Leadership is having a plan and effectively communicating to each employee their role in that plan.

By Dirk T. Dieters, Executive Director of The Fremont Group

In our discussions with business owners leadership is often a central topic. As an owner you are attempting to get people to act in a way that they would not do on their own. You want them to act in the best interests of the company. “Alignment” issues are when the best interests of the company diverge from the best interests of the individual employee. Alignment is a topic addressed in accountability and incentives which are structural issues. Leadership issues relate to the ability of the owner to create “buy in” by the employees. Effective leadership requires the respect of the leader. Many owners believe that respect is earned by demonstrating their ability to do every task in the company better than the employees. This is obvious in a transition business—father thinks the best way to train his son is for him to do every job in the business before he takes over. This attitude is generally a reflection of simply not understanding how to train the son to do the job of “owner.”

Leadership starts with having a plan. I often use an analogy from the military (bear with me, I was never military and my military son laughs at this but you will get the point.) When the general first calls together his troops, what is it that the troops want to hear? They want to hear, “what is the plan?” The last thing that they want to hear is, “well, I’m not really sure what we are going to do but we will come up with something.” They want to hear, “We are going to take that hill tomorrow!” And they want to hear it said decisively. They need to know that you have done your job and identified the need to take that hill in order to accomplish the next overall objective of the mission or battle. So you call them together and tell them, “We are going to take that hill tomorrow!” What is their next question? “What do you want me to do?”

Each individual wants to know their role in accomplishing your larger objective. You cannot have each individual determining their own role—you have to assign it. “You are going to charge up the east side of the hill at 0900.” “You are going to go to the west side and charge up at 1000.” “You are going to stay here and follow up in a second wave at 1100.” “You are going to be the medics and stay here to take care of the wounded.” And so on. The thing that you cannot have is the people on the west side at 1000 asking themselves, “I wonder if we really should go up now?” They have to understand that their job is to follow those orders and the only way to avoid that disaster is to be sure that you have their respect before you start. They have to know that you have a plan and that it will be followed and that no matter how small, their role is critical in that plan.

The same applies to your business. You need to have a plan and you need to communicate to each person their role in that plan. And you have to have their respect. They don’t have to like you but they do need to respect you.

Leadership–Intensity and Pot Stirring

 

A leader is able to get people to willingly achieve more than they would have on their own. Motivational skills, inspiration, and a belief in the follower that you care are some of the common attributes. You can motivate and inspire through threat and intimidation, however this is does not create lasting results. The two traits that I have found in common that will be discussed here are traits that are commonly found in successful small business owners—intensity and “pot stirring.”

Intensity is a razor-sharp focus upon results. All owners will claim that they have this trait however for intensity to be a positive attribute it must be accompanied by other factors. Intensity alone will not produce success. There must be a “razor-sharp focus upon results.” Therefore the first requirement is that clearly identified results be identified and in virtually all cases this means numbers. In its’ simplest form a business is merely an accumulation of numbers. Sales revenue, margins, productivity, overhead, etc. all provide numbers and the effective owner knows the numbers, knows what produces the numbers, and constantly monitors those numbers. There should be no surprises on the monthly profit and loss statement because daily, weekly (or in some cases hourly) monitoring of key profit indicators have alerted the owner to potential issues and the owner has dealt with it immediately. In this regard, the greatest threat to the owner is procrastination. Intensity means that there is no procrastination. Things are not put off. Issues are immediately discovered and addressed. A culture must be created within the organization that does not punish persons for bringing the owner bad news, rather it must be rewarded. In essence, know your desired results, constantly monitor the key profit indicators that produce those results, and address any abnormalities swiftly and with a clear demonstration of their priority to the organization. This is the intensity that produces results.

