Steve Huey’s Blog

 The answer is that they can be all three but need not be bad or ugly.  Reorganizations of your company, are they something that needs to be done and how frequently?  I recently had lunch with a good friend who was still at a company I had run at one point.  The company had recently been reorganized and we were discussing the merits of the re-org.  He made a great statement that caught my attention and made me think more.  “If your business has not been re-org’d in the past 18 to 24 months with lay-offs then you should do it.”  What he meant and I agree is that if you have not re-imagined your business and moved to change the business to better serve your customers or improve overall efficiency then you should.

As a business leader you should think about how your organization’s structure works and how it can be better all the time.  Re-organizing your company can be a very good thing.  Usually what makes it bad is the execution on the change.  So I offer the following tips for carrying out a re-organization that is neither bad nor ugly:

• Base the changes on the needs of the customer not on weaknesses in staff. I made the mistake of changing an organization once because I was protecting a weak manager. Don’t do it as that action will come back to haunt you.
• Seek the guidance of only key managers and be careful that the managers don’t have a big stake in the game or their help will be biased.
• Communicate the reasons behind the re-organization clearly up front and then tell the team again. Have the message down and have it come straight from you. Answer the questions openly and honestly. If the reasons for the change are clear you will gain buy-in more rapidly.
• Immediately move to discuss how the organizational change affects each person and their role in the company. The faster you can do this the faster the company will heal and move forward.
• If asked will there be more changes – answer that there will be additional changes if you can serve the customer better.

One last thing I would have you consider.  Changing your organization every other week is just as destructive.  No one settles in to their role.  No one buys in to the goals – there is a lack of accountability and every team member starts waiting for the next re-organization.  So as will all things balance must be achieved.

There are probably thousands of books written about leading change.  Most managers stink at it – but if you embrace this as part of your longer term planning process you can make re-organizations Good not Bad and Ugly.

What is the biggest investment a start up makes? – The people it hires!

I recently sat in a pitch where the start up was raising $5 million in an “A” round.  When we drilled down in to the use of cash here is what we found – $120,000 was going to be spent of hardware (servers, bandwidth, PCs, office furniture, etc.); $2.5 million on people; and $2.0 million on purchasing traffic to their website.  Wow, 50%of the raise is to be spent on people.

That is a huge investment in fact it usually is the biggest investment.  Just like a factory filled with machines you the factory foreman must care for and maintain your machines except in this case it is not a cold piece of iron and parts it is a living breathing person with hopes, dreams, aspirations, a family made up of aging parents, spouse, children and pets.  The number one skill for a founder or a management team to have is their ability to attract, retain, and inspire talent.  How you handle the soft skills of talent retention is going to be the biggest determinant of whether your company will prosper.

Here are my top five things you should do today to “maintain” your factory of machines:

1. Make sure they do not feel like machines in a factory! – Really – they are people- Get to Know them at a personal level and understand their hopes, dreams, and aspirations and help them achieve those things. The biggest thing a manager can do to absolutely insure the success of their company / team / department is to align the goals of the individuals making up the team to those of the company / team / or department.
2. Communicate – constantly the goals of the company and how the company is doing. We live in a creative society (as Daniel Pink has reminded us) in order for your team to think and apply their creativity they need to know what is going on and the direction the company is heading. They also need to understand their role in helping the company get to where it is headed – so communicate!
3. Listen to their input – The first step in great communication is to listen. Many founders simply do not listen to their teams. This is crazy as the team usually has the greatest contact with the customer. Also think about what you pay them. From the neck down the average worker in the US is worth approximately $14,000 per year. If you pay them more than that then you are paying them to think. Why would you not listen to what they think?
4. Become the Servant Leader – In this day of jumping from job to job and shortage of talent, top talent – I mean the best of the best – the cream – the people who make things work – the ALL STARS – CAN GO ANY WHERE! So you must become more interested in their success than your own success. That is a key to being a great leader. Remember it is not all about you.
5. Have fun! – Winning is fun. Hard work and accomplishment is fun. We play as children. We play as teens. We all certainly play in college. Most people still need to have fun when they are working adults. I am not talking about the foosball tables, and ping pong tables of the dot.com era. I am talking about creating an atmosphere where the all star talent comes to work with their best friends and enjoys the effort of helping the company grow. Every culture is different figure out what yours is and make it a fun place to be.

You simply must be able to hire and retain the best people in order to win the game.  Remember the biggest investment you will probably make in your company gets up and walks out the door every night.  Make sure they want to come back…  Besides being a place where people want to work creates a great environment for you, the leader, as well.

