Having data that you can trust is a key to consistently making better business decisions.
Shipments that don’t arrive on time to customers (especially big ones). Defective products whose defects don’t get fixed in the next manufacturing run. Manufacturing process glitches that reduce output at times of big demand – neither of which (the glitches or the pending product shortage) are known by the manufacturer’s top management at the time they are happening and the time they are booking big orders.
These are just a few of the operational nightmares of executives who run midsized companies, like the South Dakota manufacturer that I’m going to talk about in a bit. Such nightmares weren’t frequent when such companies were small –when the executive team and supply chain managers talked every day, and the factory was down the hall or in next building. But when a small company grows bigger, the plant is no longer in the backlot (and there are now multiple factories around the country), and top management can no longer observe what’s happening every day in production and distribution, such operational disconnects must be expected.
The fix is neither easy nor inexpensive. But it is necessary. Without sophisticated information systems through which top management can monitor their plant and distribution operations every day from afar – even by the hour – they are putting their business at risk. They are flying without instruments. They need software that will deliver the data they need to understand what’s happening all the time in the supply end of the business – the data to make good, fast decisions. Otherwise, they are operating on hope and delegation.
Consider this South Dakota manufacturer who kept missing delivery targets. Surprise shortages of parts plagued efficiency and never matched the inventory system. Work in process wasn’t tracked in real time so problems with quality and bottlenecks wreaked havoc, and root cause analysis was impossible. Everyone pointed the finger at someone else. The CEO was fed up.
Some firms try being more directive, counting on top leadership to give the right detailed instructions to all the lower level managers, or they decide to wait a year or two to complete installation of a big IT system. The hope is that an outpouring of massive amounts of data will push the management team to optimize everything at once. But these approaches don’t work and won’t scale up the business.
Instead, be strategic. Study your corporate strategies and pick one that, with great data and analytics, will deliver the most performance in the near-to mid-term. Implement technology (probably in the cloud) as needed, then train all levels of the management team to look at just a few key metrics that will change behaviors.
Direction Before Data
Piles of data do not equate to knowledge or action. What we want and need is our entire team taking the right actions at the right time. We must be crystal clear about what we need more (or less) of within the organization. We can’t fix or optimize everything. Typically, if we know what strategic lever(s) create more differentiation between our offering and our competitors, that’s where we should focus.
But midsized businesses are too big to stop setting clear direction at the corporate level. We have to take corporate strategies and break them down into supporting functional area strategies (and probably departmental strategies as well). For example, if “hot new products” is our strategy for increased differentiation, how can operations, accounting, production, and engineering each help in their own way? We must be specific about who needs to step up where to generate improved corporate performance.
What Data Do We Need?
Once we know our direction, we can start collecting data. That might mean installing a new, more powerful ERP. It might also mean more diligently using tools you already have. Or it might mean making tick marks on a yellow notepad and tabulating at month end. Most companies can step up their data collection immediately with a little bit of effort no matter what system they have. Do that now. But if you’ve outgrown your tech systems, also start doing your homework and planning an upgrade. It might take you a quarter (or a year or more), but the sooner you start, the sooner you’ll finish. Don’t bite off more of an IT upgrade than your company can execute well.
Establish Targets and Leading Indicators
Harnessing data means using it to help us hit targets in the future. We must set those targets thoughtfully. They should have buy-in from the team responsible for execution and should be just-possible. They should be balanced between financial targets, customer targets, organizational capacity targets and efficiency targets. They should also include activity-based targets which tend to be leading indicators of results-based targets. As we work our way down the organizational chart, having activity-based targets articulated will feel more controllable than results-based targets, and will gain more compliance and acceptance.
Don’t Forget External (Environmental) Data
An important, but often underemphasized aspect of data collections comes from outside your business. Benchmarking data is crucial. Even regular, but periodic tabulations of competitor observations is important. Tracking the market for human talent in today’s environment can be powerful. Surveying employees and customers is a must. Midsized businesses must keep such measures simple to keep it affordable (and to maintain the data collection process). Don’t forget to look for cloud platforms that provide benchmarking data.
The CEO of the South Dakota manufacturer decided that on-time shipments was the number one priority. She deployed a planning tool with cascading KPIs and projects to focus the team on the problem. Their new ERP was in the middle of implementation, so they used whatever measures they had at the time. On time shipping improved significantly. Nine months later, the ERP and its reporting systems were humming, and more data was available at all levels. The team carefully selected a small number of new KPIs based on new system data but used many of the other new live data feeds to diagnose what was working and what was not. Throughput rose again, and the dream of keeping some products in stock for immediate shipment was largely achieved. (One great place to track all of these KPIs is the One Page Planning and Performance System.)