Pot stirring addresses the second threat to success—complacency. No one really wants to change. A comfort level is achieved in repetitive processes regardless of whether or not they are successful. The old adage of “poor practices repeated become company policy” is true. A leadership trait of successful small business owners is stirring the pot. Changing positions, responsibilities, territories—whatever—and eliminating complacency produces long-term results. The organization must learn that change is a part of the culture. Change needs to take place the moment any results begin to slip—not just after failure. The obvious downside is changing things that are working and therefore again the owner must know his key profit indicators and closely monitor them.

Much of the success of these traits hinges upon effective managerial accounting which will be addressed in future posts.

Global Resources to Sponsor Monday (8/29/11) Webinar

Management consulting firm Global Resources is sponsoring The Fremont Group’s webinar on Monday 8/29.  Attendees can listen to author Dirk Dieters (also the Executive Director of The Fremont Group) speak on leadership.  The webinar is titled, “Leadership Starts With You” and examines the role of leadership in small businesses.  You can attend by sending a email to admin@tfginfo.org before 9 a.m. on Monday 8/29 and you will be provided with the sign in codes.  The webinar starts at 11 am MDT and lasts approximately 45 minutes.  This webinar is in the fall webinar series of The Fremont Group.

Leadership

Leadership requires decisiveness. If the employees feel reluctance on the part of the owner to take action, they lose respect for him as a leader. The company’s direction must be clearly defined, the systems and procedures clearly communicated, and company policies must be firmly and fairly enforced. “Mistakes can usually be corrected later; the time lost in not making a decision can never be retrieved” advised Dirk Dieters, Executive Director of The Fremont Group. “A leader, then, is a person who is orientated toward results more than power or social relations….the results-orientated leader does not dictate the methods for achieving the results and, moreover, does not need to claim the victories as his own.” Complacency is your enemy; action is your friend. Every good organization has someone who stirs the pot—someone who simply does not accept the status quo much less unacceptable results. Employees resent change and resist but the pot stirrer understands that employees actually appreciate change more than then the option of a business failure and the owner understands that if the company fails, he loses everything but employees go across the street and get a new job probably with a raise.

Ron Battles, Director of the Small Business Development Center of Everett, Washington was asked to name the biggest mistake in small business. He stated, “Being slow to adapt to business conditions even though you think you’re fast…. I had to do something but if I had done it a year earlier, I would have been a lot further along. As a business owner, if there’s a decision to be made you have to make it quickly. If you don’t make it you lose the timing of that decision.

Employing people also creates a stewardship. You owe it to your employees to provide them with a secure company, opportunities for growth, and respect. Many owners misinterpret this stewardship and do not make the hard decisions. What they often do is cause the entire company to suffer in an attempt not to “hurt” one of them. The owner’s job is to deliver to the shareholders a pre-determined profit, maintain the quality and integrity of the company, and to grow. The owner must do his job as well as he expects others to do theirs.

Your success is limited to the excuses that you are willing to accept. When an employee comes to you with his excuse for not meeting the predetermined level of performance your leadership immediately comes into play. You must listen to what they say and then determine if you have been given an excuse or a reason for nonperformance. The difference between an excuse and a reason is—an excuse isn’t true! The nice part of being the owner is that you get to decide what the truth is. There are occasions when there can be a reason—a legitimate, true reason why performance could not be accomplished. That is why you have to listen to the employee. When a true reason is put forth you must then modify your plan. The performance that you had planned cannot be met. However it is far more common that your employee (or yourself) will come to you with an excuse instead of a reason. If you accept their excuse you have limited your success. More likely you should inform them that you do not accept their excuse and that you still expect the pre-determined performance. Employees are like children and they will push. If you give in you have turned the company over to them.

Hope is not a plan

Too often a business owner merely “hopes” that things will change. Hope is not a plan, it is a drug. We call it “hopium” and it is addictive because sometimes it works. Sometimes you do nothing and just hope and good results follow. What the owner needs to understand is that he was lucky—lucky the drug didn’t kill him. So the next time he thinks he can just “hope” away the problem again—but sometimes you don’t get lucky. For hopium addicts there is an unfortunate fact in life—if you are trying to do something you are exponentially more likely to get it than if you aren’t even trying. There is never a guarantee that you will get what you want but if you aren’t trying you have virtually guaranteed that you won’t.