So you have just taken over the company and you need to make changes fast or the troubled business you just invested in will be completely flushed down the potty.  You start down the road but there is some resistance or should we call it inertia.  We all have experienced it – we all have had this issue rain on our parade.  Here is a story that might help you get through it.

When I was the ripe age of 19 I was promoted to run a Wendy’s corporate store in Ohio.  As I took over my new duties I was especially glad to have Aileen work the day shift with me.  Aileen would probably describe herself as a fiery Irish Lass of about 50 years young.  In truth she was a good worker who showed up on time, and did her job well.   Aileen was also the unofficial leader of the day crew.

About the second week into my new role was when the problems started to become visible– nothing major but small things.  Day shift employees would resist working until their exact clock in moment and would demand to leave for the day at their exact scheduled time to leave.  It was so bad that I ended up having to schedule people in fifteen minute increments and over schedule crew members to deal with the lack of flexibility.  There was nothing wrong with their behavior but in the restaurant business as in all businesses the team needs to be flexible to make the system work.  Aileen would sit out in the restaurant on her break (once again nothing wrong here) and hold court with the day crew while customers were waiting in line to eat.  It created understandable angst with the customers.  When I confronted Aileen with the needs to be flexible and to tone down the court she indicated that she had always done these things and expected that since they were not against the official “rules” she also inferred that I was inexperienced and that I would learn.  Many comments came out over the next few weeks that held the same tone.  I was young and inexperienced and that I would learn how it was done and that she would train me.

As I said I was a new manager and as a new manager you can doubt your skills and abilities and so Aileen’s words hung on me.  As the weeks went by and the power struggle between Aileen and I increased the tension and performance on the day shift deteriorated.   She was usurping my authority.  Finally on one morning she blew up and walked off the job.  She said I was obviously going to fail and that the changes I was trying to make were only hurting the store etc. etc. etc.  I was devastated.  Within a couple of days her closest cronies quit as well.  I lost 20% of the team and thought I had made a colossal screw up.

That week my boss the Area Manager came in to the store and helped me run the day shift as we were horribly understaffed.  At the end of the shift he said to me – “I am glad that women finally left now you can make a positive change and build a good team.”  It was true within a few weeks things were going well – actually better than before and the team bonded and was embracing the changes needed to build the business.  The team had a fresh attitude did not remember the way things used to run largely because they did not have someone reminding them.

The Moral:

When you take over a company or a new leadership position – find your Aileens and help them either embrace you or find a new job and do this as a priority.  You, your team, and your business will not move forward when you have team members who are resisting the change and attempting to do their job the way it had always been done.  How many times do you here the story about how the company or group will never change until “_______” retires/quits/gets reorg’d. 

KEY MESSAGE – Help them retire/quit or re-org !

So you want to get more money for your company? You want to retire to some tropical island and thumb your nose at the “Man”…Then build “WHAT OTHERS NEED!”

This idea goes to the heart of unlocking the most value for your business and it does not matter if your business is a start up or going into its 20th year. Identifying how your business can be dramatically different than your competitors will help you increase your current business and the value you can sell your business for in the future. Seth Godin, author of Purple Cow: Transform Your Business by Being Remarkable, “… unless you are dramatically different, your product or service will never be noticed.” So what do you do?

1. Identify the players in your market to understand what your competitors are doing and how you can attack the gaps in their offering.
2. Answer questions about your competitors and yourself like, where do they compete, who do they serve, what do they offer, – study your competition hard. Try to understand them inside and out so you can …
3. Answer the BIG questions – “How is my company DRAMATCIALLY DIFFERENT from XYZ company?”
4. Once you identify how your company can be different focus your efforts on becoming different.

(I know this is abbreviated list but I could write and many have written entire books on this subject – Seth Godin has written several books on being dramatically different)Example: RentalHouses.com
I was hired to position Rentalhouses.com for sale and within eight months we sold the company and received several “Extra Xs” for the company because we became dramatically different than our competitors and by becoming different we became the missing piece in the competitive puzzle. Our largest competitor was very similar to us and was the industry leader. After studying them and the next four competitors as relative to size we formulated a belief that we should compete where they were not. So we set off to build our listings business in geographies where our competition was weak believing that we could build a case for the market leader to buy our company to help them fill in their missing geographies (and even more important we became a weapon that would let the market leader’s chief competitor strike at the market leader where they were weakest – different story for a future blog post.) Ultimately this geographic strategy paid off as the market leader and ultimate buyer of RentalHouses.com liked that most of our customers did not overlap and allowed them to become truly dominant in areas where their own business was weak. Other Examples:
Geography is only one way to be different – try going for different types of customers, time of day, product adjacencies, – they do frozen you do fresh, they sell gas, you sell oil, they are appoint only you take street traffic, they do dry cleaning you do alterations, etc. – Just be DIFFERENT. – Fill in the GAPS.By being different you help their “deal person” build a case for why they have to have your business or why they cannot let their biggest competitor have you. By building what they don’t have and yet need you will get an Extra X.

