Leadership

I'm impressed with the clarity of thought the folks at "Motley Fool". I could not say this better in the context of self - evaluation and articulation of imaging oneself. No more comments:

My 4 Failures and 1 Major Flaw

Motley Fool CEO Tom Gardner enjoyed a recent article by Fool analyst Scott Hall so much that he wanted to share it with all Fools. Tom called Scott's commentary "as useful as it is eloquent." We hope you'll think so, too.


By Scott Hall (TMFRosetint)

Inclement weather here in Alexandria recently caused Fool HQ to close for the day, so I'm writing this in my apartment at 4 a.m. I keep odd hours. This may not seem particularly relevant, but I've found that reflecting on my life -- while in solitude -- helps me crystalize the lessons I've learned so far.

While I was staring at my ceiling trying (and failing) to go to sleep, my thoughts took a turn toward my own flaws and failures.

Failures in how I've perceived myself and the world around me. The sort of failures that are hard to understand and change because they require looking in the mirror and admitting long-lasting mistakes.

I compiled a list of these failures, mostly relating to mental traps I've caught myself in over the years. They're not all directly related to investing, but to bastardize Charlie Munger's teachings, having a multidisciplinary understanding of just how dumb you really are is probably useful. And in the end, I realized that all these failures stem from just one major flaw in myself.

Failure No. 1: Writing Off Rule Breakers

This one is probably the flaw that has cost me the most monetarily. When I first came to The Motley Fool three years ago, I was a diehard value investor -- a true believer in the writings of Benjamin Graham.

With history as my guide, I was certain that value stocks outperformed growth stocks, and I was pretty sure anyone buying stocks with a P/E ratio of 100 was just asking to go bankrupt.

But being so dismissive of the growth-fueled Rule Breakers investing style was absurd, given that I was working for the company that pioneered it. To make matters worse, I ended up penning an article about Facebook (NASDAQ: FB) when its stock price was hovering around $30 per share.

In it, I pointed out the company's "slowing" growth and sky-high P/E ratio of 106 as reasons some insiders were cashing out, and I used Facebook as a warning to avoid getting suckered in by the "Wall Street hype machine" next time.

Since then, Facebook's stock has risen about 190%, compared with just about 60% for the S&P 500. Whoops. Not only does my article look stupid in hindsight (it was), but I also cost myself a lot of money by writing off the stock so quickly.

What did I do wrong here, aside from being way too sure of myself? I misused historical analysis to try to understand what would happen in the future. Just because high-multiple stocks have been known to underperform in the past doesn't mean that they will continue to do so, and it certainly doesn't mean that any individual high-multiple stock will fare poorly.

For Facebook in particular, I underestimated the power of its network effect, which is perhaps the largest in the history of humanity, and the fact that its business model has essentially no comparison going back more than a decade or so.

Put more simply, Facebook is not the same sort of high-multiple stock your grandparents would have owned. It is a nearly infinitely scalable business that requires relatively minimal capital reinvestment.

Furthermore, Facebook's growth feeds off itself and has created a power-law dynamic, putting it in prime position to be one of the main beneficiaries as ad dollars shift from old media to new. I didn't adequately recognize this and viewed Facebook as just one of many players in the online advertising market.

In reality, it will probably end up being one of a few companies that will split the majority of the pie. When you apply conventional thinking to power-law businesses, they will almost always appear "overvalued." I missed a substantial gain because of this, though I've since purchased shares.

Failure No. 2: Complaining Without Doing

My second failure can be applied to a lot more in life than just investing and is much simpler to understand. It's complaining about what's wrong with something without stepping up and trying to improve that something yourself.

Not only does complaining have a 0% chance of improving the situation, but it's also likely to make other people resent you. Once that seed is planted, it's much harder to work with those people later if you do have suggestions -- because you've given them every reason to question your motives by letting them know what a poor job you think they're doing.

Unless you're willing to put your boots on and test new ideas together, it's probably better to just keep quiet and let other people do what they do best. Otherwise, you're contributing nothing of value. I've learned this one from experience multiple times.

Failure No. 3: Doing Without Understanding

This is tied pretty closely to the previous failure and is probably the most important of the three, as far as improving yourself is concerned. Let's say you've conquered Failure No. 2, have put your boots on, and are ready to parachute in and fix everything you see wrong with the world.

Well, then, you've hit Failure No. 3: doing without understanding. As it turns out, for just about every process in the world, someone at some point decided it was the best way to deal with the problem it addresses.

Why does that matter? Because more likely than not, the dragon you're trying to slay exists for a reason. It probably works decently well, or at least did at one point. Otherwise it wouldn't have been created in the first place.

Before you jump in and try to change the process, you need to understand why the process works as it does in the first place. What's it optimized for? Why was it designed that way? Have any other processes been tested? If so, why aren't those processes the ones that survived?

If you don't take the time to do this, you'll be going in dark -- with no real idea of how to build a new process to your satisfaction while incorporating the attributes that made the old process successful.

Fortunately, although this lesson is very important to understand, it's also simple to understand. To ensure you don't fall into the trap of building a useless process, you need only learn how the existing process works, bottom to top. You must also leave your ego at the door so you can learn from the people who have mastered the existing process. Once you have, you may discover that your attempts at improvement were misguided, or at least will be much harder to successfully implement than you originally thought.

Failure No. 4: Undervaluing Incremental Improvement

This can be applied to investing or process-making. Often, we like to go for the big score; a company that will become a 100-bagger or creating a process that completely changes how something gets done.

Those things can be wonderful, but they're rare and not essential to success. Suppose the market returns 10% per year for 50 years, while you manage to earn 11% per year. That doesn't sound like a big difference on a yearly basis, but it adds up over time.

Starting with just a $10,000 investment, you'd have roughly $1,173,908 after 50 years by getting the 10% return. But if you got the 11% return (although it doesn't seem like much of a difference) you'd have $1,845,648 instead -- almost $700,000 more.

The same thing can be applied to churn rates for subscription businesses such as Netflix(NASDAQ: NFLX). Although a few percentage points of difference might not seem like much, over time, they can compound out to be an enormous difference.

For example, if you have 1 million subscribers and 98% of them renew their contracts annually, you'd have about 817,073 at the end of 10 years. But if only 95% renew annually, you'd only have about 598,737 left after 10 years.

The percentage-point change in renewal is very small, but it makes a huge difference in the value of those customers over time. It goes to show that you really should sweat the small stuff.

I underestimated the implications of this for a long time before I joined the Fool and would often try to hit home runs with my investments, concentrating pretty heavily in these ideas. It worked out modestly favorably on average, but it was tax-inefficient, required a lot of effort, and was very risky.

These days, I buy two or three companies a year and just hold them. It saves a lot of time and energy, and assuming I can earn just a few points of market outperformance, will add up to a material amount over time.

The Common Theme

You're probably wondering by now what all of these things have to do with one another. The answer is hubris.

The idea that I knew so much about Facebook that I was certain it was a bad investment. That I knew more about whatever I was complaining about that day than people who'd dedicated their lives to it. That I should try to hit home run after home run with a concentrated portfolio, despite the risk of a massive drawdown.

All of these failures ultimately tie back to my own ego. I was far too confident about too many things. I've become better about this over the past year-and-a-half, but my ego's still there.

It's not even entirely bad, as long as it's managed -- you have to have some level of ego to try your hand in any new field.

The key, I think, is not to stop trying to improve things: it's to try to improve things while understanding that you probably know nothing about what you're trying to improve.

Act according to your inexperience, gain understanding, and then create your plan of action. Otherwise, you're just tilting at windmills.

Scott Hall owns shares of Facebook. David Gardner owns shares of Facebook and Netflix. Tom Gardner owns shares of Facebook. The Motley Fool owns shares of Facebook and Netflix.

Kit, my wife and partner, lost her life to cancer in May 2012. Some events just overwhelm everything despite bringing every available resource to bear. As Kit said, "We did our best, no regrets." So, what does any of this have to do with management?

In September 2011 I wrote a blog "My Wife Has Cancer" sharing a management lesson derived from a family tragedy. The lesson, in a nutshell, is that over the course of time businesses, like people, need a disruptive way to look independently at overall health.

