Wednesday, February 3, 2016

The Challenges of Managing Different Businesses

Perhaps the biggest challenge for a CEO is managing different businesses, since it is not uncommon for a holding company to own a number of subsidiaries that may, or may not be related.   While each business may have a life of its own with different compensation plans and even personalities, it is the CEO's job to meld a common culture based on the company's core values.  And further, since resource allocations are always involved, the CEO is ultimately perhaps the only person in the company that can balance the interests of all employees, clients and customers, particularly when various managers fail to see the big picture because of a narrow focus.

Managing any business is about long term success, not short term gains.  Since there will always be business cycles where one business is up and another is down, it is important to recognize that we grow a company as a team, not as individual contributors.  That is never tested more than during bad times when tough decisions are required.  Long term employees get it always demonstrating business maturity.  Short term employees will never get it.

The fact is that in any company's history, there will be good years and bad years.  As someone who has successfully managed through multiple Recessions, the Dot Com Bust, 9/11, the lowest and highest interest rates in American history and the Fiscal Collapse of 2008, I can say that good managers perform best in bad times.  Bad managers are usually gone one way or another.  In managing different businesses within one company, it is critical to forge one company culture, while recognizing industry differences.

That culture cannot be built on selfish interests.  Though selfish interests may result in short term gains, they cannot be the basis for long term success. Further, while it would be great if it was the case for all employees, at a minimum, all senior managers must understand the big picture to bring value to a company.  It can't work any other way.

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Wednesday, December 23, 2015

Multi - Channel Sales & Marketing to Increase Revenues and Profits

Companies often hit road blocks to increasing revenues and profits.  It can come in the form of increased competition, pricing pressures, industry disruptors, or economic factors beyond a company's control.  For that reason, all companies should look to use existing skill sets, with perhaps some modifications, to seek out new customer opportunities.  In other words, find someplace else to sell your products, or services that are different from current sources. 

While all companies should do this cost effectively, small or mid sized companies must do it cost effectively by using current employees wearing multiple hats.  Don't put a whole new structure in place to deal with these new customers until warranted by volume of business.  Use the structure that you have, even if it means stretching current employees to both sell and service new clients and customers outside the normal selling channel. 

To provide a very simplistic example.  A donut store is used to having customers come to it to buy donuts.  Very often churches serve donuts on Sunday mornings after services.  Why not contact all churches in town to put annual contracts in place to deliver donuts every Sunday morning to the churches interested.  This could be an opportunity to sell a hundred dozens or more donuts to each church, each week. While perhaps sold at a volume discount, it is another way to get to the customer that might not otherwise come to the donut store on Sunday morning.  The only addition to cost other than volume related overhead, is perhaps the delivery guys; but that will be young kids at fairly low wages creating jobs in the process. 

The point is that Multi-Channel Sales and Marketing is a way to gain new customers and expand revenues and profits.  In this particular case, the business owner has time Mid-Day to make telephone contact to set up annual contracts with churches and or perhaps other organizations that have regular meetings where donuts would be welcome.  In all probability, with focused Multi-Channel Marketing, it may be possible to double or triple revenues and profitability without adding much to fixed costs that already exist.  In this case, selling more donuts to spread the fixed cost over will increase profitability.  Everybody wins because everybody loves donuts.   This same principle can be applied to many businesses. 

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Saturday, December 19, 2015

The Challenges of Managing Millennials

Several years ago, this CEO got the bright idea that we would hire Millennials, recent college grads, put them through intensive training that we called Boot Camp and bring them into our company as entry level, front line employees dealing with our customers.  So, we hired a class of 13 of them with high hopes that this would be the answer to our future recruitment requirements.  Well guess what, this experiment failed miserably. 

Some did not last 3 months.  Some made it to 6 months; but none was in our company a year later.  These young people just could not handle the riggers of a demanding job where they had to be on the phone from 8:30 am - 5:30 pm dealing with our customers.   While it is usually not wise to use a sampling to form a general impression, if this was just a few of them, it would be easier to assume that Millennials were not up to the challenges of these jobs; but 13 employees was a big enough sampling teaching us to never do that again. 

This may be a societal issue.  I remember when our sons were playing soccer.  When Johnie missed the goal, his parents would yell "nice try" giving Johnny a false sense of achievement.  This CEO never yelled "nice try" when our sons missed a goal.  I said nothing unless they made the goal.  Too many Millennials have been told they are wonderful for doing nothing important.   That does not work in business.  We found that some of our Millennial hires wanted to be recognized for just showing up for work.  They thought showing up warranted a salary increase and promotion.  Some of them just did not have the physical stamina to do the job.  I recall a few of them in the back of our building with their heads down on our picnic tables taking naps in the middle of the day.  I don't know if that was from playing too hard off work, or just because they were exhausted by the demands of the job.

