one of the most understated several word paragraphs in history, I responded by email, “Gee, Tom. Good to hear from you.  Keep me informed.”  After recounting this story, I then ask my audience to guess what an August, 1995 angel stage investment in Amazon might have been worth at the IPO, getting lots of range in the responses.  The answer is $31 million.  $31 million return from $100 thousand investment, or 310 to1. That story always gets a laugh as most everyone of us recalls the deal we didn’t do, the investment we didn’t make, the opportunity we shunned that turned to gold.

So you never know what good things will someday come, especially from talented, driven associates you nurtured but released into the wild when their time had come

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

You are your company’s moral compass.

Posted on May 2, 2011 by Dave Berkus

Years ago, when I was CEO of my record manufacturing company in Hollywood, I happened to walk around the plant into the press room just as Bobby, one of the employees’ favorite coworkers, was offering stolen merchandise to his fellow pressmen from a bag he was carrying.  He halted, and waited for me to react, obviously caught in the act.   Everyone loved Bobby, a hard worker and good friend.  But I fired him on the spot; the only possible response to the situation presented me so suddenly.  After initial shock, a number of employees came to me that day and said that they understood how hard that decision was, but that they knew it was the right thing to do. 

You will find many times during your management years when such decisions are placed before you, requiring quick unwavering response to an ethical challenge to you or your company.  How you comport yourself in these situations is absolutely the litmus test for how your company culture will reflect your actions.  Take home company supplies for personal use?  Your employees will surely follow your lead, no matter what the policy.  Treat personal expenses at company cost, and your sales people will feel just fine doing the same until caught.  Behave without regard for an individual’s dignity when separating an employee who is a direct report, and other managers will feel little compunction to spend the extra time and energy softening their actions.  Alter any accounting result for the sake of making a month look good, and your accounting department will get the message that GAAP accounting is just for show. 

It is not easy to always be the moral compass for the organization, but it is the right thing and cannot be compromised.  And you will continue to enjoy the stories of times taking the high road as retold to you by your employees over time.

Posted in Surrounding yourself with talent | 2 Comments