Ask the savvy restaurateur, the ballpark hotdog vendor, or business manager and they will tell you the two or three key metrics that they watch to understand how business is going.  Is it sales, how many dogs are sold or buns that are left?  One restaurateur stated that he could know almost to the dollar the amount of sales he had by asking the hostess the wait time at 7:30 each night.  He correlated wait time with average check and the number of seats in his restaurant to a sales amount.  Based on his experience he would understand how the business was doing that night by asking for one Key Performance Indicator (KPI).  As a business owner you must develop a few KPIs of your own that you can use to manage the business as well as communicate how well the business is doing to investors, potential investors and or acquirers. 

These tools are not new – ScoreCard terminology has been around a while.  Robert Kaplan had books out on his Balanced Scorecard since 1997.  There are dozens of books on the subject but let me boil it down. 

·         You need one to run your business

·         You need one to communicate and drive performance for your team

·         You need on to communicate how great your company is doing to your investors and potential acquirers.

·         Dashboards, scorecards, KPIs (whatever you call them) can be simple and game changing.

·         They should illustrate the two – six key metrics in your business

·         The Dashboard should be one and only one page!

·         Use pictures or graphs as much as possible (A picture = 1,000 words)

What are the easy steps to get started?  You could buy one of the dozen or so books on the topic and I do recommend that but here is what I think you should do right now (you can refine it later and should):

1.       Pick the three key performance indicators for your company. Example – listings, sales $, shipments, hours billed, billable percentage

2.       Gain a historical perspective – for your three KPIs go back as far as you can to dig up the historical data – if these indicators are really key this should be easy.  By pulling together the historical information you establish a base on which to have judgments just like our restaurant owner did.

3.       Lay out data on a single sheet of paper and carry it with you everywhere.  Use this as a way to focus yourself and your team. Does buying this new machine help us sell more?  Are we really billing all the hours we are supposed to or allowed to via the contract?

4.       Communicate these key metrics and how the company is doing to every investor, employee, manager etc.  Try to measure your results to that of your chief competitor.

These prior four steps can get you started but remember it is just a start.  Use these to focus your performance and to communicate your value.  A strong dashboard has helped me sell companies for a higher overall valuation and has helped me convince potential investors to invest.

What does Run Lean Run Strong mean?It means: only “invest” in people, processes, and other assets that are necessary to promote the growth of your company. Do not invest in things that do not help you sell more product or deliver better services. I know this sounds simple but it is a common mistake made by most companies.

First let me give you an example:

One of my mentors, Matt Cobb the former head of product management for EarthLink and Apple alum, once told me, “Why should we build software that we can buy, or license that exists on the open market?” It was in response to EarthLink’s desire to build its own download management software. What he was getting at was if you need a spreadsheet program you would not spend precious resources developing it when you could just buy Microsoft Office or use a free spreadsheet program from Google.

The same goes for companies in general. Why hire an accountant when you can hire a contract bookkeeper. Why hire a payroll administrator when you could contract out your entire payroll to PayChex.

In fact almost every General and Admin position can be outsourced today – even the executive’s assistant. What companies should invest in is the people that actually perform the service or create the product. Even that is pushing it as most products can be sourced as well but we won’t go that far yet.

Second, let me share with you how an acquirer will look at your company:

When I walk in to a company I immediately look at the staff and think about what I will have to do with them once I buy the company. Are there ten accounting people who I will need to transition out of the company because I have my own accounting team back at the corporate headquarters? If so their severance pay is a cost of the acquisition that I as the acquirer will have to figure in to the deal as well as the risk that one of them will do something less than professional because they are getting fired. Unneeded staff represent additional deal cost and integration risk. Both of these reduce what you as the owner will be able to pocket from the transaction.

Running lean allows you to focus on only the things that will make your business more valuable and it also preserves value at the time of an exit. So think long about adding that nonessential G&A person – think outsource first and then contractor if outsourcing is not available.