Suffice to say, since our experiment failed, we will never attempt it again.  If we hire young people, it will be to lower level jobs to allow them the time to learn how to work.  Only then will they be promoted to positions dealing with our customers.   And, we will look to what they did working their way through university as an indication that they have the discipline to handle a full time job.   Work is not play.  If it was play, it would be called play.  My advice to Millennials is to accept a position out of school and stick with it to gain valuable work experience that is marketable.  Jumping from job to job, in less than a year, as is common with Millennials is no way to build a resume.    

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Wednesday, December 16, 2015

The Cost of Generating New Business

It is very, very expensive to generate new business.  Considerable investment in Sales and Marketing is needed to sign new accounts.  Depending on the industry, it may be necessary to spend as much as 10% or more of top line revenues, each year, to develop new business.   And in budgeting for Sales and Marketing, company management must look forward not backward.  In other words, if Sales results in the current year were not as good as desired, that is no reason to cut the Sales and Marketing investment for the next year.  In fact, an argument could be made to increase it.  New business is the life blood of any company, particularly since there is no guarantee today of keeping existing business, even when doing a great job. 

Yes, it is possible to lose a client even if great service has been provided as a result of client management changes, mergers, acquisitions, or just normal procurement regular bidder processes shopping for lower prices.   For that reason, lost clients must be replaced to continue any kind of growth mode.   Sales and Marketing expenses break down into several line items.  The fully loaded cost of Sales and Marketing Staff makes up the biggest expense, which often includes significant travel expenses of a company's road warriors. Beyond that are numerous other discretionary expenses for Conferences, Advertising, Website Development, Social Media, Collateral Materials and many other items that are necessary to both establishing and maintaining brand identity. 

Sales and Marketing is a cost center, not a profit center.   That means that revenue producing subsidiaries of a company must pay for the cost of Sales and Marketing in Good and Bad sales years.  Naturally, if all Sales targets have been achieved everybody is happy to cover the expense.  In bad Sales years, Sales and Marketing is often an orphan and that is when business heads start second guessing the process.  Often, there is finger pointing as to why Sales targets were not achieved. 

Obviously, poor performing Sales people usually get the axe because if they are not closing business, they are of little value to the corporation.  However, Operations must produce quality services, or products that create raving fans as references, which is better than even the best of salesmen to help create new business. 

Sales and Marketing is a never ending process.  Companies that fail to invest in Sales and Marketing usually do not remain in business for long.  In fact, even in bad times, the last things that should be cut are Sales and Marketing.  It does not matter how good a company's story is if Sales and Marketing does not exist to tell it.      

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Tuesday, December 15, 2015

Dealing With Corporate Allocations - What Fun

When establishing an overall annual Corporate Budget, the subject of Corporate Allocations always comes up.  And, it can get pretty ugly.  Naturally, the business entities of any corporation want to pay as little of the Corporate Overhead as possible because it impacts their bottom line, bonuses etc.  So there is a selfish motivation in this process.  However, the reality is that a Corporate Holding Company that owns various subsidiaries is not a profit center.  Therefore, for the most part no revenues are booked to the Holding Company.   Somebody has to pay for the CEO and other Senior Management of the company and all other shared services.  This CEO has been involved in these discussions, that are really more like negotiations between the business heads of the Company as they attempt to provide all the reasons why they should not be hit with a particular Corporate expense.  This discussion can get pretty heated; but it is actually very funny to watch.  At the end of the day, the CEO must be the arbiter of last resort when agreement is not automatic. 

The real issue is that if anyone in the company touches a specific subsidiary in any way, there must be a charge back one way or another, whether a desired end result is achieved or not.  So, just because Sales did not achieve a sales target does not make the expense of Sales any less.  So to argue that as the basis for not paying for Sales is counter productive. Direct expenses are simple to deal with.  Obviously, any employee devoted 100% of the time to a particular subsidiary is a Direct expense.  There is never an argument about Direct expenses.  It is all the shared services including the Senior Management of the Holding Company that comes into question that is the subject for debate.   This is much an art as it is a science because sometimes it is impossible to come up with precise Corporate Allocations.  In those cases, the best that can be done is to do a gut check.

In other cases, specific formulas are easy.  For example, it is simple to allocate the cost of Human Resources on a headcount basis as of December 31 of each year if the budget year is January 1 - December 31 and or as of the cut off date when the annual budget is formulated.  Information Technology is harder because it is difficult to establish the precise amount of time that IT staff members spend working on IT, which often includes communications support, for a particular subsidiary.  This also includes all shared services aspects of an IT budget.  The same thing is true about departments like Marketing.  In this case, a gut check is as good as wasting a lot of time coming up with some sort of precise calculation that in any given year is likely to be wrong anyway.