The owner’s job is to lead the company. Leadership is having a plan and getting your people to focus upon their part of the plan.[1] Answer the following questions:

· How much money are we planning on making this year?

· What will be required in sales according to the plan?

· What will be required in Gross Profit according to the plan?

· What overhead level is permissible according to the plan?

· Other than money, what other results must the business generate this year?

These issues are at the top of the pyramid. These are the financial issues that must be addressed. The company must have a financial plan. The owner’s additional goals can only be met if the financial goals are met. Once those have been clarified, other goals can be fulfilled. The business is supposed to make the owner’s life better—it is not supposed to be the owner’s life. The owner must also define the other goals that they wish to achieve. Then, of course you must have a plan designed to do it.

The Plan

Imagine a football coach. We all know that he has a game plan established for every game. He would lose his job if his game plan said, “if everything goes right we will only lose by a touchdown.” This is done is small businesses every day. The financial plan of a company is their Profit Plan. How are we planning on making our pre-determined profit? What sales are required? What gross profit is required? What overhead levels are required? What is our plan for overhead absorption by profit center? Obviously your game plan must be designed so that the targeted performance produces your desired result. Once established (and the more specific the better) then it becomes the role of your Organizational Structure to focus your people on their individual results that they must produce in order to perform their part of your plan. The company’s financial reporting monitors these results so that people can be held accountable and incentives established and monitors the company’s progress in relation to the plan.

Every plan must address the following objectives: first it must assure that the business continue to function and stay in business for the next week, month, six months, year, etc. Second, the business must make money and third the business must grow. Any plan that does not address all of these objectives is fatally flawed. Business continuation is obvious but often overlooked. There are cycles to the business and the owner must be prepared to be able to withstand the “down” cycles—like the one we are in. The owner must also identify and develop a management plan that includes key management succession and a structure to shift reliance from people to systems to assure business continuation. No employee (owner included) should have the ability to hold the company hostage. Lastly the business must grow. This is vital not so much for the owner’s short-term return but rather it is required for retention of employees. A growing business offers more opportunity for employees and is more likely to retain the better people. Failing to grow eliminates those opportunities and causes the better people to leave—are reverse Darwinism—that is eventually fatal. Without retaining and challenging the best people succession of management is compromised.

You have survived a hit. The past two years have been very difficult times. If it was hopium that got you through it, maybe we should talk.


[1] “Nobody puts a proposal for a new comprehensive strategy on your desk and asks you to make a decision about it. You have to put it there yourself. And once you use your view of the big picture to formulate a strategy, you have to call on a wide range of skills to achieve a series of objectives. You must devise a business strategy tailored to your goal. You need to communicate the goal and strategy to…all the employees. You have to give greater responsibility to people at the front line and then create a secure atmosphere where they will dare to use their new authority. You must build an organization that can work to achieve the goal and establish measures that guarantee you are moving in the right direction. In short, you have to create the prerequisites for making the vision a reality.” Moments of Truth, Jan Carlzon, HarperPerennial 1989.

Your company is reflected in your meetings

So often you can find out everything you need to know about a company by attending one of their internal meetings held by the owner.  Is there a sense of urgency?  Is the meeting organized?  Does it start and end on time?  Are employees attentive?  Does the owner “sell” the employees?  The answers are always reflective of the way the company is run and the way your customers/clients perceive your company.  Change can begin with changing the tone of your meetings.  As a sage professional once said, “a meeting over 15 minutes long is a therapy session and you don’t have a license for that.”

WHY YOUR COMPANY IS OUT OF ALIGNMENT AND WHAT TO DO ABOUT IT

Focus is the alignment of the value center of ownership with the company’s management, employees, vendors and customers.

