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Feed Your Soul and Your Bank Account

Feed Your Soul as Well as Your Bank Account

Challenge

Owners of private business have a rare opportunity to create a legacy.  The owner’s initial motivation was likely to create income and wealth but once the becomes business sustainable  the owner can expand his or her thinking and satisfy other needs by planning for a contribution to their employees, market or community.

In my experience owners who think about their impact on employees, community and customers actually do better financially because of the strength and mutuality of the relationships developed.  The graphic below implies that owners with a contribution orientation are also happier people.  That has been my experience.  Do you agree?

blog-soul

A bank account can be measured in dollars, although different folks have different standard for evaluation: how much is enough?  Feeding the soul is different: Success here is measured making a contribution that fits the owners deepest needs and aspirations.  A person must know what is most important as a first step in reaching for it.    This requires introspect and discovery.  How many really understand who they are, who they want to be, what contribution they want to make and the legacy they want to leave?

What Blocks Your Making the Contribution You Most Want to Make?

Execution.  In this case, you know what contribution you want to make.  The problem is that you  spend too much time in your business and not enough working on it in order to do the things that you’re your soul and deepen your satisfaction with what you are accomplishing.

Head Trash.  These are habitual ways of thinking about yourself that limit your behavior.  These come from early experiences and were formed to protect from or endear us to our early environment.  (Yes, Mom and Dad had a powerful influence.)  Today some of these ways of thinking, feeling and behavior work for us and some against us.   You can take a first step in  discovering head trash by listing what you consider your limitations and weaknesses and all of the things that you would like to do that you think you cannot do.  Then ask others what they think of your strengths and weaknesses.  It should make you feel good since others are likely to see you as stronger than you see yourself.  It will also point to some of the head trash that is limiting you.

Blind Spots.  Blind spots are things that you don’t know about yourself.  Some of these are deep inside and no one knows them.  The ones that you should be interested in learning about are the ones that perfectly clear to others.  These might be about ideas, prejudices or behaviors.  Uncovering them can lead to ideas that will allow you to better achieve your dreams.

Recommendations

  1. Read What Got You Here Won’t Get You There (by Marshall Goldsmith) and Change Your Questions/Change Your Life (by Marilee Adams) for insights into surmounting your blind spots.
  2. Take some time off to dig deep and think about how you got to be who you are now and your deepest dreams. Consider the past as a prelude to moving further.  Consider who and how you want to be in the future.  Ponder the changes you might want to make.  Do this alone, or better, get a coach or counselor.
  3. Get clear on where you want to be and take the time and make the effort to work on getting there. Get help if you need it.  The rewards for self-insight and directed motion are immense.
  4. Join Vistage and work with a trained coach and peers who want to take that journey with you.

Humility

A few weeks ago, I was visiting Murray Berstein, the former owner of Nixon Medical.   He told me about his exit from the company and the transfer of the business to his three sons (who successfully figured out who should be President and how the family would share leadership of the company).

Murray was very straightforward in telling me what happened, as if such transitions were an every day occurrence. I knew otherwise. My experience with owner and family managed businesses continually demonstrates the difficulty of working through these (usually very emotional) issues.

Learning to embrace humility is the key to being a successful leader.

Murray seemed surprised that I was so impressed and complimentary of what he and his family achieved.

I asked him how they were able to do this and he told his story.  It started with his decision to exit. Murray realized that he knew how to successfully build a business but not how to leave it.  He sought and used advisors to help value the company and set the terms leading to the transfer of ownership. The family part was more difficult and the family hired a consultant to help them sort through issues and feelings and arrive at business and family governance structures.

Murray gave the credit to his smart advisors.  From my point of view, they deserved credit but I felt that the real hero was Murray.  He had the humility to know what he didn’t know and to listen to experienced experts. 

A few days after that meeting, I received the newsletter copied below from Tom Davidow. He is a friend, a clinician and a seasoned family business consultant. Tom put humility in a larger context.   The coincidence of my meeting with Murray and this newsletter motivated me to share his thoughts with you.

How do you teach humility?

