Be Thankful for What We Have

Several days ago, my wife was sworn in as an U.S. citizen in a ceremony in Chicago. Having dealt with the government bureaucracy throughout, we did not have high hopes for the occasion, but were pleasantly surprised by the ceremony that took place. Along with the 140 other new citizens and several hundred friends and families, we sang the national anthem and recited the pledge of allegiance. We watched a video about immigrants and also a music video with the song, “Proud to be an American”. The new citizens recited the oath to their new country.

For me, the highpoint of the ceremony was when the new citizens came forward to receive their certificate of naturalization. Of course, this is the digital age, so there were several new citizens taking selfie-videos of themselves receiving the certificate.

The person that impressed me the most was a gentleman in his 60’s, who really looked the part of an immigrant; neatly dressed but somewhat grizzled, with the rough hands of one who had done manual labor for many years. When he received his certificate, he held it aloft in both hands as high as he could reach to show it to friends and family across the room, and then began jumping up and down in a dance of sheer joy, a wide smile on his face. This was an important moment in this man’s life!

Of course, bureaucracy was on display that day as well. It took longer to check in the 141 prospective citizens than the actual ceremony. The Bulldog noted several quick changes in process that could have cut the time in less than half, but I kept my peace that day.

Afterwards, my wife told me about a comment that one of the bureaucrats made during the checking in lineup. Seeing the long line waiting to check in, she asked how many were there. When she was told that it was 141, she said, “Wow, why so many? Are they giving something away for free? I want some!” My wife had the right thought, but she did not verbalize at the time. I will now, “Ma’am, you’ve already got it, and you don’t even know!”

What the bureaucrat had was the liberty and blessings of being an American citizen. Unfortunately, at least at that moment, she seemed to have forgotten that fact. Many do, including myself from time to time. The freedom to live as I would like, to be an entrepreneur and build a business that supports my family and my community. The freedom to express myself and my ideas. We often take these things for granted, and often it is immigrants who remind about these freedoms.

To quote Churchill, “”Democracy is the worst form of government, except for all those other forms that have been tried from time to time.” (From a House of Commons speech on Nov. 11, 1947).

 

Do You Appear Too Powerful to Your Employees?

A number of years ago, I did some work for a large service corporation, one with over 10,000 employees. While I was there, I got to know a young person who worked there. This was his first job in a large corporation and he was frustrated. He felt that he could not get along with his manager and that his manager did not like him or treat him fairly. From everything I could see, this person was doing a good job and I did not understand why he felt that way.

I made a recommendation: before doing something that could have a significant and possibly negative effect on his career, I recommended that he sit down and talk to his manager, and tell him how he felt. I suppose that there are those who think that my suggestion was foolish, but I had not seen any sign from the manager that he felt this way about the young person.

The conversation took place, and the result surprised the young person. The manager apologized to him for the misperception. The manager’s remedy was also a great one. Starting the following week the manager and the young person would have breakfast together once a week and they would not discuss business. Rather, they would take time to get to know each other better.

The weekly meetings ensued, and in this case, they worked out very well. The manager and his employee actually became good friends, which they remain today. But even more importantly, the young person was able to use the mentoring he received from the manager to make significant growth that I know helped him enhance his career. The young person also learned an important lesson in management.

What is the lesson in this for us? Not that as a manager you need to be every employee’s best friend, but that you be open to understanding how you come across to other people in ways that you may not even realize. In particular, if you are the owner or head of a small business, you may be perceived by employees as being very powerful and hard to approach, in particular among your junior staff. Be aware of this when you are managing people, and be open to listening to your staff, and it will help you grow a business of loyal employees.

Effective, Efficient, Repeatable Processes

There are times, when dealing with different situations in business, when I remind myself that patience is a virtue. I ran into one of those times recently, though I will not release any names in order to protect the guilty! In this case, not only is patience a virtue, but the creation and maintenance of effective, efficient, repeatable and most of all, documented processes could have saved a large amount of virtue expended on my part!

Whether your business is large or small, when you reinvent the wheel with every new business opportunity, you are wasting precious resources. Even worse, when process is informal and undocumented, you could be wasting the precious time of a client or a vendor. This is essentially what happened to me. Had I known what was expected of me when interacting with this vendor, we could have been much more efficient. Imagine what might have happened if vendor employees had known what to do as well.