Data that top leaders and managers at all levels can trust is a fundamental piece of leading an organization that consistently makes more intelligent and competitive decisions. Set a direction and emphasis for stepped up metrics, then focus your team on the right KPIs. The growth will come!
Ever get fed up with a boss who doesn’t hold your peers accountable for getting things done? This can become an insidious problem, one that can stall strategic initiatives, produce backstabbing and even sabotage your own career.
In short, the business suffers, as does every productive employee.
But this doesn’t happen in well-managed businesses. And if you think it’s because top team members fear the boss, let me set you straight: That isn’t the case. In the best-managed midsized companies I’ve seen, every executive team member feels accountable to everyone else on the team. That relieves the boss – the CEO – from having to constantly play the “heavy.” In fact, in these companies, the boss rarely needs to act this way. Each team member gets his piece of an important project done on time. And when any team member struggles, he admits to problems openly, asks others for help, and gets it.
The question then might be this: If I have a boss who is lax on enforcing accountability, what can I and my peers on the boss’ management team do about it? The answer is plenty, as I’ll explain. But first let me explain just how bad things can get when a boss has to be a constant enforcer of accountability.
Consider the case of a Los Angeles-based consulting firm whose CEO was charismatic, loved ideas and was addicted to positive energy. His cheerleading was unstoppable, so everyone would nod in agreement and offer little if any debate. But significant projects such as a stronger lead generation process, a new sales management system and new service offering were stalling, month after month. Team members shrugged and promised to try harder. But they made little progress, as certain team members didn’t come through on their promises. Eventually, an exasperated CEO would call an all-day meeting to vent his anger and demand better. Then he would cap the day with cheerleading.
But the CEO had to repeat this process quarter after quarter. Two years later, none of the initiatives had gone very far. The team’s collective effort at increasing revenue had failed.
Most bosses recognize the problem. Some resolve (once again) to be tougher on those who don’t deliver. But they don’t like conflict, so when a leader doesn’t deliver, they avoid it (again). Or they have a conversation but get presented with a basketful of “good reasons” why it couldn’t be done, and let the leader off the hook. Often the boss decides that they never set the leader up for success, and that they should be more involved (or do it themselves) next time. In other cases, after several rounds of poor results, the boss finally gets angry and it turns personal, with shouting and counterproductive hostility.
Sometimes, the boss attacks the problem through planning. He or she gets everyone to write down their plans and establish deadlines and key performance indicators. At face value, things appear much clearer, with individual responsibilities defined. But as the months tick by, deadlines are still missed. Crucial cross-functional projects find themselves begging for resources, and lag. High-performing leaders (and the boss) ask themselves, “What is the point of all these deadlines and plans if nobody really cares about sticking to them?”
The Team Must Use Its Power
It’s a truth about humanity: Hierarchical power is weaker than peer power. Stop expecting the boss to be the enforcer of accountability. Members of high-performing teams hold each other accountable. The athletes on an Olympic team don’t perform highly because they worry that their coach will hold them accountable. They strive to do their best because every player is accountable to every other player. Failure by one lets every other team member down.
It is difficult work to move a group of people from a disempowered “I’ll do what the boss tells me to do” state to a cohesive, high-performance team. However, these five steps have made many teams greatly increase their self-accountability:
1. Group to Team. The boss must choose team members, pull them together and identify their common goal. It must be discussed and accepted by the team, and each person must understand everyone’s role and why everyone must succeed individually in order to win as a team. Don’t assume this is obvious. I’ve seen a c-suite team meet for a year, but still question if they were the top team and what specific project they were supposed to deliver. (Hint: the project was growing the company to the next level). It can’t just be in the boss’s head.
2. Trust. Teams are powerful in part because teammates help each other when they need it. For that to happen, every teammate must be trusting enough to ask for help. Patrick Lencioni, in his best-selling book, The Five Dysfunctions of a Team, calls it vulnerability-based trust. He considers it the most fundamental behavior of a cohesive team. Teams that trust one another ask each other for help, admit mistakes (and get help fixing them) and believe that everyone has the best intentions. They believe in team success over personal success. Selfish and/or paranoid members can poison efforts to build powerful vulnerability-based trust.
3. Conflict. With a high level of trust, teams can have productive conflict around business strategy and tactics. Call it debate, if that’s more comfortable, but it can be (and should be) quite passionate. The only way to get the benefit of more than one brain is through constructive conflict. Just as important, the team should commit to a final decision only after everyone on the team has participated in a debate (and expressed their arguments and truly understood other perspectives). I know, humans are kind of strange; “working up a sweat” in a debate is somehow is a crucial step in moving forward.
4. Clarity and Exposure. Finally, the team is ready for a detailed operating plan, which is essential. Since they have bonded and committed to a course of action that will help the company win, the next step is detailing who will do what by when, and make sure that everyone on the team can see everyone else’s progress. Jim Horan, author of The One Page Business Plan, who articulated a simple yet clear approach to clarity which continues to be powerful today.