The owner just can’t figure out why his employees lack “common sense.” Management is excited—they have created a process of measuring and monitoring an activity yet even after it is implemented, the bottom line of the company drops. Employees are frustrated because they have to face customers who have been treated poorly. These all can be symptoms of a disease we at The Fremont Group call “alignment disorder.”

When your tires are out of alignment it costs you money and endangers your life. Your tires wear unevenly and have to be replaced prematurely. Your control of the car while breaking is compromised putting you and your family in danger. Worst of all, when you really accelerate your steering wheel shakes and you con lose control causing a major accident. The same thing happens when the interests of your employees are not aligned with the interests of the company. When it is in an employee’s best personal interest to take an action that is not in the best interests of the company you have an alignment disorder.

Alignment disorder is when an employee can make more money by working slower and accumulating overtime pay rather than getting the job done efficiently or when it is more important not being blamed for a problem than fixing it. A sales person lying to a customer to get a sale; employees leaving at 5:00 with a project a half-hour from finishing; or the raise given to the one who complains the loudest are all examples of alignment disorder. Bringing a company into alignment first requires that you clearly identify what the company is trying to accomplish. Alignment disorder is often a symptom of an owner who has not clearly communicated to his or her employees what is really important—or a company that says one thing but practices another. Of course once this mission is clearly stated and communicated, systems, procedures and controls must also be introduced which incentify the positive behavior and punish behavior not in conformance with the corporate objective.

What truly is important to you and your company? Money is obvious. If we don’t make a minimum, mandatory profit any other altruistic ideals you might have cannot be achieved. Although it is possible to forget that we need to earn a profit, our work at The Fremont Group rarely encounters this omission. (Possibly because companies that ignore profit are not in business long enough to become our clients!) It is much more common for us to encounter companies that have lost their “value center.”

There is only one reason for your business to exist—to make your life better. We preach this as the “First Commandment.” The obligation of your business is to make the life of the owner better. The things that are making your life better should be identified and built upon; the things that are making your life worse should be identified and eliminated. If however you do not clearly identify your “value center” as making your life better, you will miss a significant portion of this axiom. Everyone has a value center beyond just earning the maximum profit possible. If we did not we would make all “cost-benefit” decisions resulting in acting upon anything that would save the company a nickel regardless of the human consequences. Joe would be fired after he got old or hurt because he could be replaced cheaper. Agreements would be breached if it would save money. Customers would be provided cheaper goods if we could “get away with it.” Few owners (and none of our clients) would totally agree with this approach. There is a “higher agenda” for almost all of us. The litmus test of your value center is easily determined. Take a sheet of paper, as much time as it takes and write out your epitah—how do you want you and your company to be remembered after you are gone? Profit will be included but list at least five additional values that you want you and your company to be remembered for. When you finish you have defined the value center of your company. This now must be transmitted to your organization.

The transmittal of your value center to your organization is required to create alignment and focus. When your employees clearly understand your value center and are incentified to act in accordance with it they suddenly acquire “common sense.” This transmittal is an on-going process. It starts with the hiring process, continues in specific training, is reflected in your incentive plan and most of all is observed by all in the actions of the owner. Just as the parent who tries to teach his children not to lie as they call in sick to work to go skiing, the example of the owner is more important than the rhetoric. When the value center is defined the owner must be sure that they are identifying values that they are prepared to live by themselves.

During the 1990’s many consulting firms made money by convincing businesses that they needed to write a “mission statement.” Had it been done effectively much of the company’s value center would already have been identified. As Steven Covey wrote in The Seven Habits of Successful People (and many others have paraphrased) it is important to “start at the finish.” Most mission statements are either “forward-looking” or current attempts to define the mission of the business. We have already defined that the reason that every business exists is to make the life of the owner better but what is the purpose of the business? What are the things other than money that really will make the life of the owner better by fulfilling their true objectives? This is the value center.