KPIs that at one time gave owners early warning of changes in performance may not be appropriate as business conditions evolve. Undetected growth in international competition or new technology or even the composition of your own management team tend to produce subtle yet incremental changes in vitality, like HGH in building strength or cancer in taking it away. 

One solution is to bring in additional resources and new advisers (business or medical) to audit the way things are and provide invaluable help in spoting trends that entrenched and vested teams miss.

A significant challenge in our cancer battle was keeping hope alive. As a resultI became acutely aware, in a highly personal way, how stress affects decision making. Reflecting on corporate as well as private company leadership roles, I realized that business stress affects everyone in different ways. The one constant is that under high stress (as opposed to everyday stress to achieve) people behave differently from when they are relaxed.

Athletes offer immediate examples of this principle. Think match point at Wimbledon, a field goal kick for a Super Bowl win, sudden death playoff hole at a PGA event...pressure changes behavior. For the majority, nerves seem to expose individual vulnerability. After all, there's only one champion, a few playoff contenders and a ton of all others. Winners and loosers in competition say the same thing: "It's all mental."

Recognizing this behavior characteristic, at another consultancy I helped start with Ken Drossman and Bill Donnelly, Oak & Apple Partners, LLC, we are focused on how teams respond to extraordinary stress involved with either very rapid growth or its evil twin financial distress. 

Do you have a story to share about how high stress brought out the champion or simply the competitor?

 

 

Steve Jobs died tonight. It is a sad day for us who are still here without a man who changed the world.

Years ago Steve offered me a career at Apple working for him spearheading the LISA project. Although I was leaving Mattel Electronics, as the digital game division was known in 1981, I turned down the offer. Any success would be his, any failure mine. I thought.

As history shows, Lisa (named after a girl friend) failed. It's competitive platform at Apple, Macintosh, succeeded.

The big idea is the question of opportunity lost. What would my life have looked like had joined Apple reporting to him?

There is no answer, but the key learning is how decision paths for corporate executives or entrepreneurs influence life long term. Looking at Apple today versus 1981, looking at Steve Jobs in historic terms rather than real time in 1981 still offers no answer to me. Hindsight is not 20:20, but Steve's passing for me emphasizes the need to identify life changing, key strategic decisions compared to other hot issues that have little lasting consequence. Long term outcome reflects leaders' choices.

My 1981 career decision punctuates the question, what if...

 

 

 

People don't follow titles, they follow courage. In a society with as much dourness as there is today, I attribute this condition to a lack of courage in decisions being made in both public and private institutions. This is causing citizens and employees dissidence in reaching alignment with the people we follow because leaders seem to make decisions based on personal interests rather than the courage of following strategic principles.

Often we think of leaders in terms of politicians. Democrats and Republicans alike have demonstrated self - serving hubris rather than the transcending mission of government. Examples are everywhere, but on the Democratic side we have Eliot Spitzer disgraced AG from New York and Charles Rangle censured Senator for ethics violations and tax evasion. Republicans fare no better with Tom Delay jailed for money laundering and Duke Cunningham jailed for bribery and corruption.

Many leaders in private industry also appear to have self interest as a guide for their behaviors lacking courage to honor strategic principles.  For example, despite all corporate posturing about being solid citizens, twenty five of the largest one hundred companies pay their CEO more than the corporation pays in taxes (Reuters, August 31, 2011). Examples are GE, eBay and Boeing. The accounting is presumably legal, but is this socially in the best long term interest of shareholders, other stakeholders and overall global wellnes?

As simple as it sounds, I work with CEOs and boards to find decision making courage within the framework of their company brands. As the Constitution is the time - honored strategic guide to public mission, brand is the corporate commitment to customers and embodies the company's mission. Thus a brand model becomes a process, like the Constitutional one for government, which causes deep reflection on the promise to customers. And if used to its fullest, brand concepts serve as a management decision making platform from employment to investment, from social initiatives to fiscal imperatives.

An corporate example of this principle i.e., using brand credos to frame complex management decisions, is when James Burke, CEO of J&J during the 1982 Tylenol - cyanide crisis. Burke believed that J&J's first responsibility was to its customers, second to its shareholders. During the crisis management meeting he asked his executive team what the basis of the J&J brand was with its customers. The response: TRUST.

He had the courage to order a recall Tylenol product, which could have been the death march for the leading analgesic brand in the US. He said: "It became clear that our value system had been vital to our ability to outperform the competition for nearly one hundred years.  Whenever we cared for the customer in a profound-and spiritual-way, profits were never a problem." After pulling all product from the shelves, Burke's courage was vindicated within three years when Tylenol regained its market share which increased later based on demonstrated goodwill and innovative tamper proof packaging and new product forms like caplets.

Net, decision making, whether guided by the Constitution for government or brand strategy for business offer frameworks for leaders to use in building commitment to goals and actions that achieve results.

 

Executives in middle-market companies we work with frequently model marketing, sales and even operating processes used by larger companies. More often than not, results do not meet expectations. My observation is because the solutions chosen do not suit the company's given objectives and require more resources than the organization has available. Furthermore, employees and teams are not trained sufficiently to execute the demands placed on them with such imported systems.

A basic truism is that middle-market businesses need to improvise, innovate with limited resources and inspire employees to find simple but elegant solutions to challenges. Specific business to business examples offer insights, but I find metaphors are more memorable in illustrating how unconventional solutions to problems, inspires new ways to think, and can be used to lead teams to achievements never before conceived.

That's where jumping cows comes in.

A German teenager,Regina Mayer, wanted a horse so she could jump, but her parents said no. Because the family apparently had cows on the family farm, Regina decided to teach one cow, Luna, to jump like a horse.

As Steve Hoffer reported: "Luna wasn't ready for cow-back riding right away, however. The transformation from stubborn farm animal to long rides in the German countryside was nearly a two-year process, gradually progressing from strolls through the woods to Mayer finally mounting her trusty steed." Here is a link to the story and video, a must see illustration how frustration can be turned into inspiration.

We see companies trying too many tactics without matching resources to activity. We see them looking big and smart rather than  achieving meaning and substance, and concentrating on doing things versus focusing on essential customer needs. Today, companies are advised to use social media, link video on Facebook to web pages, go viral with YouTube and stay in touch via Twitter. Lost in the conversation and analysis is a deep discussion about  who the customers are, how they acquire information, and compatibility between the essence of the message and trustworthiness of the medium.

Regina Mayer and Luna remind us to be centered on results, patient with process and indifferent to style as long as we are true to purpose and mission.

Perhaps someday we will all be jumping cows.

 

Recently my wife was diagnosed with cancer. We are stunned. She has had the best medical attention and followed all recommended health care protocols by multiple physicians. Yet, we did not catch the disease until it had metastasized.

So what does this have to do with business? The situation is a metaphor for how businesses die from within because management is relying on trusted but unchallenged measures of business health. Whether it is weakening cash flow due to declining profitability on existing businesses, new product or service launches that fail to meet their goals, or delays in business building activities that lower peak revenue realization, these events are rarely seen together by management as symptoms of failing corporate health.

Dun & Bradstreet studies show only 36% of businesses live longer than five years, and other studies suggest that 77 – 85% of middle market businesses fail to survive beyond twenty five years. The numbers are difficult to interpret, but evidence is clear that the vast majority of businesses fail, contrary to the myth in business school that corporations last forever.

To me these findings indicate that Management needs to consider using objective and seasoned outside advisors to a greater extent. The purpose is to gain independent and unconventional assessment of operations and business practices. Managers often argue that independent consultants without same-industry experience cannot offer meaningful insights and are too expensive. To the contrary, my belief is that by combining insights learned from many industries with deep scrutiny of any specific company is a formula for innovation.

Intense promotion wins quarters for the C-Suite, but innovation wins decades for shareholders. My colleague, Bill Donnelly, in the prior Oak & Apple Partners blog post speaks to “Why Good Companies Go Bad”. He identifies a loss of mission and leadership failure as key components for silent corporate disease.

Our other colleague, Ken Drossman, distinguishes in an interview  between key performance indicators (KPI’s) and typical financial metrics used by companies. Ken argues compellingly for scrutiny of business DNA for unconventional leading data that predict strengthening or weakening performance and provide a call to action.