The first quality of a good business process is to be effective. In other words, the process is intended to accomplish something specific and is designed to do so. Forgive the old adage, but if you don’t know where you are going, you are very likely to wind up there! When designing process, always begin with the end in mind, and be certain through testing that the process actually accomplishes what is intended.

The second quality of a good business process is to be efficient. This means that the process should only include only those inputs, outputs and steps that are absolutely necessary to accomplish the end in mind. Many of us have a natural tendency towards complexity and we must resist at all costs. When you are creating business process, ask at each step along the way, “Is this really necessary?”  Think of the other person, be they client or vendor, carrying out the process; will they be muttering under their breath as to why they must perform this action?

The third quality of a good business process is to be repeatable. As mentioned above, the height of inefficiency is to do the same thing a different way every time (or was that insanity?). A process that is repeatable will gradually build up a body of experience that will help to increase efficiency and reduce performance time.

The fourth quality of a good business process is to be documented. What others don’t know they cannot follow! If a process lives only in someone’s mind, then there will be a constant battle to get the process done well. Of course, there are those who would like to preserve their position by keeping control, but that rarely works in the long run.

A final lesson here: a truly agile business will also have a process that handles exceptions to the rule. When an effective, efficient, repeatable and documented process produces an unexpected result, business agility requires that another process be available to handle the exception.

These simple, common sense ideas can keep all of us from expending too much of the virtue of patience!

Genial Relationships and a High Performing Management Team

There comes a time in the life of many small companies when outstanding performance leads to growth. The small company no longer consists of the founder and a handful of employees. At some point, it becomes apparent that the founder cannot manage every aspect of operations, much as they would like. The company now needs a management team.

Forming any management team, let alone a high performing management team, is a challenging task. What follows is not a complete guide to the process of forming a management team, but a few ideas that I believe may be lost along the way. Among them are: a genial relationship among managers and commitment by the managers to each other, and to the company.

In the age of demanding executives, it would seem that the way that people relate to each other is less important than it might have been one time. I don’t have to mention names for anyone to think of one executive or another that is highly demanding with their team and less than cordial when their demands are not met. Despite the fame of these highly successful people, I believe it to be the exception rather than the rule.

In the instance of a small company management team, I believe that a “genial relationship” among the team is a crucial element to be high performing. Now, I don’t expect that a management team will restrict their social circle to the team, nor that every member of the team must be best friends, but I do believe that if any member of the team is not well disposed to every other, then there will be problems. By genial, I do mean that when members know each other, their strengths, weaknesses and style, it is much easier to develop the cohesiveness necessary to be high performing.

That is where commitment comes in. I do not describe commitment as a general feeling that one has towards others, but rather the specific things that each member of the team commits to one another and to the company. For example, the management team members must commit to clear communication with one another. Finding out about problems indirectly can be the cause of dissension on a team, so each member ought to commit to going directly to another team member when there is a problem. When team members know each other well and share a genial relationship, it is possible that communication can concentrate on a problem, rather than a person.

Management team members ought to commit to the company strategy. This does not mean that there should not be discussion or disagreement on the development of the strategy, but that such discussion, disagreement and eventual consensus around strategy should focus on the business, not the relationships among the management team.

Finally, management team members ought to commit to the success of each other and the recognition to each other’s success. Becoming successful by pulling another team member down is rarely the path to long-term success for oneself. Helping another team member that is struggling strengthens the whole team. Success is rarely a one person achievement, so that recognizing the participation of another management team member and their employees in one’s own success will lead to a more sound management team.

Unintended Consequences

Business agility demands that a business be ready to react quickly to their environment in order to take advantage of change. However, there are times when a fast change results in unintended consequences. Many are the stories of plans gone awry, even when well researched and grounded in fact. All the more reason not to make snap decisions that can take your business in the wrong direction. Here are some questions that can help you discern the difference.

Are we equipped to handle the change? There are many companies that are the victim of their own success. Something that seems like a good idea turns out to be a great idea, to the point that the company is unable to keep up with demand. Before making a change or introducing a new product or service you need to ask several questions. The first is about volume, do you have the infrastructure to keep up demand? The second is about resources, do you have the people to keep up with the demand.

What would we do if demand was 2 times what you predict? 10 times? 100 times? Using hypothetical numbers allows you to analyze what effect different scenarios might have on your business. You may discover that up to a certain point, you can handle the new business or increased volume that a change may foster, but nothing beyond that point. If that is the case, you may want to introduce the change or new product to a smaller segment of your clients or the market.