5. Accountability. The stage is now set for peer accountability. The team has spent time bonding, developing trust, debating the right course of action, and forming a detailed plan with clear responsibilities. The first step in accountability is helping a teammate when they are slipping. Good teammates, when receiving help, have a sense of obligation to do their best, and to repay that help over time. Good teammates feel regretful that they need help, and this pressure pushes them to step it up. Of course, the boss must stand ready to hold their team accountable when peer pressure fails, but the fact that the team believes the boss will act makes it far less likely to happen. It is a deterrent, not an everyday occurrence.
For many years, one distributor in Texas ran from the top down, telling the management team what to do. A new CEO came in and tried the same approach, but he wasn’t as dictatorial as the founder had been, and profitability tanked towards zero. It felt like a corporate version of whack-a-mole, with the CEO doing the whacking. The CEO changed his approach and helped the team understand the goal—a healthy level of profit to fuel reinvestment. Trust had been strong, except for one leader. After that leader was dismissed, trust and cohesiveness grew, allowing productive conflict to flourish. Their monthly meetings were interesting, with everyone jumping in with opinions and data. Their One Page Planning process created clarity, and within a year, profitability recovered dramatically (from 0.4% to 3.5%). Projects got done and changes were implemented on schedule. By year three, revenue growth had tripled and profits stood at 6%.
It Is Not Easy
Many managers feel like it’s not their place to hold peers accountable. It takes skill and tact to hold peers accountable in a respectful way. The boss should make sure the team knows how to do it right, and make sure the entire team knows that team accountability is part of the company culture, not a misguided attempt at control. One way we help our clients include this in their company culture is to use The One Page Planning and Performance System.
Some bosses are so conflict-averse that they won’t consider embracing their role around accountability, even when the team’s efforts fail. Frankly, without this, having a high-performance team is impossible. Even if the boss is unwilling or unable to build accountability, improvement is still possible. Leaders can connect with peers who would welcome accountability partnerships and put this approach in place with them. If only part of the leadership team is willing, that team might have to focus on smaller projects that only involve peers who are aligned with this approach to accountability. But something is better than nothing! Leaders could also implement this approach with the team they lead.
As soon as companies leave the early start-up mode, teamwork becomes an essential element to growing. Running a midsized (or larger) business with a hub-and-spokes approach will kill growth. Leaders should stop waiting for the CEO to hold the team accountable. If the CEO won’t shape a culture of team accountability from the top, they should either leave the company or look to take small steps by partnering with those peers who will “play.” Start with small projects and get peers comfortable with a new way to work. Make the shift to team accountability and reap the benefits.
Overly focusing on revenue ignores other factors that can mean the difference between success and failure. Making the change to obsess on an EBITDA-based performance metric is a powerful way to improve your profits and valuation.
An obsession with sales revenue is a destructive habit shared by many CEOs. They become emotionally attached— even addicted to the revenue metric. Revenue is the first thing they think of when they wonder how the current quarter is going and the single metric they quote most often. But overly focusing on revenue ignores other factors that can mean the difference between success and failure. Metric-minded CEOs need a better metric to obsess about. Read on to learn the tale of two CEOs who illustrate our point perfectly.
Revenue: This Is Not the Success Metric You’re Looking For
Gross revenues are a readily-available number that many firms use as a convenient proxy for success. As their ever-ready metric for performance, it does provide a consistent and measurable data point, but it falls short in three critical ways:
Margin – Not all revenue is created equally. Different product mixes mean different contribution margins. Changing the terms of a sale can change profitability.
Direct Costs – Whether for overhead items like a facility maintenance emergency or changes to the cost of materials or overtime, cost changes can wreck your budget, but they won’t be visible in your revenue tracking.
Indirect Costs – Overhead and support salaries, spending on initiatives that will support future growth, or even just plain old pet projects.
For measuring progress, tracking revenue is less effective than tracking actual earnings. It doesn’t accurately represent the desirability of your performance against the company’s valuation, profitability or cash flow goals, and it ignores factors that can mean the difference between a profitable, successful organization and one that’s losing money.
Forecast Monthly EBITDA Dollars. This Is the One You Want
We don’t disagree that growth is critical to having a great bottom line. But instead of putting your focus on revenue, here is an excellent metric that will get you both top line growth and a healthy bottom line. Forecast EBITDA dollars for the 12 months ahead, based on your budget. EBITDA is Earnings Before Interest Taxes Depreciation and Amortization and many CEOs are familiar with it. But using it in exactly this way and as their #1 metric is likely a new approach.
A Real-World Example
The CEO of a $110 million, private-equity-owned manufacturing firm told me that the current quarter was going well because he beat his EBITDA target for January by $280K.