Collectively, Oak and Apple Partners believes businesses can live and even thrive through the natural life cycle of success and failure. One prescription calls for involving outside advisors to take on the role of a forensic performance team not only in times of decline but also at times when business is robust.  Curing a company’s ills when it is strong is far easier than curing a weakened company.

For businesses as well as people, looking for unconventional insights to health is necessary in our complex and fast changing life.

 

Herman Melville’s Moby Dick opens with one of the most famous lines in American literature, “Call me Ishmael.”  The novel is also the inspiration for the logo of Howard Schultz’s Starbucks coffee empire. The siren acknowledges both the seafaring nature of the historic coffee business and the irresistible lure of Starbucks coffee.  Moreover, Starbuck was the first mate on the story’s legendary sailing ship Pequod.

To mark its 40th anniversary, Starbucks has redesigned the familiar logo, removing both the name “Starbucks” and the reference to “Coffee.” As a recent Knowledge@Wharton article asks: Logo Overhaul: Will Customers Still Answer the Siren Call of Starbucks? The simple answer is of course they will, because Starbucks is a loved brand that offers a social–coffee experience that few businesses have been able to develop or sustain.

My view is that redesigning logos is generally a poor investment and a distraction.  Logo redevelopment may be justified under the flag of re-branding, changing business mix or internal leadership; all are examples of over-intellectualization of what is needed to create and sustain a great brand.

To me, a brand is the bundle of attributes that a product or services promises and delivers every day to its customers. Add to that definition that it does so profitably, which in turn means the brand’s message is meaningful, clear, interruptive and memorable and its pricing is value-based.

The Wharton article is worth reading because it embodies a rich discussion of issues to be considered when engaging in any brand development or redevelopment initiative.  Some key considerations covered in the article include:  

  1. Significant shift in strategic business mix: Starbucks’ business mix has changed, and will continue to evolve, beyond coffee, so management apparently believed the “Starbucks Coffee” moniker was limiting.
  2. International growth: Global expansion made translating the Starbucks message into different cultures and languages challenging. The goal was to simplify. Apparently management argued that the symbolism of the name “Starbucks” would not translate well.
  3. Dilution of brand message: By not standing for what made a business great to begin with or what management believes will make a great business, customers will not understand why the product or service claims are uniquely the best choice and thus consider supporting competitive brands. Clearly, company management decided to accept this risk.
  4. Backlash by loyal brand fan. The article cites a study by Vikas Mittal from Rice University’s Jones School that supports this conclusion. Backlash to change is a risk that must be considered carefully as businesses expand geographically and culturally.

Strategically there are other options to logo redesign and the management distraction caused by this activity in managing brands. The first and most significant principle of branding is to engage current and prospective customers.  One must question whether there is a significant flaw in the existing bundle of communications and deliverables that limits growth and/or greater opportunity in a strategic shift of all brand-related elements.

In my experience, logo design is one of the most over-emphasized brand development elements and one of the least significant attributes of brand experience. My recommendation is to treat, and invest in, this activity with the limited weight it deserves in the total brand decision-building program.

 

Over the last several weeks executives from both Fortune 500 and mid-market companies, in talking about limits to top performance, said the big barrier to their personal and team success was not understanding where their company was going or what the Big Idea was. 

It’s the vision thing. 

Vision is often hard to define but starts with the leaders of organizations.  P&G’s vision states, in part: “We will provide branded products and services of superior quality and value that improve the lives of the world’s consumers.” Its vision is anchored in improving the lives of its customers.  Similarly, Wal-Mart’s vision focuses on consumers:  “The values that guide our decisions and our leadership are the 3 Basic Beliefs: • Respect for the Individual • Service to our Customers • Striving for Excellence. “ 

Where is this going? Ideas create exponential value, up or down.  Ray Kurzweil, a well known inventor, futurist and author, argues that because technology is growing exponentially, the future we will experience is not linear. Just look at current events in Egypt if you want confirmation of exponential progression of ideas from thought to action.  Using the Internet, a small group of activists has quickly mobilized millions to protest. 

Management has to think in this new dimension. The rate of change has become exponential. Vision, translated into action, creates monumental change.  For example, Rupert Murdoch’s recent launch of “The Daily” promises a revolutionary new publication exclusively on the iPad.  My sense is that this project is going to change the publishing industry by disseminating news to consumers on a profitable basis. The Daily integrates text, video, audio and tactile experience into news. The vision is that the under-35 audience gets its media from the Internet, not print or TV. Hence, make news and information available where people look for it, in ways that consumers are willing to pay. Fifteen million iPad users will determine if the vision translates into reality. 

On the other hand, action without vision has the potential for disaster. The GM Volt electric car illustrates the idea. One can argue there is a dream of a green planet, but the Volt exercise is only possible to the extent that government subsidies prevent financial failure. 

Without a unifying vision of what “green” means, establishing the concept in consumers’ beliefs and enabling a process to build infrastructure are not possible; thus, individual projects are destined for economic failure.  If “green” is the real vision and not a day dream, it seems to me that government and companies would sponsor rapid development of technologies such as thorium-based nuclear energy because the technology is particularly well-suited for use in molten-salt reactors, or MSRs, eliminating the risk of meltdown. Simultaneously, leaders in the US would exploit the natural advantages our country has with coal and natural gas to facilitate a “green” vision that is economically viable. These are viable infrastructure-based energy sources that enable low cost electricity, which in turn would catalyze exponential innovation in battery design and manufacture, thus leading to rapid adoption of electric vehicles at the expense of petroleum-based fuels. 

We all dream of a better life, a stronger company and a fulfilling family. It’s the vision of making those dreams happen that translate thought to strategies, strategies to plans, and plans to action. Sharing those visions and plans inspires those around us to join, multiplying results exponentially.

 

Travelling home to New Jersey from California over the Christmas 2010 holiday, I and thousands of other travelers experienced a total failure by Continental Airlines management to lead in an obvious national crisis.   Like many others, my return home was delayed almost a week.  With over 4,000 passenger flights cancelled in the US alone due to weather and related events, there was no question that this was a crisis without a simple solution.  The absence of any leadership by Continental, however,  mocked and undermined its advertising slogan “Work Hard, Fly Right”®.

What occurred was an abdication of responsibility for the care, comfort and perhaps even safety of its customers. For starters, many flyers did not know their flights were cancelled after printing their online boarding passes. That signaled the start of interminable waits at airports or in planes sitting on runways. 

Those of us made aware of a flight cancellation before heading to the airport suffered an odyssey of three-hour waits on Continental’s telephone reservation system without ever reaching an agent, hours more online trying to book flights only to receive a “transaction could not be completed” message at the end of the booking process, and even more hours at airports trying to rebook.  In brief, there were failures on Continental’s part both to communicate and to act. 

While Continental could not fly its planes into the New York area, a banner could have been posted on its website that flights could not be booked due to overwhelmed logistics.  Management could have reassigned staff or contracted temporary staff to handle calls, or at a minimum, added a detailed message to the airline’s automated telephone attendant system that calls could not be handled for hours.  Both on and off line, management could have set realistic expectations for passengers and offered suggestions of the best means for re-booking as well as a check list of steps to take to get through the travel mess. 

Finally, additional employees could have been brought into airports to help stranded passengers re-route flights.  At a minimum, a portion of airline staff could have been allocated to handle stranded passengers while others attended to passengers with active flights; clear signs could have been posted to identify which lines were for current passengers and which were for stranded ones.  In our case, all employees were left without guidance so that they all handled active travelers, and no appropriate signage was displayed, resulting in added delays, confusion, frustration and alienation from the Continental brand. 

Here’s a suggested short list for a company’s crisis management:

  1. When in doubt, do something; lead.
  2. Focus on customers.
  3. Communicate – give guidance and frame expectations about solutions. 

In his October 1, 2010 letter to customers announcing the merger of Continental with United Airlines, Jeff Smisek, President and Chief Executive Officer of United Airlines, wrote, “As a loyal Continental customer, you might be wondering what this [merger] means for you. For now, it's business as usual.”  With respect to  future crises, let’s hope that he’s wrong.

 

Virtually all executives and entrepreneurs I talk with focus on clarity of objectives, strategic initiatives and tactics as they help energize their team environments. They / we are cognizant of building team rapport to advance collaboration, establishing appropriate financial and other incentives based on performance and even exploiting technology to facilitate communication. We share a heightened awareness of task focus while achieving benchmarks that are tied to ROI attainment.