Is the change based on fact or a hunch? It is true that there are those that can study a market and get a “gut-level” sense of what is going on. Generally speaking, I would not believe that of myself, and you should be skeptical as well. Is your hunch based on research and data, or is it based on anecdotal evidence but not supported by more extensive research? Getting to market with a new product or service includes doing a certain amount of research to back up the hunch.

Do you have a Plan B? If the new product or service does become successful beyond what you can handle, do you have a Plan B in place? Plan B can include outsourcing on a temporary basis, or using temporary staff to fill in. Be ready for success beyond what you predict.

These simple questions can help your business avoid unintended consequences on the road to success.

Great Customer Service is No Accident

Nothing brings out the bulldog in me more quickly than poor customer service. Recently, the bulldog has had too many occasions to come out! In one case, a company website where I was trying to pay a bill was not working. The site was quite rudimentary for a $6 billion dollar company, with no help function at all. When I called the only number listed on the site, I went through the “pass you on” routine, with lots of hold time during which I was told how important I was to their company.  Finally, I reached the office of the right person to talk to, but she was on vacation. I sincerely hoped that she would make it back from vacation else I might never be able to pay my bill online (or anyone else, for that matter).

In another instance, a well-known delivery company left me a form to sign to have a package delivered on the second attempt. I even called the company to let them know that they could leave the package in the foyer and that I would sign the form. The next day, I found a second form next to the first. When I called this time, the customer service person could not tell me what happened and passed me on to the local terminal.

After a couple of tries, and more messages about how important I was, I reached the terminal manager. The manager explained to me that company regulations did not allow them to leave the package in the foyer of my condo. To put a quick end to the story, about fifteen minutes later when I removed my teeth from his leg (figuratively, of course), he agreed to have the package left as I had requested.

Customer service should be in the DNA of every company, and it does not happen by accident. Based on my experience, both as a customer and as a service provider, here are some guidelines to great customer service:

  1. Every employee of a company is potentially a customer service agent. Even amid the myriad choices in a company’s voice response system many people get through to one employee or another. Therefore, all employees must be trained and ready to handle customer service at a triage level, that is, be able to understand the problem and get the customer to the right place the first time.
  2. There should never be a circumstance where the only person who can solve the problem is not there. When there is a technical problem, multiple experts must be on hand. For a small company, this may mean having experts on call. With today’s technology, reaching a person who can solve a problem should not be a problem.
  3. Customer service representatives must be given reasonable authority to solve a problem. Repeating company policy is not a solution. Nor is saying, “My supervisor is not here right now, he will call you back.”
  4. At the very least, customer service representatives, supervisors and managers must learn how to ask questions and listen, not only to understand the problem, but ascertain what the solution is that the customer wants.

Finally, a suggestion to all companies: please stop using the “your call is important to us” routine!

DuPont Analysis: The Numbers Don’t Lie

Over the years that I have been working with small businesses and entrepreneurs, I have discovered that there is no better way to judge the health of your company than through financial analysis. As the title of this blog states, the numbers don’t lie. A good financial analysis can lead you directly to the source of any problems within your business. Yet, many small business owners and entrepreneurs don’t spend a lot of time on financial analysis, or only do so superficially.

In my experience, one of the best ways to analyze you business’ financials is based on a method developed early in the 20th century, the DuPont Method of ratio analysis. The method was created by F Donaldson Brown, an employee of the DuPont Company, as a way to manage General Motors . The DuPont Method was considered the standard until the 70’s, although I still find it a very useful tool.

The DuPont Method introduces a pyramid of ratios with Return on Equity at the apex (click here to download a file). At each level of the pyramid, the method deconstructs ratios into their constituent parts. For example, Return on Equity is composed of Return on Capital multiplied by Leverage. Return on Capital and Leverage are then decomposed into their constituent parts and so on.

The key highlight on financial ratio analysis is to see how financial operations drive value. Some finance people refer to this model as the value drivers model; others, as the financial levers model. The former see value drivers as the explanation of how an entity makes money and increases its value, hence the term “value driver.” The latter view financial ratio analysis as the method for identifying the triggers of financial results, hence the term “financial levers.”

There are three different types of ratios within a DuPont analysis: profitability ratios, activity ratios and solvency ratios. Profitability ratios analyze whether or not you are making money, and why. The question why is the most important part of that inquiry. Many are the occasions when an entrepreneur or small business owner will say to me, “According to my Profit and Loss statement, I am making money. Why is my bank account empty?” Profitability ratios will help to answer that question.