That was it. No mention of current revenue numbers at all, or whether his sales numbers were trending up or down. Just that single data point and the far-reaching conclusion that all was well because they were beating their EBITDA target. It was that simple. He only had to track one metric to know everything he needed to know about his current operational performance.
Soon after, I met with another client, who told me a very different story. This CEO is an entrepreneur, running his own $25 million revenues business. His strategic focus is on sales, and he places a lot of emphasis on tracking his topline revenue.
This CEO told me that his company had turned a 7% profit in the previous quarter, then logged an unexpected 7% loss in the next. He blamed expenses that had gotten out of hand and a modest “miss” on volume. Clearly, tracking revenue hadn’t helped him avoid losing $438,000 in one quarter alone.
These two contrasting conversations clearly showed two sides of a problem that I see in many businesses I encounter. Companies focused on driving growth often put all their focus on creating revenue growth. But primarily tracking revenue, even when also tracking various expense metrics, is focusing on the wrong metric if your goal is to ensure profits.
EBITDA – What’s In and What’s Out
Think of the important data you capture in an EBITDA number… and the data you leave out.
EBITDA starts off as an earnings number with income and all your operating costs already subtracted. So, we have exactly what the business is producing through operations. EBITDA ignores income taxes, depreciation, and amortization. Those numbers are important for cash flow and accrual accounting, but they don’t show how well your operations are supporting your growth. Leaving out depreciation also encourages capital investment that drives growth or increased efficiency.
Challenges to Avoid
Some CEOs worry that focusing on EBITDA might encourage cost cutting and short-term thinking. To avoid that, you should set a rising EBITDA target dollar amount for each month for the next 1-3 years. Setting it in dollars rather than percentages ensures that you can’t simply cut your way to meeting a goal, since you need both sales volume and margin to deliver EBITDA dollars.
Your EBITDA goals should extend over enough time to account for both the costs of your investments and the income you expect them to generate. For businesses with short investment and sales cycles, a one-year forecast might be enough. For others, a five-year forecast might be much better for tracking the financial impact of capital expenditures. If you plan to invest in growth, you will forecast lower EBITDA dollars in the near term, but higher EBITDA dollars when your investment should be paying off.
Making the Move Today
Making the change to obsess on an EBITDA-based performance metric is a powerful way to improve your profits and valuation.
Keep tracking all your KPIs, but put EBITDA dollars at the top of the list, and move sales revenue tracking down the list.
By setting monthly dollar targets for your company’s EBITDA for the next year or two, you can avoid many of the drawbacks of the all too common sales revenue obsession!
Many chief sales officers are notorious for making pie-in-the-sky forecasts that can lead their company to overspend. CFOs who provide sales forecasting modeling — and train the sales leader on how to use it — can save their company from financial calamities. They can also save their chief executive officer from embarrassing meetings with the board.
The way many sales leaders forecast the next quarter’s sales reminds me of the movie Groundhog Day, in which Bill Murray finds himself repeating the same maddening day. For example, for several quarters the CFO of a $42 million software firm asked the vice president of sales for his projection for the upcoming quarter’s revenue. Over and over, the vice president provided a pleasing number. In the following quarter, sales missed again. But replacing the well-connected vice president was too high risk for the CEO, who had to frown and bear it.
Some firms with steady customers or recurring revenues can forecast quarterly sales pretty accurately by looking backward. But high-growth, fast-changing companies, or those with long sales cycles, cannot use history as their guide: they must rely more on predictive analysis. Commission-driven salespeople tend to be overly optimistic. They add up the new prospects in the pipeline, make a gut adjustment, and pass on a nice big number to the sales director, who then sends it to the CFO.
This can be disastrous. Take the case of a $16 million engineering-services firm that, based on the vice president of sales’ projections, decided to accelerate growth, adding six salespeople, and launching a new campaign. The CFO and CEO built the business plan and budget, staffing up on the delivery side. Six months later, sales were only 45% of target. The business found itself drowning in red ink and was forced to fire people en masse. What a waste — of time, effort, money, and hope.
Many firms approach sales forecasting by ignoring what sales says it will do; they run the business on very conservative, historical estimates. While this avoids the trap the engineering-services firm fell into, it can also sentence a business to a slow growth trajectory and leave real opportunities for growth underfunded. Installing salesforce-automation software only helps if adoption and use is disciplined (which is often difficult to achieve and then to manage), and if the software can be customized to collect the right data. Other firms crank up the pressure on sales leadership to “do better,” changing sales leaders with the season, all to no avail. When firing the sales leader isn’t an option, how can the CFO help?
CFOs need to throw themselves heart and soul into a partnership with sales, becoming an active participant in the forecasting process rather than a passive recipient of sales-department projections. The key to more accurate sales forecasts is examining the drivers of sales: the set of activities you know precedes results. CFOs should brush up on their pipeline-measurement skills, identify those drivers, and measure their results. That leads to a solid platform for planning future sales activities and accounting for the revenues they will produce tomorrow.