I was recently involved with a large project that failed to reach or sustain any major objective despite the fact that each member of the group was a world class knowledge expert, motivated to succeed and for the most part, energized. What was overlooked in the process was the cultural (belief and value) system individuals within the team held. Those individual systems filtered the interpretation or meaning of verbal and non - verbal communication.

We spent zero time exploring interpersonal value system differences even though the men and women were from three different cultures, lived in five different states, grew up under different social systems and even different religions. All these factors influenced how timetable driven, ROI centered project leader's behaviors were felt and acted on by others.

The end result was a break down in TRUST. This experience, where two separate team members held their own self - esteem as the priority value, was clearly out of line with what the balance of the team held as number one - shared achievement. This known but unappreciated reality continuously sabotaged the project.

As a result, I am now personally, and recommend to client presidents and leaders, conscious of the role trust plays in performance. The basic three components of trust must simultaneously be balanced: a) formal trust i.e. title, contract, b) informal i.e. personal communication - friendship and c) trust built around performance competencies.

When there is a breech in trust, behavior is affected. People grow frustrated, productivity declines, fear and even hostility increase which results in team conflict. Inter-personal barriers evolve and individuals disengage, ultimately crashing projects.

I see an evolving role of leadership and management re-balancing the goal and task, timetable driven orientation to one where awareness of cultural and psychological underpinnings of trust are championed. As academic as it sounds, in our culturally diverse world, we need to foster agreement on the hierarchy of values as they relate to project objectives and ROI.

Business publications are by and large optimistic about the contribution of emerging technologies to growing healthier companies, work environments and even countries. For example, McKinsey Quarterly published a stimulating discussion of how advancing technologies are changing business models from linear to multisided ones, in Clouds, big data, and smart assets: Ten tech-enabled business trends to watch . What is important for executives to realize is that technology not only shapes the character of business but also the behavior of its employees and legal consequences that follow.

 

The first technology the authors, Messrs. Bughin, Chui and Manyika, discuss is the mainstreaming of “distributed co-creation” which is essentially the ability of communities to organize on the Internet to develop, sell and support products and services. For example, they cite P&G’s Vocalpoint network of mothers to share experiences with selected products with their peers that enables P&G to significantly increase market share vs. markets without the Vocalpoint network.

 

The authors also examine “making the network the organization” in which the Web forces companies to open the boundaries of the business allowing non-employees to offer their expertise in novel ways. They envision future managements seizing on these flexible networks to help manage volatile demands on assets through peak and trough periods.

 

Again examples are given like Dow Chemical using its own social network to help managers find talent in other divisions, even to external talent pools such as retirees.  Amazon.com’s Mechanical Turk uses online labor markets external to the company to solve business problems. Thus, they conclude, that in the longer term, networked organizations will focus on harmonizing tasks to get things done versus focusing on the “ownership” of workers.

 

We arrive at the first trap new technologies sets:  New technologies need to be understood, analyzed and considered in business plans. To be competitive in an asymmetrical world (where physical boundaries or  historically unrelated businesses gave established companies a natural advantage) all top executives need to define strategies to identify where technology opens opportunities for them to create multifaceted revenues while creating threats that may not have existed before.

 

We get immediately to the second, blind, trap. Gene Killian , Esq. of The Killian Firm, P.C. found that new technology gives birth to new legal problems and, by extension, threats to the business.

 

In a cautionary newsletter (you may have to register to read), Gene questioned: “What happens, for example, if you have a restrictive covenant with a key employee? What if that employee is prohibited from "poaching" your current employees? What if that employee leaves your company? And what if that former employee becomes a "contact" of your current employees on LinkedIn? Or a friend on Facebook?”

 

He cites actual cases where the “what if” happened. Employees left one company for another and continued using social media based conversations to recruit past co-workers, clients and prospects from a prior employee. Digital networks, while a new technology, are also now indigenous to most relationships. Intentional or not, the use of these networks is a constant potential threat to business operations, from employment covenants, poaching employees, damaging brand good will, and publishing company secrets or plans.

 

Gene offers common sense pointers such as it is time to review employment manuals and standard agreements, giving clear rules when it comes to LinkedIn, FaceBook, Twitter and other social media. In the firm’s news letter he mentions Bayer Corp. having a 13-page policy that covers employee use of social media. It reminds employees about confidentiality and proper communication with customers or others online. The company also monitors its online reputation.

 

He says H.J. Heinz Co. has a written policy distributed to all employees. The policy specifically spells out that employees must be transparent when publishing material online that references the company or when speaking with bloggers, and reminds employees about not commenting on confidential company information.It is also important to state that post-termination restrictive covenants may be violated by contacting clients through social media "friend" or "link" requests.

 

So the double blind trap of fast emerging technology is that to stay competitive and grow, executives need to understand and selectively capitalize on technology.The second blind trap is forgetting to proactively manage the technology by understanding the unknown and unthinkable consequences on behavior these technologies create.

 

Future sustainable competitive advantage and wealth comes from the hard work of combining an understanding and the strategic use of technology with leadership that reinforces the legal and ethical values of the company among all stakeholders.

 

 

 

 

 

 

 

 

E-mail and texting have killed the art of writing clearly and persuasively.

Yet, there are times when compelling written communication is key. For example buying or selling a company requires descriptive memorandum, creating a presentation where there are high stakes outcomes for success or failure demands engagement, or basically getting a team to achieve a common goal on time and on budget requires clear communication of complex ideas, required actions and budgets.

Thus, I offer these guidelines, a blend of structure and philosophy:

  1. Assume readers have little knowledge of the specific issue and provide what is essential for gaining critical agreement to recommendations.
  2. Clearly know the objective of the communication. If there is difficulty in writing about a thought, probably it is irrelevant to the central concept. Net, when in doubt, leave it out.
  3. Pursue simplicity. Be concise omitting needless words. Ben Franklin said: " Excuse the length of this letter. I did not have time to write a short one." Net, do not burden the reader or viewer with the responsibility of figuring out what you want to say. Spend time necessary to get the message aligned with the objective concisely.
  4. Hold objectives of communication to under three issues. Otherwise there are none. Think: 10% of 10 to dos is 0 % achieved, not 100% of anything.
  5. Keep big ideas in line of sight. Most sentences should be fewer than twenty words People over 40  especially have short term memory problems.
  6. Know your audience. If academic, use complex words to build rapport. In business, keep it simple.
  7. Minimize jargon. With clarity as the goal, define terms and assign acronyms, for example: gift with purchase (GWP), MacDuff Partners (MCD) thousand house holds (MHH), fiscal year (FY) etc.
  8. Plan how to communicate so as to achieve desired goals. Broadly, structure communication in terms of: 1) Objective, request for approval and top line basis for interest; 2) Background; 3) Findings, Conclusions and Recommendations; 4) Budgets and 5) Key Steps and Timing.
  9. Believe that decisions are emotional supported by fact. Focus on the values of your readers, support recommendations in factual exhibits.
  10. KISS (keep it simple stupid). Restrict fonts, text sizes, colors, underlines

Most executives look for ways to resolve conflict quietly, yet to me it is a fountain of innovation.

Let's be clear about what healthy conflict is and is not. What it is is a disagreement about issues aligned with a common objective. What is is not is a political or ulterior objective in a non - zero sum game or simply I win you lose scenario. Executives need to understand the difference in leading organizations. Once the nature of conflict is understood leaders are able to guide the energy to productive use or defeat bull shit.

In opposite order of interest value is the ulterior source of conflict. I advise clients and employees to clarify the game that is being played. If it outside the bound of real business performance, get it in the open. Light of day usually disintegrates ulterior games people play.

Conflict is a source of deep emotion. Tap into it for understanding true commitment to ideas. Conflict is a natural way to role play or sort out opposing thoughts, basis underpinning ideas, and emotional commitment to see the job done well. Frequently I assume the aggressive opposing view, challenging assumptions, analysis and facts. This helps understand levels of preparation and tests true beliefs.This verbal combat also inspires new solutions because people dedicated to common goals find common means of reaching them.