As the CEO of our company, my role is to be fair to all of our subsidiaries in determining Corporate Allocations.  Sometimes this is a lesson in Accounting 101, particularly when a senior manager postures illogical arguments as to why their subsidiary should not share in a particular expense.  This is an age old discussion.   At the end of the day, the subsidiaries of the company, where the revenues reside, must pay all the bills.  The devil is in the details and that is both the art and the science of Corporate Allocations.  It is what it is.    

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Monday, December 14, 2015

Using Profit Sharing As Your Bonus Plan

While many companies pay commissions to salespeople and various incentives to others to drive  desired transactional results, privately owned companies can use Profit Sharing as their Bonus Plan for other designated employees.  It is actually not too complicated to accomplish.  The process begins by setting an annual Pre Tax Profit Margin target that must be met before Profit Sharing takes place.  That percentage would depend on what is common in a particular industry.  All companies would like to earn a 20% or higher Pre Tax profit; but that may not be possible in a specific industry.  Being more realistic, let's assume a 10% Pre Tax profit is the goal.  With Profit Sharing in place, any amount of money above the target becomes the Bonus Pool.   This will motivate bonus eligible employees to work smarter. 

Then the question arises as to how to divide the Bonus Pool among those eligible.  First of all, to earn a share of the Bonus Pool, the employee should have been on the payroll by no later than March 1 of the year in question so that he or she was in a position to make a contribution to the company's overall profit.   That configuration determines eligibility.  Then, a company must determine the number of shares of the Bonus Pool that will be provided to each eligible employee.  So, perhaps from the lowest level employee eligible to the highest senior manager in the Pool, the multiplier could go from 5 to perhaps 40 shares to best recognize the contribution to profitability and the responsibilities of each individual eligible for Profit Sharing.  Again, this has nothing to do with base salaries, which are based on experience, talent, education etc. 

By multiplying the total number of shares eligible for Profit Sharing and dividing that number into the amount of monies available for distribution, the share price is established.   So, if the share price is $500 and the employee is eligible for five shares, the Bonus would be $2,500.  At the same time the senior manager eligible for 40 shares would get $20,000.  However, there is one last aspect of the process and that should be used to determine the amount paid and that is the overall Performance Review Score.   First, to begin with, the employee must achieve at least 70% of his or her overall Performance Objectives to be eligible to earn a Bonus.  So, if the employee achieved 90% of his or her Performance Objectives and the full amount earned based on number of shares allowed was in this example $20,000, the employee would earn a Bonus of $18,000.    

Profit Sharing is a great way to motivate bonus eligible employees to work cost effectively because they know they are getting a piece of the company's actual profits.   This results in better expense management and looking for other ways to increase profitability.   Profit Sharing is a win win for all concerned and perhaps the best way to provide a Bonus Plan that ties monies paid to actual annual results. 

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Friday, December 11, 2015

Using Linked In For Recruiting

This CEO Blogger has more than 2,000 people in my Linked In Data Base.  For the most part, these are people in the relocation, household goods, real estate, or mortgage industries; but they also include others that may have valuable skills that we may one day need in our company.   As the CEO of a global company, I presume many people in the work force are interested in being in my Linked In Data Base.   They may think that one day, they will be selling a product or service to one of our companies, which could be true.  I see it very differently.   I see these 2,000 people as a talent pool, at my fingertips, from which I can draw candidates for job openings we may have at our holding company, or one of our subsidiaries. 

Though our Human Resource function is also involved, in some ways, I have become our company's Recruiter in Chief mostly because I like seeing what talent is out there and available to us.  When I have the time, whenever we have a job opening either in management, or sometimes even for one of our lower level positions,  I look to my Linked In Data Base for candidates to fill the particular job.  This capability works really well for small to mid sized companies.  Larger companies can use their Human Resources functions to achieve the same result.  More often than not, I can find the talent we need by just doing a Linked In Search.   It really is pretty simple.  I send an email advising the candidate of the job opening.  Should he or she have an interest, I ask that they email me a resume, which I then forward to the hiring manager within our company.  Further screening and interviews are then set up as appropriate.

We have hired a number of people off my Linked In Data Base that technically were not looking for a job.  It is a very powerful took that can not only be used to connect with prospects, clients or customers; but in my case as CEO of our company to bring talent into our company.  I really like having this talent pool available to me at a moment's notice.  It also saves us a lot of money because more often than not we don't need to use a Recruiter to identify talent.  I like that a lot. 

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