Thomas D. Davidow, Ed.D.
Business Leader Post
March 28, 2012

In Jim Collins’ article, “Level 5 Leadership: The Triumph of Humility and Fierce Resolve,” published in the Harvard Business Review in 2001, he wrote that out of the 1435 Fortune 500 companies that he researched to determine what companies went from “Good to Great”, eleven companies qualified. What those eleven companies had in common was a Level 5 Leader, and what those leaders had in common was the character trait of humility.

Collins’ findings seemed counter-intuitive to me until I thought about the characteristics and personalities of the many family business leaders with whom I have worked. My experience is that the founding generation had a much higher percentage of humility than other generations, but that the percentage of leaders in family businesses who had humility was significantly higher than the eleven out 1435 Fortune 500 companies.

I am not sure why or if in fact that it is true and suggesting that it is fact or reasons why it might be true without proper research would be presumptuous.

I do know, however, that the senior generation talks a lot about how the next generation is bright, competent etc.; but they also worry that the next generation seems to be missing that sense of humility which they understand to be a key ingredient for success-not only as a leader of the family company, but as a human being as well. They worry a lot about how to help their children/future generations of business leaders mature and grow personally as well as professionally.

You cannot teach humility, but you can refuse to protect your children from failure. Life can be cruel, but it is also fair in the sense that nobody – I do not care who you are or what your background is – nobody escapes the scary, awful, difficult reality that one has no control over events, except for the decision as to how to respond to those events.

In the same article, Collins also shares that each of the Level 5 Leaders had an emotional life changing event. My advice then is that when your kids experience one of those events, although you will be there, of course, they have to pull themselves up by themselves. If you do not let them do that, you are denying them the opportunity to experience the humility that comes with overcoming great odds.

The interesting thing is that when you talk to people about overcoming great odds, they always say that they did not do it alone.

The Executive Search Business Model and the fable of the Emperor’s New Clothes

Pay special attention to executive business search and how it sets the tone for your company.If talk to any executive search firm about filling your opening, they will tell you that they will do an awesome job.   They might assert the value of their contacts, the skill of their research department or their ability to fit people to your company.  You should consider these claims carefully.

In other blogs we have documented the sad truth that less than forty per cent of executive candidates last 18 months, and have shown you that one of the leading and a most respected search firm admits this is true.  Given these statistics, you might ask, “What is going on and why is successful search so difficult?”

The executive search firm’s business model is straightforward in its simplicity.  There are three major elements:

  • Client tells the search firm the position it wants to fill and skills and personality desired,
  • Search firm finds excellent qualified candidates, and

Client selects the candidate it thinks is best, and hires him or her.
The first step in the process, the client setting the specification, sets up a fantasy situation that can be likened to the fable of the Executive’s New Clothes in that the Emperor’s vanity gets in the way of his discerning the simple truth that the garment he was promised couldn’t be produced.

The success and failure of an executive placement is not only about whether the right executive is hired!  It depends on many factors including:

  • Realistic understanding of what the new executive should accomplish to be successful,
  • Particular challenges posed by the hiring company and the way it operates in achieving that result, and
  • Hiring executive and organization’s being willing to accept flaws in their processes and take some of the responsibility for making the new executive successful.

When search firms join their client in the belief that they only variable making for success is the candidate, they are buying in to the client’s fantasy of his or her omnipotence in understanding the needs of the organization, because they benefit from it.   They don’t risk alienating the client by telling that he should dig deeper to understand what is needed for success; they deliver strong candidates, let the client chose, and collect their fee and leave. This is a safe and profitable business.

We don’t want to overstate and say that the traditional executive search model is never appropriate or that search firms never do a good job.  That clearly isn’t the case.  However, we believe that every search should start with an assessment that helps the organization dig deep and understand what is most important for the success of a new executive and what needs to be done to ensure that the executive isn’t in a job that can’t be done.  Only then, we believe, should the focus turn to the hiring specification.

Surprising Study Reframes Beliefs About Family Busines Longevity

At a recent workshop of the New England Chapter of the Family Firm Institute, Rob Nason shared results of FFI/Goodman Longevity Study he and his team conducted on the staying power of Family Businesses.  The statistics that 30%, 13% and 3% of families survive to the next generation comes from a pioneering 1987 by John Ward.  The results have dominated the dialogue and are oft quoted by newspapers and consultants.