The essential idea is that conflict is wrapped in emotional beliefs and in business supported by fact based analysis. There are truly legitimate opposing views about how to reach objectives. Understanding this is hugely valuable and is why social, cultural and intellectual diversity and all the conflict with discomfort it brings along is worth leveraging conflict as a source of creative innovation.

The Marketing Executive Network Group (MENG) is a community of C level marketing and sales executives. It is a valuable resource for business leaders dedicated to building high performance careers and companies.

One of the outstanding characteristics of MENG is the unselfish volunteer-ism of professional support among thought leaders in the various disciplines that make up marketing and sales technologies.

In that context MENG launched a Social Media Counsel of Advisors. They collectively ran a (free for MENG members) webinar on business application of social media that focused on Twitter. The live program was insightful. However, one question I had concerning strategies small companies could deploy to deal with the probable damaging commentary from dissatisfied customers, competitors, former employees or even social activists. I Tweeted my frustration that this question was not answered and received a direct Tweet message from Lisa Petrilli a MENG member directing me to a terrific blog by another MENGer, Mack Collier on the subject.

That discussion focused on how companies strategically could use social media to redress real and substantial product or service issues, whereas my concern brought on by client presidents, was what to do with rogue comments.

This is when another conversation started with Amber Naslund founder of Altitude Branding switching from Twitter to e-mail due to the depth of the discussion. I want to share that conversation because it underscores the professional activism of MENG and the real ability of social media to sponsor meaningful conversations and healthy on line acquaintances:

Cal - Question 1:  Strategically, how do small businesses address inevitable spam messages about products / services that are inconsistent with the significant majority of facts and customer satisfaction ratings?

Amber - Reply: First of all, I'm glad to hear you say "inevitable" because they most certainly are something you cannot avoid, and can actually be valuable to you.  Here's a few notes on what I consider when evaluating negative comments:

1) Are they specific? Specific complaints can point to a shortcoming in product or service that needs to be addressed. If that comment comes directly from a customer using your service, you should treat it with the same timeliness, attentiveness, and seriousness you would if that person went through other customer support channels.

2) Are they owned? I'm not in support of allowing anonymous comments on things, mostly because if an attack is going to be mounted, someone should be accountable for that (except in the obvious cases of things much more serious than the online or business world, like being put in personal danger of harm). If you know who made the comment, find out some context about who they are, and address them directly and by name, providing full disclosure of your own identity as well.

3) Never feed a fire. Judgment prevails here. You have to be able to tell when comments are deliberately starting a war or trying to be inflammatory. In most cases, if those comments are being waged by someone identifiable, I simply respond and say something like "Thanks for sharing your concerns with us; I'd like very much to talk with you further and see how we can help. I'd be happy to reach out via an email address you provide, or you can reach me at amber@radian6.com anytime." This diffuses the situation a bit, takes the conversation to a more private channel, but demonstrates publicly that you're acknowledging it and addressing it.

Same goes for competitors. If the competition is openly making negative statements, you can choose to refute any factual inaccuracies, but do so with diplomacy and by taking the high road. Something like "Appreciate your comments, Jeff, but you have some misinformation about our product. In actuality, XXX...." If the comments are opinions rather than something you can address calmly and objectively, it's better to acknowledge with something like "Thanks for your feedback, Jeff. We appreciate having outspoken colleagues in our space and look forward to seeing your additional contributions to the industry." More flies with honey and all of that. The community can see who is acting like an adult, and who is slinging barbs for no good reason.

4) Have a comment policy on your own properties that allows for removal of comments that are defamatory, offensive, or otherwise libelous. Do NOT make the mistake of deleting all negative comments, but this gives some recourse if things are vulgar, personal attacks, or otherwise deliberately out of line.

5) When possible, for comments that actually have merit, round back with the individual in the forum where the comment was originally made, and let them know what you're doing to address it. Nothing impresses folks better than seeing not only that you heard their criticism, but that you took it to heart and are committed to doing something with it.

Cal - Question 2: How do small companies staff social media initiatives?

Amber - Reply: That all depends on what your social media effort entails. Are you just listening and gathering information or are you actively engaging and responding? Are you just centered around your brand or are you participating in industry discussion? Are you just conversing, or are you also creating content?

In general, your listening/monitoring efforts for an active brand should take a couple of hours per day. The amount of time you dedicate to engagement - say, conversing on Twitter or on your Facebook page or LinkedIn Group - is up to you, but I'm going to say that it'll take at least 2-4 hours a day of time, whether exclusive to one person or distributed. The more engaged you are, the more active your networks will be, and the more maintenance and cultivation they'll require.

You're definitely going to need at least one full time equivalent in terms of hours, maybe more, if you're serious about adding social media to the mix. I'd also recommend evaluating and auditing your current marketing and outreach efforts so that social media can be integrated, and not be a standalone element (they should all work together and in a complimentary fashion). And I would recommend that the people you delegate to handle this be mature business professionals with an understanding of your organizations goals, customer attitudes, brand presence, and the like. This is a business management role first, with a specialization or a focus in social media. But you definitely don't want to delegate this to your intern; it really demands a more mature, seasoned business person if it's ever going to become a well-oiled part of your business processes.

Social media is an ongoing commitment, like customer service. You're not "done" with it, you maintain your presence and adapt to how your networks and communities respond to you. That's why it's important to not only dedicate proper resources, but to be sure they're individuals that are personable, business savvy, and committed to the long-term health of your relationships with your customers, as that's what engaging through social media is all about.

Amber

Symbols powerfully communicate meaning quickly. To me one of the most significant is North on a compass. It symbolizes mission which implies knowledge of a person's goals which in turn infers a purposeful journey.

Thus, there is a compass rose on the MacDuff site inviting people, business owners and leaders to explore big ideas for the benefit of their customers, employees and themselves. Even if one goes off course, having awareness of true North, any person can always find his way home or to another destination.

A friend, Bob Ward, sent the following article by Charlie Reese who has been a journalist for forty nine years. Since I could not say it any better, I offer the following article by Mr. Reese, which I use without permission. To me he captures why, as a nation, we are lost and have been for quite awhile.The same applies to our corporations.

If Congress, or even boards of private companies, really understood the concept of true north, my best guess is we all would be on a different heading now of fiscal responsibility, personal accountability, and real concern for members of our community.

545 People

By Charlie Reese

Politicians are the only people in the world  who create problems and then campaign against them.

Have you ever wondered, if both the Democrats and the Republicans are against deficits, WHY do we have deficits?

Have you ever wondered, if all the politicians are against inflation and high taxes, WHY do we have inflation and high taxes?

You and I don't propose a federal budget.  The president does.

You and I don't have the Constitutional authority to vote on appropriations. The House of Representatives does.

You and I don't write the tax code, Congress does.

You and I don't set fiscal policy, Congress does.

You and I don't control monetary policy, the Federal Reserve Bank does.

One hundred senators, 435 congressmen, one  president, and nine Supreme Court justices equates to 545 human  beings out of the 300 million are directly, legally, morally,  and individually responsible for the domestic problems that plague  this country.

I excluded the members of the Federal Reserve Board because that problem was created by the Congress.  In 1913, Congress delegated its Constitutional duty to provide a sound currency to a federally chartered, but private, central bank.

I excluded all the special interests and lobbyists for a sound reason.. They have no legal authority.  They have no ability to coerce a senator, a congressman, or a president to do one cotton-picking thing.  I don't care if they offer a politician $1 million dollars in cash.  The politician has the power to accept or reject it. No matter what the lobbyist promises, it is the legislator's responsibility to determine how he votes.

Those 545 human beings spend much of their energy convincing you that what they did is not their fault.   They cooperate in this common con regardless of party.
What separates a politician from a normal human being is an excessive amount of gall.  No normal human being would have the gall of a Speaker, who stood up and criticized the President for creating deficits.  The president can only propose a budget.   He cannot force the Congress to accept it.

The Constitution, which is the supreme law of the land, gives sole responsibility to the House of Representatives for originating and approving appropriations and taxes.  Who is the speaker of the House?   Nancy Pelosi.  She is the leader of the majority party.  She and fellow House members, not the president, can approve any budget they want.  If the president vetoes it, they can pass it over his veto if they agree to.

It seems inconceivable to me that a nation of 300 million can not replace 545 people who stand convicted -- by present facts -- of incompetence and irresponsibility.  I can't think of a single domestic problem that is not traceable directly to those 545 people.  When you fully grasp the plain truth that 545 people exercise the power of the federal government, then it must follow that what exists is what they want to exist.