The first step is for the CFO to change their approach to and involvement in the forecasting process. Stop demanding that your sales leader be a forecasting whiz. Count yourself fortunate if he or she knows how to sell and can motivate a sales team. Resolve to be a coach and partner, helping to build the forecast from the bottom up.
That means extending a helping hand to the sales leader, knowing this role will become a permanent part of your job. Explain your desire to help, and let the sales leader focus on selling, not on keeping you happy. And keep the CEO looped in. She will be delighted to see this new spirit of teamwork, not to mention the resolution of the sales-forecasting problem.
A primary sales-forecasting approach is measuring prospecting activities — e-mails, calls, customer visits, and proposals — that move prospects along the sales pipeline, or funnel. More activity at the top of the funnel generates greater sales at the bottom. Once those activities are documented, they can be manipulated, which can increase one’s ability to forecast beyond the length of the pipeline. One $14 million software firm had a well-documented sales process in which the third step was a software demonstration (via screen sharing). Historically, 22% of the prospects making it through the demo became clients within 60 days. The company had a deep pool of potential prospects, all averaging about the same size. It figured if it added salespeople to deliver double the number of demonstrations, it could forecast a doubling of future sales. The company was right: sales jumped up, the cost of sales held nearly constant, and the contribution margin thickened.
Another method of forecasting is to assign probabilities to each close based on a pattern of prospect activity. For example, you observe that when the buyer’s CFO comes to the table, 20% of those prospects buy within eight weeks. So, to develop a sales-forecasting method, list all the prospects in the pipeline; note their most recent actions and adjust each deal’s expected value based on its size and the likelihood of closing.
These build-up methods work best when the sales team has been using a tried-and-true sales process and has been measuring outcomes over the past few quarters. Start-up firms won’t have that experience, nor will firms that are reinventing their sales processes. Even so, the sales team’s best-guess estimates of conversion and closing rates will yield better forecasts than a top-down guess.
Want to a simple, cloud-based way to track your sales forecast vs. budget and last year?
Along with deriving a more accurate sales and revenue forecast, this approach focuses the sales team on activities that will generate sales in a more predictable manner. Better, the act of measuring and delineating sales drivers results in increased revenue. Best, these metrics are now in the hands of the CFO, who, in partnership with the sales director, can accelerate the behaviors that drive those sales revenues.
But forecasting isn’t only about the top line.
The CFO of one $14 million heating and cooling firm had been forecasting sales using these methods. In early 2012, his model indicated that sales would dip in six months because of eroding conversion rates. He put a hold on hiring. He pared down inventory in anticipation of the lull, which arrived on schedule in September. Consequently, the company maintained profitability and cash flow. By then, the sales team had fixed the conversion-rate problem (by targeting a different mix of prospects) and the firm began to scale up for the higher volumes they knew were coming.
The CFO can be a critical ally for the sales leader and lead the way in quantitative sales forecasting. With this partnership in place, the firm will be better able to hit its top-line forecasts and manage the business to plan!
When every decision, large or small, has to pass through the CEO, midsized companies develop an overwhelming bottleneck to growth. It takes a team of strong, focused, and aligned leaders for companies to keep growing.
The growth tales of travel insurance company Seven Corners Inc. should be a familiar one to midsized companies in every industry. Founded by Jim Krampen and Justin Tysdal in 1993, the company grew steadily year after year in its first 20 years, to just shy of $40 million in revenue. Believing nothing could stop them, the founders (who made themselves co-CEOs) raised their ambition: $100 million in revenue by 2020. But in 2014, growth came to an abrupt halt, and it left the founders searching for answers.
After months of painful deliberations, Krampen and Tysdal finally put their finger on the problem: It was the leadership. In leading their international travel insurance and specialty benefits management company, they had dominated leadership team discussions. Every decision, large or small, had to pass through them. The result was predictable: They became an overwhelming bottleneck to growth.
The co-CEOs of Seven Corners realized they needed good decisions to be made rapidly by executives hired for their specific expertise to make those decisions – whether they were about marketing, systems development, sales, HR, legal or other areas outside the founders’ mastery. So, they created a new structure, new roles for themselves, and hired talented executives to fill the gaps. The early results are encouraging, and Krampen and Tysdal believe they’re finally on their way to $100 million.
The founders of Seven Corners made four crucial moves:
1. They wrote a short but unambiguous business plan. As part of the restructuring, Seven Corners adopted a rigorous planning process, with an annual two-day strategic offsite, and one-day quarterly retreats where they agree on the five to seven most important initiatives for that quarter. The transition always starts with the creation of a guiding document that a team of leaders can look to for direction. Create a clear, written plan that your leadership team can follow. While great leaders often quit quickly if they are ordered around, most are completely content participating in creating a written plan and following that plan. Those leaders realize that it is more satisfying to be on a team of leaders creating something big, than to be an all-powerful single leader creating something small. Without such a plan, strong leaders on a team run at cross purposes, and some just run amok.