Unfortunately the original study is often misquoted and the resulting popular conclusion is misleading.  We have come to believe that there is something inherent in family businesses that cause them to fail at the sited “rapid” rates.

I wanted to share some highlights from Rob’s presentation since this goes a long way toward reframing our understanding of the survival rates of family businesses and asks us to consider their strengths anew.  To me, the main take away messages were:

· The now shop worn 30%, 13%, 3% statistic is often misconstrued to mean that 30% of businesses fail in the second generation.   That is wrong. The numbers were meant to show, to use the first number, 30%, as an example that 30% of family businesses last through the second generation and begin the third.   As a further consideration, even if the business does not go beyond the third generation, this  does not always represent a failure.  Is it, for example, a failure if the business is sold?  The study used the family, not the business, as its unit of focus.   By doing so, it confirmed the positive result of the older study by showing that the average longevity of these businesses is about 60 years (2½ to 3 generations). It also presented a new and very provocative statistic: most of the families in their study owned multiple businesses so that the family’s involvement in enterprises outlasted its tie to any single entity.

· It makes a significant difference in perspective when you use overall survival rates as a benchmark.  As we all know, the world is ever changing and businesses fail all of the time.  The statistics show that only 25% of new businesses last 10 years.   Another way of saying the same thing is to consider that one company that was in the original Dow Jones still survives.   That is GE.  From this perspective, everything is turned around.  If the 30% number is valid, then it doesn’t show the weakness of family businesses; rather it is a testament to their strength.

Businesses are created by entrepreneurs.   The study ask us to consider that the family business is compatible with entrepreneurship and may even be a breeding ground for entrepreneurs.  I want to applaud Rob and his team for the study and invite anyone to learn more about by going to :
http://www.ffi.org/default.asp?id=411

Owner-Managed Companies Have an Advantage in the War for Talent

In more than 20 years of advising business owners of private companies on hiring and retaining top talent, I’ve witnessed unique problems they face in building their management teams as they grow their companies.
In his seminal book Good to Great, Jim Collins stresses that getting the right people on the bus is paramount to building a great organization. While hiring the best people is a challenge for both private and public companies, it’s a more daunting task for smaller, privately owned companies that must compete with larger, public companies for the same talent pool. Smaller, private companies are at a competitive disadvantage when it comes to hiring top talent for three reasons:

  1. Lack of large recruiting budgets to find top talent;
  2. Lack of brand name recognition and prestige to woo top talent; and
  3. Lack of competitive compensation and benefits packages to hire top talent.

That said, I’m about to contradict myself and argue that these hiring challenges are no longer hurdles. This exact point in time — the early years of the 21st century — offers the greatest opportunity in modern business history for private companies to find, hire, and retain top talent. In fact, I’d wager that as a result of a dramatic and fundamental shift in the world of work, private companies are in an increasingly powerful position to attract top talent. Two phenomena are bearing out this prediction.

First, members of Generations X and Y are seeking alternative employment to large, publicly traded corporations because they are suspicious of corporate America: Not only did they grow up in a world rife with corporate scandals, but many of them experienced first-hand how their baby-boomer parents were scorched by big corporations – they’ve either seen their parents suffer the financial and psychological blows of being laid off, or watched their parents practically work themselves into their graves to obtain the corner office. In this regard, the younger generations are redefining work and what it means to them. Instead of adopting the work ethic of their parents, they are seeking a quality of life and work/life balance that go beyond monetary compensation, fancy-sounding corporate titles, and climbing the corporate ladder.

Second, in an ironic twist, many baby boomers who have been successful in corporate America are growing tired of the corporate rat race. Since many of them want to continue working, they’re turning to the private sector as a place where they can add value and have a more profound and an immediate impact on a company’s bottom line. For many baby boomers, being a big fish in the small pond of a private company is more appealing and satisfying by mid-career; they no longer have to prove to themselves that they’ve made it.

My predictions are already being supported by a recent survey conducted by Burson-Marsteller, a leading public relations firm. The survey, 2005 CEO Capital™, reveals that “64 percent of workers from around the world say that a poor work/life balance is their top reason for not wanting to become a chief executive or other corporate bigwig.” Lesley Gaines-Ross, chief knowledge and research officer at Burson-Marsteller, further commented that “recent college graduates looking for jobs say that balancing work and home is important to them and work/life balance in general is a big issue that might give [them] pause before taking advantage of an opportunity.”