If the tax code is unfair, it's because they want it unfair.

If the budget is in the red, it's because they want it in the red.

If the Army &Marines are in  IRAQ ,  it's because they want them in IRAQ  

If they do not  receive social security but are on an elite retirement plan not available  to the people, it's because they want it that way.

There are no insoluble government problems.

Do not let these 545 people shift  the blame to bureaucrats, whom they hire and whose jobs they can  abolish; to lobbyists, whose gifts and advice they can reject; to  regulators, to whom they give the power to regulate and from whom they can  take this power.  Above all, do not let them con you into the belief that there exists disembodied mystical forces like "the economy," "inflation," or "politics" that prevent them from doing what they take an oath to do.

Those 545 people, and they alone, are responsible.

They, and they alone, have the power.

They, and they alone, should be held accountable by the people who are their bosses.

Provided the voters have the gumption to manage their own employees.

We should vote all of them out of office and clean up their mess!

Charlie Reese is a former columnist of the Orlando Sentinel Newspaper.

 
This might be funny if it weren't so darned true.
Be sure to read all the way to the end:
 
     Tax his land,
     Tax his bed,
     Tax the table
     At which he's fed.
 
     Tax his tractor,
     Tax his mule,
     Teach him taxes
     Are the rule.
 
     Tax his work,
     Tax his pay,
     He works for peanuts
     Anyway!
     Tax his cow,
     Tax his goat,
     Tax his pants,
     Tax his coat.
     Tax his ties,
     Tax his shirt,
     Tax his work,
     Tax his dirt.
 
     Tax his tobacco,
     Tax his drink,
     Tax him if he
     Tries to think.
 
     Tax his cigars,
     Tax his beers,
     If he cries
     Tax his tears.
 
     Tax his car,
     Tax his gas,
     Find other ways
     To tax his ass.
 
     Tax all he has
     Then let him know
     That you won't be done
     Till he has no dough.
 
     When he screams and hollers;
     Then tax him some more,
     Tax him till
     He's good and sore.
     Then tax his coffin,
     Tax his grave,
     Tax the sod in
     Which he's laid.
 
     Put these words
     Upon his tomb,
     Taxes drove me
     to my doom...'
 
     When he's gone,
     Do not relax,
     Its time to apply
     The inheritance tax.
 
     Accounts Receivable Tax
     Building Permit Tax
     CDL license Tax
     Cigarette Tax
     Corporate Income Tax
     Dog License Tax
     Excise Taxes
     Federal Income Tax
     Federal Unemployment Tax (FUTA)
     Fishing License Tax
     Food License Tax
     Fuel Permit Tax
     Gasoline Tax (currently 44.75 cents per gallon)
     Gross Receipts Tax
     Hunting License Tax
     Inheritance Tax
     Inventory Tax
     IRS Interest Charges IRS Penalties (tax on top of tax)
     Liquor Tax
     Luxury Taxes
     Marriage License Tax
     Medicare Tax
     Personal Property Tax
     Property Tax
     Real Estate Tax
     Service Charge Tax
     Social Security Tax
     Road Usage Tax
     Sales Tax
     Recreational Vehicle Tax
     School Tax
     State Income Tax
     State Unemployment Tax (SUTA)
     Telephone Federal Excise Tax
     Telephone Federal Universal Service Fee Tax
     Telephone Federal, State and Local Surcharge Taxes
     Telephone Minimum Usage Surcharge=2 0Tax
     Telephone Recurring and Non-recurring Charges Tax
     Telephone State and Local Tax
     Telephone Usage Charge Tax
     Utility Taxes
     Vehicle License Registration Tax
     Vehicle Sales Tax
     Watercraft Registration Tax
     Well Permit Tax
     Workers Compensation Tax
 
STILL THINK THIS IS FUNNY?


Not one of these taxes existed 100 years ago, and our nation was the most prosperous in the world.  We had absolutely no national debt, had the largest middle class in the world, and Mom stayed home to raise the kids.
What in the hell happened?


Can you spell 'politicians?'


And I still have to 'press 1' for English!?
 

From compensation for my daughter who is a junior sales executive at a national company to chairmen - friends at global ones is a critical topic in the righting of the American economic ship.

In my daughter's case the answer was a corporate wide pay freeze due to "business weakness" despite her and few others' personal high achievement. In the case of top executive at publicly traded ones the issue of re-balance total compensation between cash and stock options to insure long term effectiveness of  decisions.

Lost in the conversation is the topic of making public employees or government accountable for decisions along with private company executives and the subject of integrity. We'll talk about government issues at the end of this piece.

I believe any of the three alternative approaches above, i.e. total lock down. cosmetic rebalancing or status quo, are solutions to the fundamental problem of self - serving focus of people in authority.

What I am helping several private company clients do is position their businesses for eventual sale or IPO, is restructuring executive roles to be more strategic than functional and linking total compensation to the long term performance of the organizations. We are doing this through a gradual re-alignment of the organization to fit the concurrent evolution of the businesses in complexity and adding a layer of non cash compensation.

Revised compensation structure, along with standard cash, tailored insurance vehicles and bonuses are warrants that are exercisable with change of ownership or longer term under special circumstances if the executive leaves the company in good standing. This is a work in progress with counsel, compensation consultants and business valuation advisers, but offers owners an ability to encourage and reinforce behavior that is in the optimizes the total performance of the company and not the individual income for selected employees. It further does not dilute owners' executive control or create unfunded tax obgligation to executives.

The current Administration is trying to foster regulations that require banks and others financial institutions (except Fannie Mae and Freddie Mac employees) to craft incentives along lines proposed by Professor Kane of Boston College. His idea is to bonus senior executives with a special class of stock that has claw back provisions require a return of capital if the company becomes insolvent. This seems like a smart but unworkable idea.

The second proposal is to establish a "West Point for regulators" according to Jason Zweig at the Wall Street Journal. The concept is to instill "a sense of honor and duty" with those charged with oversight. With these goings on in Washington, I wonder where all the adults, all the educators, all the parents have gone so that smart people think we need an institution to teach adults in responsible position about honor.

Integrity and honor, traditional concepts, are fundamental to motivation. Beyond that, compensation issues are central to behavior that potentially maximizes executive conduct that benefits all stake holders. Contemporary boards and managers have arranged compensation to optimize personal returns while sub-optimizing benefit to their cohorts. Under a capitalistic system it appears to me a straight forward; tie wealth creation to long term performance whether executives stay or leave organizations.

Jason Zweig, in is WSJ article, rhetorically notes: "It's probably too much to ask for Congress to abide by the sample principles (honor, duty and long term accountability even after leaving office), but we can dream. Could anyone possibly doubt this would wake up the watchdogs?"

Cal asked me to write a blog on leadership. So I’ll give it a try by briefly outlining the five key principles I believe lead to excellent leadership. I define excellent leadership as making employees want to come to work in the morning and voluntarily capturing their drive time and shower time thoughts. These five principles:

1. Leadership by example, a principle I first learned as an infantry platoon leader in the Army. The best leaders treat others as they want to be treated and they always treat the “little people” in a company with the same respect as those at the top of the company.

 2. The vision to look long-term but the discipline to deliver results short-term. True leaders set quantifiable objectives throughout the company, communicate them clearly and report on them regularly (to all employees, including every shift at the plants). Another blog will discuss the Objectives/Goals/Strategies/Measurements method of setting company-wide objectives that cascade from the top to the bottom in an organized, understandable method. It is obviously essential that the leader provide the resources (financial, technical and human) to be sure the objectives are achievable.

 3. The creation of an environment/culture where creativity and productivity can flow. Achieving the leadership position in a market or market segment is difficult. It usually means a company has differentiated itself/its products in a meaningful, consumer or customer focused way from its competition. It also usually means that the company is winning by obsoleting itself before the competition can do so. This usually happens when innovation is occurring to spur the company ahead. Innovation means risk-taking - which means a certain level of probability of failure. A true leader will share this risk of failure with his/her employees so that they are encouraged to come forth with the excellent ideas needed to drive for marketplace leadership as opposed to shrink from proposing meaningful action for fear of dismissal or demotion. Sharing occurs when the leader is aware of the initiative and encourages it. A true leader will also give all credit to the employee(s) when innovation succeeds, thus reinforcing the importance of risk-assumption and innovation.