2. They replaced marginal members of the leadership team. In October of 2014, Krampen and Tysdal brought in a consultant and spent three months architecting the new corporate and leadership structure and developing a five-year corporate vision, which was presented to all employees. They spent significant time on planning and committed to regular follow up on their five-year vision. The COO shifted to CFO, and they hired two new leaders, a CIO and COO, to end up with a five-person c-suite. Now, all decisions require consensus from all five leadership members and Krampen and Tysdal also hold the two board seats should a tough decision require a tie breaker. Many teams aren’t cut out to lead a company at midsized. Sometimes “helpers” get promoted into roles with leadership titles but can’t lead—they still need instructions. When left to their own devices, they make bad decisions, or aren’t proactive. Some can’t see the big picture or hate change. Please don’t turn over leadership of your company to a bad or incompetent team. The only outcome will be failure. Instead, embrace your duty as CEO and upgrade your top team as needed so you have a team of leaders, not a team of helpers. This would be a team you are proud to lead, who you believe will make better, faster, stronger decisions than you would have. They probably have experience you don’t.
3. They supported their leadership team but made each member accountable for delivering on their promises. The company holds one 90-minute c-suite meeting weekly to make sure their quarterly goals are on track, and they huddle weekly for short-term operational issues. They track some statistics on a weekly scorecard, and other KPIs each month—with the results visible to all 200 employees. Furthermore, each function holds quarterly business reviews and share KPIs openly as well. The shift to clear goals and strong accountability wasn’t to everyone’s liking. Some long-term employees missed their targets and chose to quit rather than fight. But after six months, the company had improved their bottom line by 2.5%, by saving over a million dollars in operational efficiencies in their government service unit.
You must both support and demand leadership from your team. Organize the team to hold each other accountable for results. Coach your leaders to support their efforts and change leaders when needed. Make the occasional judgment call based on strong work by your team.
4. They stopped acting like the Wizard of Oz. In January of 2015, they abolished the role of Co-CEOs and established five company functions: Strategy, Revenue, IT, Operations and Finance. Krampen, whose strength was sales, went from Co-CEO to Chief Revenue Officer. Tysdal, whose strength was in strategy, became the Chief Strategy Officer. Nobody holds the title of CEO or Co-CEO. Stop acting like the all-knowing Wizard of Oz, and start coordinating, bringing the best out of the team, and keeping them aligned. It’s a different job than what entrepreneurs do to start a business. It is slower. It takes patience. It means you have to talk less and ask far more questions. It means you must not give answers so quickly, and instead challenge your leadership team to find the right answers for themselves. Your role is redefined. You might have time to dive back into your favorite function (maybe even lead it) since you won’t be spending the bulk of your day telling everyone how to do everything. So, if you’re not personally “directing traffic” in your company, what does your CEO job become? Some CEOs love sales and are the face of the company. Others are IT wizards, so they lead on the technology side.
Now I’m not advocating abolishing the role of CEO. Yet it is interesting that Krampen and Tysdal felt that they needed to do away with their CEO titles to change both their own behavior and the way their top team interacted with them. The benefit of having a team of leaders is lost if people abdicate their authority to a CEO. Great CEOs of midsized businesses are humble. They don’t believe that they always know best. Instead, they believe that they can bring the best out of a team of strong leaders.
For Krampen and Tysdal, moving from an entrepreneurial model to a midsized company ‘corporate’ model was challenging, but they were committed to doing so. Tysdal says, “Every day we came into the office and with every decision we made we had to break ourselves of old habits that we had picked up over the prior 20 years. Responses to issues like ‘that’s how we have always done it,’ ‘that’s the way it is and always has been,’ and ‘we’ve tried that before and it didn’t work,’ had to be challenged, and it takes conscious effort and thought to do so. After 12 months of this new structure and mind set, we finally started to hit our stride, and our new way of thinking, reacting and responding to issues became natural.”
In 2015, Seven Corners finished off the year with $39 million in revenue, a 5% increase over 2014, much better than being flat in prior years. The firm’s capabilities to generate growth are strong. In early summer they launched new products (kidnap & ransom insurance and travel crisis management insurance) which are well on their way to adding a million dollars to the top line before 2017. They have stepped up the analysis of their core products, and in one case (international student programs) have seen 123% year over year increases. Today, the 2016 projected revenues are over $40 million and Krampen says, “we are starting to see the changes we made in the last 18 months compound. We can clearly see a path to hitting our $100 million revenue target before 2020.”