As a hiring consultant to privately owned companies, this survey is music to my ears and may be the most exciting time in my career because, as I’ve said before, the opportunities for private companies to grow by hiring top talent have never been greater than they are now. Thus, I’m motivated more than ever by the challenge of helping business owners “get the right people on the bus,” so they can take advantage of this shift in attitude and mindset.

Profit Sharing: Entitlement or Motivator?

Background

Many business owners believe in profit sharing because of their personal values and also because they believe that profit sharing motivates employee loyalty and performance.  This second conviction remains firm even though research shows that for incentive to impact behavior, there must be a clear link between the behavior and the reward.  Because most jobs are so far removed from a direct impact on profits, this condition is seldom met.

Employees are unhappy when they do not get profit sharing and are happy when the do.  Therefore, profit sharing can have a positive impact on employees’  feelings about their company–but it does not motivate performance.

The original purpose of Geiger’s profit sharing plan was to reward associate loyalty and compensate for lower pay during a period when the company was struggling for survival.  Third generation  President, Ray Geiger, promised to his new employees, “If you help us earn a profit, we will share it with you.”

That period of struggle has long been over, and Geiger is now one of the largest and most stable companies in the industry.

The Geiger Challenge

A few years ago I was hired by Geiger to conduct a systematic review of all compensation programs with the goal of ensuring equitable and competitive compensation, including incentives at all levels.

The mechanics of Geiger’s profit-sharing plan were typically straightforward.  After the end of the financial year, the company allocated a portion of profits to a profit-sharing pool, which was distributed to associates in the same ration as individual wages to total wages.  Management felt the associates didn’t understand the plan and were distrustful of the way is was administered.  They wanted to turn this around and get them to share some of management’s concern for profits.

Plan Design

The most dramatic change in the new palm was to base the program on company and business unit earnings targets that were clearly stated at the start of the year.  This meant that instead of having to wait until year-end to learn about their shares, associates were given a score-card to keep track of company results and their own share of profits.

At the start of the year, each associate is presented the financial targets for the company overall and for his or her division and department.  Each associate’s incentive is linked primarily to the department performance, but at the same time it was decided that everyone should have no less than 25 percent of the incentive linked to the results of the company as a whole.  Geiger hoped everyone would fee part of the total Geiger “familyboundaries.

Due to budget constraints, hourly associates were targeted to earn a meaningful but modes 2.5 percent of annual compensation if targets were achieved–and proportionately more if the targets were exceeded.  Some selected manager had higher earnings targets consistent with increased impact on overall results.

The plan had a minimum threshold for overall company profitability below which no payments would be made to anyone. Employees were told how their payment would increase, decrease, or fail to be paid depending on actual results.

Questions and Concerns

In the process of designing this program, management had numerous concerns and questions about the plan design. Here are some.

  • Keeping It Understandable. It is very easy to overcomplicate a plan so that employees don’t ..understand how it works. If they don’t understand the plan, motivating value is lost. Indeed, lack of ..understanding may even result in a negative effect if people feel something is being put over on them. ..This suspicion existed with the previous plan.
  • Non-Financial Performance Measures. The company had quality metrics for its Departments. They ..could be part of the scorecard. Theoretically, it would be preferable to base bonuses on some ..combination of profits and other metrics. However, this would be too difficult administratively. It was ..decided to continue to provide feedback on the quality measures but base the profit sharing payoff only ..on profit targets and results. The question remained: Were profit targets (which were more removed ..than team quality targets) be enough to drive performance?
  • Making it Meaningful. The bridge between individual jobs and Department results is more direct than ..that between corporate results and individual jobs, but not as direct as desirable. The way to make the ..connection was with good communications and through wide spread problem-solving meetings. Could ..management pull this off?
  • Size of Rewards. Were the target bonuses too small? The $775 shown in the example translated into ..about 1.3 weeks’ pay. Some employees even had smaller dollar targets, depending on annual wage. ..Was this amount large enough to make employees care about whether the company and their unit ..achieved its goals?
    ..Difficult Economic Times. The industry and company were going through difficult times. Because the ..economy was weak, client advertising budgets were down as were company revenues and profits. Did ..it make sense to launch a plan like this in a year when it was possible that there would be no profit ..sharing bonuses?
  • The Unknowns. There were probably unanticipated consequences. What would they be? Would they ..be damaging?