Activity ratios will help you understand how efficiently your business is operating. For example, if your business turns over its capital 3 times a year, but your competition does so 5 times a year, you could be at a competitive disadvantage. In other words you will find it harder to compete because the competition used its capital more efficiently.

Finally, solvency ratios will tell you whether or not you have the financial wherewithal to stay in business. There are many businesses that are the victim of their own success. A business that has a great product or service that others want to buy may expand so rapidly that they don’t have the capital resources (money) to keep up with the expansion. Solvency ratios will help you understand where you are in terms of capital resources and how fast you can grow.

So, tune in for the next three weeks as we take on the DuPont Method.

i Project Management Accounting, Callahan, Stetz & Brooks, John Wiley and Sons, Hoboken New Jersey, 2007
ii Ibid.

It’s Cash That Counts

Next week I will begin a series about a financial anlysis tool known as the Dupont Analysis. To set the foundation, I am repeating this Blog about cashflow, because it introduces the capital blance sheet, which is integral to a Dupont Analysis.

I was working with an entrepreneur in startup mode, and was once again reminded of the difference between profits and cash. Particularly in startups, but also in more mature companies that achieve a breakthrough of some sort, mistaking profits reported on an income and expense statement with cash in the bank could be a crucial error. How do people make this mistake?

They do so by not taking into account the timing of cash flows. Remember, an income and expense sheet is reporting sales and expenses as they are booked for accounting reasons, but the cash flows that accompany the sales often do not happen at the same time.

For example, unless they are in retail, most companies do work on a credit basis (when retail accepts a credit card payment, they deposit slips like cash, so there is no extended term). You may not think about that way, but terms like Net 30 or Net 60 are nothing more than extending credit to your clients. In other words, your company is financing your customers’ purchases. The longer that it takes to be paid by your customer, the larger the debt that you finance.

Every company has a cash cycle, and depending on the business that you are in, there are more or less components to that cash cycle. Let’s take a company that distributes materials to other businesses. Here is a view of their cash cycle:

1. Purchase materials on credit terms (Net 30, 60, etc.) from suppliers
2. Hold in inventory
3.Repackage and sell to customers on credit terms (Net, 30, 60, etc)
4. Paid by customers
5. Pay suppliers

Now, this is a simplified cash cycle, but you get the idea. Obviously, if your customers are slow to pay you and you must pay your suppliers, you could be in for a shortfall of cash. Actually, one of the greatest risks to a startup or small company that is trying to grow is running out of cash while the business is expanding quickly. We should also note that there are other expenses (salaries, benefits, office space or utilities) that must be paid even if your customers are not quick paying you.

That brings us to the concept of Working Capital. Working Capital is the amount of cash that your company needs to have available in order to keep the cash cycle going or better put, to keep the company going. Working Capital is usually tracked in a type of spreadsheet known as a Capital Balance Sheet (which is a bit different than a Balance Sheet).

In a regular balance sheet, capital is kept above and debt below. In a capital balance sheet, a certain portion of debt is brought above. Here is the outline of a how to calculate Working Capital in a simple capital balance sheet:

Receivables (what your customers owe you)
+ Inventory
+ Current Assets
– Payables (what you owe your suppliers)
= Working Capital

Working capital represents the cash that a company needs to keep on hand to operate with receivables, inventory and payables. Receivables represent the cash that you have invested in materials and financing your clients. Payables are what your suppliers have invested in your company.

If the company sells $10,000 worth of materials in a month, 50% at Net 30 and 50% at Net 60, it means that they will not collect any cash for at least 30 days (if the customer pays on time!), and some of it not for 60. Even so, after expenses they might show a net profit of $1,500. There’s the rub, the net profit is not cash in the bank! If the company has bills to pay this month (or salaries) they must use the cash flow from previous sales to pay.

A startup company, in particular, will have problems if as they grow they do not have adequate cash in the bank to pay for expenses while waiting for cash to flow from sales. Often, a portion of the original investment capital in a new company is put aside for Working Capital; other means of having working capital at the ready could include a line of credit.

This is precisely what is meant by being adequately capitalized. Working with investors, bankers and others, the company’s executives must ensure that they have the cash in the bank to operate or they will literally be “out of business”!

Customer Service Personified

Last Saturday, my wife and I were on Navy Pier waiting for the fireworks when I ran into my good friend Joseph, who I believe to be the personification of Customer Service. The lessons he teaches by his actions are worth reviewing, so here is a repeat of that Blog from last year.