Why did the Seven Corners’ growth stagnate in 2014? Because one leader can only go so far. Many CEOs and founders try to break through the growth barrier with never-ending workdays and by being more directive, issuing order after order. Those approaches might get them a tad further, but growth inevitably stalls. It takes a team of leaders for midsized companies to keep growing. And that team must be strong, focused, and aligned.
When moving up from executing tasks to managing others, leaders find themselves one step away from “the action” and risk becoming detached. Unless they get regular, honest feedback from their followers about their abilities as managers, leaders can’t expect to become stronger leaders.
They can get it by asking… How can I improve?
When a startup grows into a midsized company, its executives should be spending more time leading those below them and less time executing tasks that they should now be delegating. For example, a chief human resource officer who still interviews every job candidate is not spending time wisely. Likewise, a sales manager who comes along on every sales call won’t likely have time to set grand sales strategies.
Of course, in moving up from executing tasks to managing others, these leaders will find themselves one step away from “the action” – from doing the recruiting, selling, writing of marketing copy, paying vendors, checking invoices before they go out, and other minutia in which they had to immerse themselves as founders.
Yet there is a potential downside to this. Because they become one step removed from the daily hubbub of the business, the leaders of any mid-sized company risk becoming detached. And the danger here is not only being out of touch with what’s going on with customers, potential customers, recruits, products, services, payments, and so on, it’s becoming out of touch with the people who report to them. I’m talking about their followers.
Unless they get regular, honest feedback from their followers about their abilities as managers, leaders can’t expect to become stronger leaders. Leaders who aren’t clued in to how their followers perceive them are managing blind. And the few who do solicit feedback often don’t use it to improve their leadership abilities. Yet those who do – like the CEO of a mid-sized insurance company whose story I will tell in a moment – can become highly effective leaders.
It must begin with the CEO. One of a CEO’s most important tasks is to mentor other leaders in the company about why and how to take feedback from their direct reports and adjust the way they lead based on that feedback. But if a CEO doesn’t have visibility of their direct reports’ leadership reputation, how can they be an effective mentor?
Relying on “corporate whisperers,” “moles” or “birds” is undependable and encourages corporate politics. The whispers come only in moments of crisis, in reaction to a problem. No one whispers about a leader’s strengths. What whispers do come through are confidential, leaving the leader unable to tackle the problem clearly and directly. Sometimes the whispers are not representative of the impact on the whole company. At other times, they are simply false.
Likewise, relying on the boss’s personal observations falls short too. In mid-sized and larger firms, much of the work is done in teams and without the boss’s direct involvement. When the boss is there, everyone is usually on their best behavior. The boss’s experiences are rarely the same as everyone else’s experience.
In my prior Forbes post, I outlined the powerful case for doing 360-degree reviews regularly and properly (i.e. not a part of HR oversight, perceived (and real) anonymity for raters and used for development purposes only). In this post, I’ll dig into how the best leaders continually improve their leadership acumen by using their own 360s and the 360s of the leaders they mentor.
Consider the case of Scott Diener, CEO of NORCAL Mutual Insurance Company. When he was the CEO of a NORCAL subsidiary, Diener recognized that developing his leadership acumen to higher and higher levels would have a powerful impact on company results as well as his career. He retained Dale Rose, Ph.D., president and founder of 3D Group and an Industrial-Organizational psychologist, to conduct 360s and to help him interpret the findings. After debriefing his first 360 with Dr. Rose, Diener knew right away he wanted more time working with his coach to think through his development.
This led to an ongoing coaching engagement with regular meetings focused on areas from the 360 and exploring current issues and challenges in the business. Rose says, “Scott was fully engaged in the work. At every coaching session, he’d have questions, interests, and a focus in mind. Some of it would flow from a 360, if taken recently. Other times he would frame up observations of leadership situations for us to analyze and reflect upon. I always felt that he was on a mission to develop, and I was simply his navigator.”
Diener exemplifies the state of mind that is critical for success: knowing the importance of leadership acumen. For senior leaders in midsized or larger companies, task performance and management don’t matter as much as leadership. They must commit to leadership development as a primary responsibility which is capable of producing business results. Delivering powerful leadership personally and through teams of leaders is a priority.
Here’s how leaders can commit to leadership development:
Block time on the calendar for leadership development and commit to specific action items. Common elements of leadership development are training/learning, coaching/mentoring and experiential learning.
Next, get the data. Do a set of 360s— one for the top-most leader, and one for each person reporting to him or her. Use best practices such as keeping the assessment outside of HR, using benchmarking data, using an assessment created by experts, and completing the 360 in conjunction with external coaching. Even one 360 brings a lot of information. While reading the report might take only an hour, reflecting on the input, discussing it, and deciding where to focus your development takes a lot longer, if done well.