Geiger management decided to implement the plan despite these concerns and evaluate results, making modifications as appropriate.

Results

The company’s experience in the second year of the plan shows the value of connecting the profit sharing plan and individual rewards to unit performance. Company revenue ended significantly below plan, yet profit exceeded targeted profits. As a result most employees received profit sharing payments that exceeded their original targeted amounts.

Why did this occur?

  • Managers reported monthly (verbally and with graphs posted) to all employees how their units were ..performing compared to target. The CEO issued quarterly reports the overall company performance. ..Employees knew of the sales struggle and understood the need to focus on cost reduction
  • Employees clearly understood that cost cutting was necessary if they were to get bonuses and put ..pressure on management to do so. Was the size of the potential reward large enough to motivate ..employees? The result indicates that potential bonuses were enough and additionally, that employees ..understood how the system worked for them.
  • One large unit did not achieve bonuses the first year. What impact did that have on morale? The unit ..was particularly diligent about costs the second year, and successfully achieved bonuses. The first ..year was very disappointing for that unit. This disappointment seemed to focus the unit. When the unit ..made target and bonuses were paid the second year, there was a big celebration.
  • The company had training programs for managers and employees on leading teams and motivating ..quality performance. This helped the process on involving employees in cost cutting and other ..improvement strategies and minimized resistance to implementation of the plans..

What were the unintended consequences?

The pressure on managers to achieve targeted goals came from above and below. In particular, the head of the largest division understood that the performance of her unit was critical to the company’s overall profits and, therefore, to whether the company reached the minimum threshold for any bonuses to be paid at all. She reports lost sleep over the challenges. The plan can hurt morale in units that get low bonuses because of unit performance. It is up to the unit leader to mobilize people.

Some scorecards had to be fine-tuned to better reflect circumstances in the unit. The biggest adjustment to the plan was in the sales organization. In the first year, bonuses were paid on profit as in other units. The results were as indicated above: costs were cut and profit targets were made. However, there was concern that this worked against building new business. Therefore, for the sales organization there was a major change. Now, half of the target is for building revenue and half for profits. This made the job of the sales executives more complicated but prevented the plan from motivating only cost cutting.

In any planning process, some executives will provide stretch targets while others will be conservative to both protect themselves and make bonuses more attainable. It is very important for a plan like this to provide a level playing field. Management must be diligent to prevent “sandbagging” and make goals uniformly realistic.

Conclusions

Everyone Understood The Link Between Profits and Their Personal Reward. This plan was dramatically successful in getting employees involved in the profitability of the business. It gave them a meaningful stake in the business’s success. Everyone at the same organizational level in the same unit had the same scorecard. Therefore, the plan provided group rather than individual incentives.

Hourly and Management In Same System. The plan proved meaningful to management and hourly employees and tied them together with a concern for company profits.

Beyond Entitlement To Earned Reward. Employees are still disappointed when there is no bonus. In this regard such a plan is no different from when profit sharing is seen as entitlement or a benefit. However, when bonuses are received they are seen as something earned and are celebrated. Structuring a plan in this way allows profit sharing to impact business results.

Employees Understood Rules and Wanted to Play. The success of this plan also reinforces research that indicates it is not the size or amount that counts. What counts most is making the ground rules clear and giving employees a means of making an impact on whether they receive a reward.

Ongoing Involvement By Senior Management. Finally, and most important, Gene Geiger and his management team wanted this program to succeed. He and his management team believed in sharing success and in profit sharing. As a result they were willing to invest effort in the communications and the process of reacting to events and making changes when necessary to make the program succeed. Their reward was that the profit sharing plan helped them improve corporate performance.

Seven Smart Compensation Strategies

If you are like many of the owners I work with, you struggle with your compensation programs. You want to control costs, be fair and reward the top performers. You understand that a strong and balanced compensation plan will help you attract, develop, and retain productive, happy employees. Maybe you want to improve your plan, but you haven’t had the time to work on it.