 4. The recruitment and promotion of employees who share the following key characteristics:

 a.       Business people who have a background in a particular function as opposed to people who are only functionally (marketing or sales or finance) focused. Business people keep the whole company in mind when making key decisions.

 b.      People who have a desire to excel and are intelligent (street smarts count), entrepreneurial and honest. These characteristics can rarely be “taught”!

 c.       People who treat the company’s money as their own.

 d.      People who have pride of correctness, not pride of authorship.

 People are the most important asset of a company in the long run. Most large companies have access to essentially the same financial, informational and technical resources. It is the people managing these resources who make the difference between being number one and number two.

 5. An incentive/reward system that is aligned with the company’s objectives and is objective in its payout. Such a system will reinforce the key principles that are making the company successful in the marketplace.

 Although there are many principles for great leadership, I believe a focus on the above five will lead to success in the marketplace. Good luck!!!!!

 

 

 

Many years ago an advertising icon, Jerry Della Femina, warned ad agencies about inflating the cost of producing commercials. He likened the inflated costs of advertising to the then bloated cost of movie production. His views, now called blogs, were published in 1969, lifetimes before the Internet.

He said: "The day is coming. When the man who foots the bill is going to revolt. When the manager is going to say ' Why?'. When all is said and done the $ 100,000 dollar commercial (with inflation $ 300,000) wasted commercial is going to disappear forever.

Jerry could not imagine social networking's interactive communication. He had no insight to social-mobile-e-commerce or impact of self-publishing on opinion driven endorsements.  Essentially,Jerry foresaw agencies loosing their ability to give high value to their customers because they were focused on their bottom lines rather than on their customers'. Highly produced commercials and media spending in support of them is disappearing. Lesson learned: Focus on your customer.

The biggest advertiser, P&G is announcing a "stunning new business strategy" to jump-start growth. They claim it is a startling, counter-intuitive way to innovation proposing brands develop values and sense of purpose to invoke the heart and care about human needs. Succeeding at that, so go the natural extension of that strategy, revenue and profit will follow. No duh.

We at MacDuff have long argued that businesses have to find and deliver emotional benefit of their product and services to customers to be successful. Product end benefits support the emotional value claims. This concept is tough for entrepreneurs to grab onto, but is essential to the creation of great companies.

The synopsis of P&G's strategy from Knowledge@Wharton follows, which is not only the way forward for entrepreneurs with tiny businesses in the grand scheme of things, but also the US Government:

  1. Inspire employees to add their hearts to their heads.
  2. Add a third P to performance measurement: potential for impact. (To those who follow MacDuff, this means "change the world".)
  3. If purpose-inspired opportunities and commercial considerations seem to conflict, find another way.

Once, a long time ago, I sat in my boss's office - a brand manager of a large consumer products company. It was Saturday, Christmas Eve, and the brand group joined the discussion. He extolled us to get a number of delayed projects done for review and approval January 1.

Right after the meeting, one member of the brand group (this was 6 PM) left for Christmas with family and our boss yelled "Get your priorities right, your family or your career!". (Parenthetically, the issues we work through on Christmas Eve were not reviewed with upper management until March of the next year.)

My immediate thought was our boss, the brand manager, was really messed up. The problem was the boss's priorities and his insecurity, which his subordinate's audacity of leaving work at 6 PM lit up like fireworks.

The brand's performance was not an issue with the rightness of the programs, but rather the inability of the manager to make timely decisions. Our boss was precise to a fault which got in the way of decision making. No matter how smart we are or become, information is never perfect.

As business owners, we need to make calculated risk judgments based on a high level of trust among out team. We need to honestly prioritize how our teams invest their time.

At another time and place I worked for the president of a company who was shrewd, in a good sense. He saw opportunities in weakness of competitors, loved learning ways to exploit those weaknesses, and had the political clout within the corporation to get resources to expose competitive weakness for market advantage. That game was fun, but at end of days failed to inspire his team to build to greatness, an idea sacrificed at the alter of short term short profits.

The point of all this is that there are bosses and company owners whose sense of life is low despite their technical acumen. They are able to distort the work life balance so they slowly and beautifully allow the dying of terrific businesses right before our eyes.

Seeing so many once vibrant businesses die, in part, is why I created MacDuff. I want to help company owners rewire their businesses for sustainable wealth (freedom in my terms) on the premise we can inspire achievement beyond our personal limited lines of sight.

Two of my bosses framed that big idea, John and Ben. John is collaborative, empowering, brilliant leader who taught me that we get there together or we don't get there at all. He helped simplify complex ideas so they could come alive. He embodies strength, fairness and morality that combine in an uncanny way to fuse together highly motivated, self-directed teams with records of uncompromising achievement.

Ben was inspiring in a different way. He was bold, flashy, had terrific imagination with a bias toward action. He was awesome and fun at his best.

When people whose careers we've touched think back on us, how will we be remembered? I sense that most of us never pause during our careers to question whether or not we inspire others to grow beyond the limits we see in ourselves.

Many business owners (going concern or pre-revenue) are surprised that a key starting point for MacDuff Partners' engagements, after conducting a 360° business audit, is to begin defining a company's brand. We start with "brand" based on experience that strongly demonstrate branded companies and products lead to superior profitability.

Brand is the character of a business, along with the essence of what is promised and delivered to customers every day. As important to company owners, brand strategy provides the organizing concept, a theme, from which to lead an entire company. By extension, having a clearly articulated brand integrates the company's vision and mission and is the platform for sustainable wealth creation when the company is sold.

As small business owners struggle accepting brand as the core asset for a company, it appears management of Fortune ones do as well. A recent article in Advertising Age discussed a finding that on a global basis only P&G and Reckitt Benekiser communicate the importance of brand to the bottom line. The article summarizes a global survey by the Institute of Practitioners in Advertising in the UK covering the top 50 marketing spenders on all continents.

Ad Age gives an example of P&G as a thought leader in business communication based on their annual reports. The article pointed out that P&G's marketing strategy was integrated into the company's overall business commentary. A.G. Lafley, Chairman, explained throughout the report on a brand-to-brand basis how his company's focus on innovation and understanding customer needs delivers high value. (See our discussion of customer focus.)

An analyst, Seamus Gillen, concluded:"There's a correlation between how a company talks about its business and how it runs its business. The stronger the role played by brands in generating a company's revenues, the more important it is for there to be appropriate disclosure on the role of brands in developing and delivering the value proposition." Net, net, even for publically traded companies, strong brands translate to revenue, and revenue to value, thus value to wealth.

Many books and programs are dedicated to methods and practices for developing brands. Look in the MacDuff "Resources" section from some tools to use. A terrific quick read on brand building was written by Allen Gorman, President of Brandspa, "Briefs for Building Better Brands".

All business owners must spend time re-thinking the value of their company's and product's brands. Despite day to day operating challenges, time conflicts and emotional hurdles we go through running our businesses, long term brand equity is the critical asset for wealth creation.

Earlier I discussed the need for business owners to reconsider government created markets as part of their strategic plans. McKinsey illustrates this point extremely well in an article called Electrifying cars: How three industries will evolve.

The essence of strategic thinking is understanding that there is enormous wealth and brand equity to be created due to the inherent volatility of government legislated or controlled markets. The issue for each entrepreneur is to identify the strategic entry point, develop a plan to exploit the opportunity and take action.

I am not taking a moral or political stance. This is about wealth creation (freedom) within government created economies. Pharmaceutical, oil, nuclear, tobacco, mortgage and even liquor industries experience the vicissitudes of political action. Scale of opportunity and threat of loss is beyond historical precedence in our current economic ecosystem.

Yet, it is impossible today to forecast where opportunities will lie. First, most of congress does not even read bills they pass (excerpt from healthcare discussion). Senator Hoyer from Maryland, for example, even derides the concept of reading them because it takes too much time.

Secondly. unexpected events may subvert a seemingly winning decisions. For example, unions stopped the building of solar panel plants and solar farms in California by issuing a 62 page data request with the California Energy Commission related to alleged environmental violations. (California mandated renewable energy use a a percent of total. Never-the-less politicians sided with unions to extend the reach of environmental laws originally intended for other purposes, and apply them to desert land being developed for solar farms.)