Don’t rush it. An hour session with your coach isn’t nearly enough. Allow 2-4 hours per session, and it might take several sessions. The tempo of the session should be slow, unhurried. Don’t look for solutions too quickly, and don’t try and pull “answers” out of your coach. Understanding is the first goal, and that takes patience and focus. Then repeat as you understand how the leadership of each of your direct reports is perceived and how you can best help them step up.
Does this sound crazy? Going slow in a go-fast world? The important things in business take real time. Reading a contract can take many hours. Negotiating a big business deal can take dozens of hours. Courting a key client can take a hundred hours or more. Hiring a key executive gets hours and hours. Redesigning the incentive program gets hours and hours. Your leadership underpins all these business activities and it deserves as much time or more.
Once you feel like you understand the message being sent to you, identify your action steps, and lay them out. They should be time-based and managed like any other high-priority project. It should be clear when each action should be complete, with some approach to assessing effectiveness. No doubt along the way, there will be new behavioral observations, which can be shared with the coach to understand them and decide what to do (if anything). At some point, often a year later, enough change has taken place that a repeat 360 becomes helpful.
Diener reaped the rewards for his focus on his own leadership development. He was promoted to COO of NORCAL (the parent company), then to CEO three years later and continued to work with Rose over a 5-year period, to help him transition through two leadership promotions into the CEO job at the parent company. Diener says, “I spent, and continue to spend, a lot of time every month thinking about my leadership and my team’s leadership and taking actions to improve the way we work together to serve our customers better. Working with an outside coach helped me stay open to input from employees and focus on improvement.”
Good leaders find themselves leading growing businesses. As those businesses grow, they demand more and better leadership. Good enough isn’t good enough. Stay in front of your business by purposefully and actively understanding your followers and their perceptions of you so that you can become the great leader your business deserves.
No is a very powerful word! In fact, most of us don’t say it frequently enough, and/or with enough conviction. What’s the evidence? Do any of these situations describe you?
Clients from hell? Do you have any? Were you really surprised that they turned out to be trouble? Or were there one or more clues you chose to overlook?
Ever make a bad hire? Just bad luck? Or were there signs during the interview?
Recently agree to price or contract terms that you regretted? Took on a new piece of business that is really outside or your expertise… and now instead of this client being a profit center, they are a drain on you and your business?
Traveling more and more and enjoying it less and less? Did you make a promise to yourself to stop taking clients that required airplane rides?
Bring a new partner into your business that you thought had the same vision, ethics, values…and actually had clients they were going to bring to the business? Were you just wishing? Were there advanced signals this was not going to pan out?
Here are 10 ideas on how to get back on track and stay there…
- Don’t ignore your hunches and intuition. They are part of your internal guidance system. You developed them over years of experience!
- Without clear boundaries… it is too easy to say YES or NO to the wrong things.
- Group decision making is great to a certain degree. It can be disastrous if you have no idea where you stand on an issue.
- All ideas can seem seductive… until you have a plan!
- Other people’s ideas will seem better than yours…until you stop, reflect and get in touch with yours.
- Tell me what you will say NO to… and I’ll know where your convictions are.
- Tell me who you want to be in service of, and how you can be of benefit…and I and others can introduce you to them.
- Tell me you will work with anyone… I’ll know you have worked with few.
- Willing to travel anywhere for a client? You may be improperly valuing your time or yourself.
- If you will discount your product for everyone…then nobody is special.
When is the last time you said NO? Are you overdue?
Executives love to talk about planning… but most complain their processes don’t work very well. Harvard Business Review reports that only 11% of CEO’s believe that strategic planning is worth the effort. Most planning processes are too complex, and only document decisions already made. CEO’s have the responsibility to make their planning processes effective. The key is to keep the processes simple and focused.
Here are some of our observations about the role of leaders in planning:
- Almost all leaders can talk about where they are taking their business, but talking is easy.
- Ask them to put in it in writing…almost all will struggle.
- Mark Twain said, “Mother Nature created writing to demonstrate just how disorganized the human brain really is!”
- Everybody in the organization is constantly watching what the CEO says and does. If you want to know what most CEO’s really think…watch their actions, not their words.
- Leaders want to lead. They want to be understood. Employees want to follow, execute and excel! Somehow the process of planning and communicating the plan falls apart in most companies.
- Sharing the plan is not enough! Leaders need to paint the big picture…and then invite the team to participate in the process.
Once the team knows the big picture, our favorite questions are:
• From where you sit, what does the future look like?
• What would be the steps you would take to get there?
• What are the obstacles you need to overcome?
• What resources are required?
• What will you measure to know if you are successful?
Some Steps to Take:
Treat planning is a continuous process…not an event.
Your final “plan document” should represent a set of decisions.
Make your plans work by making sure they get implemented and periodically reviewed. One Page Plans are an easy way to accomplish this.