How do you get from your current situation to a compensation program that is a truly fair and equitable ?

Let’s start with the state of many small company pay structures. I typically see a structure that has evolved over the years based on two principles. The first is to keep payroll costs low. The second is based on expediency and involves paying what is demanded to keep staff happy.

The longer these “structures” evolve, the more they become internally inequitable and out of sync with the market. They create problems because they cannot be justified to staff and have a negative impact on the level of talent in the company.

Interestingly, once you start thinking about how to make it better, the steps flow one to another. The first step is to create a structure.

The structure is a progression of salaries with the midpoints ascending in relation to market value and value to the company. Each job has an associated range, demarked by a midpoint, minimum and a maximum. A compensation professional can help you develop and manage ranges. Once these ranges are defined, your options and strategies expand.  Here are seven ways a compensation structure will help you manage smarter

  1. Structure helps you build for the future. In my experience, and to the surprise of most owners, when a structure is created most employees fall into the appropriate range. True, employees may be low in their ranges. However, management is not compelled to give anyone a raise. Having ranges creates an opportunity to think about what your employees can do to increase their value to the company. Increases can then be tied to performance and development targets.
  2. The mid-point, not the maximum, is the target. If the structure is properly positioned in relation to the market, the mid-point tells what a fully qualified person should be paid. This means that smaller and slower raises are appropriate for those who haven’t developed target skills and faster and larger raises are given your top performers: those who have skills and have showed they can use them. Communications with individual employees about compensation isn’t limited to reactions to employees asking for more money. These conversations become about the how the employee can provide more value to the company in order to increase their compensation.
  3. Being creative about the range between mid-point and maximum. Employees who are paid above the mid-point should be the top performers. It is likely that they are more valuable to you than to another employer because they know the culture, values, procedures, and personnel in your company. They should be paid for their value. At the same time the current employer should recoup gains for training them. These are the employees who can be challenged creatively. How can the organization make their raises and bonus rewards contingent on company performance and individual performance?
  4. Change from profit sharing to incentives. Individual incentives must be part of a top-down goal-driven initiative. The CEO, owner or General Manager defines corporate objectives in very specific terms. The acronym is SMART (Specific, Measurable, Attainable, within Responsibility, and with Time Frames). SMART goals build in criteria that allow everyone to see whether they have been achieved. The corporate goals are then parsed between departments and within departments between people. In theory, everyone has goals. Bonuses are tied by a formula to corporate and individual results. Expensive? It doesn’t have to be. Research shows that the goal itself provides motivational incentive and that moderate rewards work as well as big ones. The important feature is that individuals have some control over the size of their rewards. That gives incentive programs the motivational value that profit sharing lacks.
  5. Harness the power of groups. Should you have only individual goals, or do group goals work as well? The advantage of group goals is they can bring group social pressures as well as economic incentives into play. Once again, research says that having them is more important than their size. Brainpower and creativity is more important than cash in making these work.
  6. Communications about company performance becomes meaningful. Performance goals encourage communication about the performance of the company and give employees a reason to care. At least three meetings are mandatory: (1) a meeting at the start of the year to share corporate goals and the ground rules of the incentive program; (2) a mid-year review to discuss results and encourage performance; and (3) an end of year summary, congratulating staff for good work or reviewing what was learned, so there will be greater rewards for all next year.
  7. Performance management and reviews can become a way of life. What is the purpose of a performance review in a performance oriented culture? One purpose is to look back and evaluate what was done the previous year. The fact that you have created performance goals and development goals makes this a more productive exercise. The creative part is that you can look forward and begin dialogue on how to do better next year.

Is this a program that can be put off, or should you be working to rationalize your compensation program, starting today? You have to ask yourself, as the small business owner, what is the danger of not putting a solid compensation plan in place, and allowing the current situation to continue?

If you believe in the value of money, you should ask is you are getting as much as you could from your payroll expenses. If the answer is no, it is time to start making the changes that will help you get more value from your investment in people.

Either way, you must believe in the value of people. It is your human capital that will grow your business, develop loyal customers, and contribute to your increased profitability.