Despite uncertainty and volatility, my belief is entrepreneurial businesses must participate in legislated new markets. The entry point is likely to be in supporting core infrastructure companies. Through analysis, get to know target customer needs. Either building information or e-commerce web sites or coaching executives in high stakes presentations; whether advising gas station chains to install electric recharging units or junk yard facilities to convert from metal reprocessing to battery recycling, opportunity calls. Analyze market data. Anticipate and respond to the future politicians are creating.

Think deeply and act boldly now or prepare to reap the winds of inaction.

In a meeting last week, a business-owner client with about thirty full-time employees made a comment that the pending changes in health care would bankrupt him in several years despite reductions in his work force to control operating costs.

Later, I asked Scott Peloquin, CEO of benefEx, a leading New Jersey employee benefit consultancy for small and mid-market companies, how I should begin advising my clients to think about the upcoming changes in federal health insurance mandates.

Scott said: “First, I don’t think the reforms now being discussed could possibly go through.  Even if they do, the most efficient solution today is for employers to deploy a consumer driven program, rather than retaining more traditionally designed – and expensive - plans. This was innovative thinking to me about how to rebalanced risks and costs, so I rhetorically wondered how the program worked and what a representative cost impact could be.

“In a nutshell traditional plans charge about $4,000 monthly in premiums to insure about $3,000 of up-front risk, or ‘deductibles’ (think about this as though you were lowering your annual auto insurance premium by increasing your deductible from $ 500 to $ 1,000).  The current higher cost arrangement is profitable for the insurance company commission-based insurance brokers.  High-priced insurance also produces disproportionate revenue for state governments which further increases health insurance costs. 

This ‘dirty little secret’ rarely enters the discussion, that states embed a premium tax into insurance rates as a flat percentage of gross premiums.  New Jersey is so concerned by the potential loss of premium tax revenue as companies switch to consumer driven programs that it is requiring a “declaration of understanding” attestation – part of a effort to dissuade employers from offering these more efficiently designed health care financing programs.

For example,  a 7-employee company paying nearly $98,000 / year for their health care program, before proposed rate increases to more than $111,000 in 2010.  Working in conjunction with the company accountant and HR administrator, they were able to restructure the health care financing so the worst case scenario cost was under $75,000.

Employee contribution rates and out-of-pocket maximums were reduced, and – if the plan performs better than expected, the employer may recover as much as an additional $25,000, thanks to a federally approved ‘dividend’ structure  an important, recurring part of the plan’s architecture.

Though he did caution that each company situation is unique, he stressed “…the same principal applies whether an employer has seven, seven hundred, or seven thousand employees!”  He also pointed out that benefEx converted 85% of clients to some form of consumer-driven healthcare solution – as compared to an industry standard still hovering around 7%.  Not a single employer group has returned to a traditional plan, which speaks well to both the sustainability of consumer driven program, and their popularity with covered employees.”

This issue is of major interest to company owners.I believe significant tax increases targeting small businesses next year are inevitable, thus recommend that owners spend at full available. Invest specifically on building a rock solid team of employees, along with a strong brand.Companies that do so will be best positioned in their markets six – eight years from now (when tax policy reverts to a more rational structure) to gain profitable market share, or enter into a profitable merger / sell transaction.

Other insights Scott shared with me is that businesses must proactively assess their Family Medical Leave Act (FMLA) and COBRA compliance. Speculation is that federal regulatory actions positioned as worker protections may be launched as “revenue enhancement” initiatives. From a cost management standpoint, outsourcing the complex administration of these federal mandates is more effective than in-house administration and more efficient since outsourcing costs dropped by 50% over the last three years.

Business owners building a highly profitable company in this political and economic climate need consider implementing a thoughtfully designed disability program. Done smartly it could mitigate some risks associated with FMLA. Communicated properly, more than two thirds of employees may actually volunteer to pay these premiums rather than having employers pay, due to the adverse tax implications inherent in most employer-paid disability plans.

The lesson to be learned is that owners must ramp up innovation throughout their companies. Innovation is required not only for profitable new revenue production but also for ongoing cost management. Building a highly profitable company demands customer focus more than ever, supported by a cohesive employee team.

 


Always, but especially, in tough times, character matters. Life's journey is not so much about what is accomplished but how. My view is that all company presidents, owners, heck everyone, looking in a mirror in the morning has to love the reflection he or she sees.

I am astounded by the Madoffs, Helmsleys or Stanfords of the world. They have had financial wealth but no character. Just because we can is no excuse to do. A close friend (Jack) and I talked today about our top sales  executives in totally different companies shipping container loads of products at fiscal year end so they could make bonus for themselves and their teams. Unfortunately, they shipped against  non-existent purchase orders. Bonuses paid, shipments returned, companies in a hole.

Congress, by the way, is not different. Congress passes unfunded mandates, and push costs downstream. Downstream are companies, states or municipalities. Congress is clean, all the others pay. If they can't pay, well, welcome to hell.

Entrepreneurs and leaders have to stand clear of this behavior and not tolerate duplicity. This is tough when your money, your family, your life is on the line. My view is that if you, owner, leader and visionary, do not set the example, true North, no one else can or will.

One of our clients, Peter Ladka of Parse3 exemplifies this idea of standing true. He is the last to win and the first to lose. He never forgets it is his family and the people in his company that create his wealth. It is not how many 0000000000 are in front of the decimal point in his checking account that measures his wealth. It is his character.

Lead. Lead from strength of principle that you believe in.

My wife and I had tough times in our family company, but never forgot the idea that we get there together or not at all. My mission. My men. (PC is people but readers will get the idea.) At the end of the day, character matters.

 

Businesses continuously seek operational improvements, often pursuing the latest strategic options. Larger organizations emphasize quantitative analysis, smaller ones drive by gut, but in the end a company's strategy, big or small, is defined by what it does versus what it says.

The big take away from this discussion is for business owners to think in another dimension about how to inspire teams to attain high performance within the context of rapidly changing environments. While specific reference to another company and people is made, they are used as concrete examples of advisers that can help SME businesses.

Over the past couple of decades, lean manufacturing and Sigma Six performance programs have defined solution paths for both manufacturing and service companies. Even in our family business and now in clients', we try to inject the philosophy of those disciplines if not the formal processes. From manufacturing to branding, from customer relations to administration, we have attempted to implement "lean".

In my experience, technical or mid-level management had been charged with designing and implementing process and profit improvement programs. This pattern underestimated the level of top management involvement and dedication to create change. All the players were skilled in their respective fields but lacked the formal or informal authority, capabilities or clarity of mission to accomplish the goal of making productive change permanent. Let's say that the changes envisioned rarely looked like the change that happened.

During the last several years I have been working with a talented group at SoundBoard Consulting. There I became more cognizant how the "soft" side of management, such as leadership skills, peer group collaboration and conflict resolution actually strengthens the "hard" operational skills. Those skills that I and my colleagues learned as MBAs and in other academic programs, ongoing promotions in large companies and their related training events and even in political roles appear more in background thinking than in day in and day out application.

The essence of this discussion is for small business owners to focus as much on the soft side as the hard. Making operational change is difficult but even more critical in 2009 and ongoing economy. We most frequently emphasize the technical or strategic aspects of management over the organizational ones. Richard Magid, founder of Soundboard, redirected my thinking to underscore that it is the softer side that matters most in delivering potential performance improvements.

Clarifying values, purpose, achieving alignment, receiving perpetual feedback are key in making sure the team is on the same page with the same high levels of commitment. Resolving the inevitable conflict created by high stress tasks begins with candid trust by all team members and facilitated ability to work out ways to gain key alignment.

My experience also teaches that there is initiative fatigue, which occurs due to the uneven progress virtually all programs encounter over the long pull. While technical teams may believe there is constant gain, company top management often looses energy and focus in making programs work. Net, there is a failure in leadership. Jay Wolf, also from SoundBoard, has created a leadership program that helps inculcate leadership skills and techniques to more accurately read employee behaviors and influence them in ways that realize intended outcomes.

I encourage presidents and owners to investigate resources like those found at SoundBoard if they aspire to create durable wealth.