This past week, I took my wife for lunch at the Union League Club in Chicago. While I was there, I saw my good friend Joseph. Actually, he saw me first, as Joseph is a member of the wait staff at the club. By the time I had my soup from the buffet Joseph had placed my favorite soft drink at a table in the corner that he knew I preferred. As I approached, he caught my eye, flashed his signature smile and held out his hand to greet me, saying as he always does, “It’s good to see you!” My wife shares my opinion that Joseph personifies customer service.

Now, the award winning Union League Club in Chicago has many outstanding employees who give great service all the time so that it is easy to say that the club administration is doing all the right things to encourage their employees. Many of their employees have been on staff for years, indicating that they enjoy working at the club, and it shows! All the same, there is something special about Joseph; you can’t just teach somebody to be the way he is, although others could learn from his example. After thinking it over for a while, I concluded that there are four qualities that Joseph personifies: pride of ownership, personal warmth, attention to detail and enthusiasm.

Pride of ownership: It does not matter in which of the clubs restaurants you see Joseph; he always acts as if he owns the place. I mean this in a good sense, that he wants people to enjoy his restaurant and he will do everything possible to see that you do.

Personal Warmth: I believe that there are few people who can go to one of the club’s restaurants more than a couple of times that don’t know Joseph and consider him a friend. He consciously works at getting to know you and what you like. His efforts include more than just food and drink; in his unobtrusive way, Joseph gets to know about you as a person and remembers what he learns.

Attention to Detail: Joseph is always moving, seeing what is going on and who needs something. He is able to anticipate what you need next almost before you know it. As I mentioned above, my favorite soft drink will appear on the table before I get there with my food. Grab a dessert and he will be there with a fork before you sit down.

Enthusiasm: It is obvious that Joseph loves what he does. His underlying enthusiasm for his work shines through as he surveys the room and does whatever needs to be done. At the same time, Joseph has a great sense of timing, knowing how to take care of something without becoming the focus.

Recently, I took my granddaughters to the club for lunch for the first time. They were in Chicago, and I felt were ready for the experience. I was sorry that Joseph was not there that day, as I had prepared them in advance to watch him as an example of how to approach life with a great attitude and the spirit of great customer service that anyone in business should possess.

Worn Down by Your Business? Beat a drum!

I am writing this on Sunday morning of the first vacation I have taken in 2 years. There is so much to do that I don’t know how I can take a vacation right now. I am sure that many if not most entrepreneurs and small business owners often feel this way. Yet, if I allow myself to be completely burned out, my business will suffer. So, here is an idea to help you sustain yourself during busy times. Beat a drum!

Well, maybe not literally, although in my case I do mean so. Several years ago I attended a fund-raiser for a friend’s dance company (Chicago Dance Inc., if you are in or near Chicago, it would be well worth it to catch a performance). I bought tickets for a raffle, and won a free class at the Old Town School of Folk Music. Being of Irish descent, I have long been interested in Irish and in particular the bodhran, a Celtic drum. I enjoyed the class and took another. After the second class, I decided to try my hand drumming at an Irish music session in a pub, where I met my current teacher, John Williams.

I now spend a half an hour practicing every day and 3 hours on Sundays playing the bodhran at a pub. The physical exertion of playing the drum has helped to reduce my stress levels and be more relaxed. The camaraderie of the other members of the music “session” and our common love of Irish music has given me an outlet for conversation that has nothing to do with business, so that I am able to focus on something completely different. As well, playing music in a session is just plain fun! How many of us small business owners and entrepreneurs ever do something just for fun?

Now, I don’t think that every entrepreneur in the world needs to play a drum, but taking up a hobby of some sort, even for a few minutes a day, will help you increase your energy and clear your mind so that when you return to your business you will do so with new enthusiasm. My Irish mother in law used to have a saying, “A change is as good as a break!”, meaning that it can be just as restful to do something different as to do nothing at all. I highly recommend it.

If by chance, you would like to hear some great Irish music, stop by Tommy Nevins Pub in Evanston, Illinois any Sunday between 3:00 and 6:00 PM. You might even spy the Bulldog beating on a drum!

Here is a quick update to my Blog last week “Beat a Drum”, last week I participated in a great bodhran seminar with Mairtin de Cogain at Milwaukee Irish Fest. Mairtin is a well known Irish musician who is currently using Kickstarter to finance a DVD project including video, lyrics and music about the County of Cork, Ireland. Check it out!