It was also common for companies to create mission statements by committee. Bring in your management team, have them work with a consultant for a day (or more) and come out of the room with a well-written mission statement. Put this mission statement on the wall in the lobby and go about your business. This approach is an abdication of the leadership function of the owner. The troops look to the general for leadership. They expect the general to have a plan—a clear vision of what is going to be done. Then they expect to be informed as to what their role is in this plan. They don’t want to hear the general be “wishy-washy” about the plan and ask them what they want the plan to be. The common element of all leaders is they have a plan; they clearly communicate their vision or plan to their subordinates; and they act decisively upon that plan.[1] It is therefore the leadership responsibility to clearly define the purpose of the company. This is not a group activity—this is a look into the heart of the leader. If the owner does not do so, the company can never have the focus required to be successful without relying upon luck. Time spent by an owner identifying their value center is akin to time spent planning a project—every hour spent in planning saves two on the job.

A clearly defined value center creates in an organization a new definition of “success.” Most of us are not trying to be just the company who makes the most money; most of us have some values that must be complied with in making that money. As an owner we must accept a new definition of success that complies with these values. The attainment of this newly defined success brings about real fulfillment. To be accomplished we must train our people in its meaning and we must at all times demonstrate to the organization the priority of these statements through our daily actions.

In order to transmit your values to employees you not only need to live these values but you must also train your employees in them and incentify them to act upon them. If it is in their financial interest to make a sale using methods outside of your value center you have a structural issue. If they simply don’t understand how they should prioritize competing interests you have a training issue. The mere demonstration that you are willing to invest in training employees regarding these values makes a huge impact upon the organization. It is easy to say “do what is right” but when the company “puts money where their mouth is” the impact is undeniable. That impact brings your employees into alignment with your value center. It creates a focus within the organization. It puts everyone “on the same page.” It makes you more money and it brings about a fulfillment that transcends your bank account. It makes you successful.


[1] We need look no further than the Katrina disaster in New Orleans to see an example of poor leadership. There was no plan, there was no communication of the plan and no decisive action. A strong leader would have immediately appointed a single individual to act in accordance with the values that had been instilled in them decisively pulling together all of the available assets of this country. There would have been second guessing but a strong leader accepts second guessing. Six months later instead of trying to explain and avoid blame lives and a city would have been saved.

The Small Business Owner

It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat.  Teddy Roosevelt

On Presidents Day Weekend gain strength from this President.

Management Retreats

The Fremont Group recently surveyed small business owners and found the following results: only 5% of small businesses held an annual management retreat however those companies that did listed it as one of their most beneficial activities. Small business owners with fewer than 100 employees—some with only 10—found that a properly run management retreat was a critical part of their success. They also felt that it was most important in times of difficulty (i.e. recession).

What is a management retreat? It really is as simple as taking your key employees away from the office—sometimes for only the day but more likely for two days—and, with a set agenda, involving them in the planning process of the company. For the companies that do this they get ideas and buy-in from their key people that is invaluable. The Fremont Group consultants are trained in facilitating such events. They meet with you and together determine an agenda and a budget and then are the facilitator in the meetings. They also host some part of the sessions in which you are not present. Following the retreat they assist with the follow up.

What gets done? Think of it like this—we often go to individual employees and ask them, “What could be done to help them in their job? What are their goals? How do you think you could achieve those goals?” This type of questioning often brings out key information that help you run the company. At a management retreat we are doing the same thing only doing it by department instead of by individual. When tied down the department managers almost always set the bar higher than we would have ourselves. Then we develop a plan to accomplish these goals and train them to “trickle down” the actions to the individual employees in their department. This creates a focus upon significant change and upon “their” results. A second, and equally important benefit is the elimination of communication barriers. Your key people feel more informed and empowered and therefore produce more.

Who should attend? Your management team members are your “climbers.” The management retreat is one of their ladders. Invited should be (minimally) the head of sales, operations and finance. They, together with their key people, will get out of the office and come back more focused and productive then ever.

Call the office to discuss using Fremont to facilitate your annual retreat.