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Culture Counts!

Posted on July 12, 2015 by John F. Dini

Small businesses can’t compete with large corporations on salary and benefits. I’m not being unduly cynical, it’s just a fact. The top 1/10 of 1% in US household incomes start at $1.9 million annually. Of all those in that rarefied category, 60% are corporate executives.

When it comes to benefits, it’s no contest. Small employers, especially those with fewer than 100 employees, usually struggle to pay most of the health insurance premium, and may have some matching contribution to a defined contribution retirement plan. They certainly don’t have the bench depth at most positions to allow flexible hours, telecommuting, unlimited PTO (Paid Time Off), extended family leave or educational sabbaticals.

So how do you attract Millennials, who by the end of this decade will be 50% of the workforce, as long term players in your company? The answer is plain… culture. You have to create a workplace that appeals to the type of employee you want, and then work tirelessly to maintain and promote your culture.

It’s not easy, but it does work. For an excellent, real-life case study, let’s take the San Antonio Spurs. The Spurs are successful beyond question. They are the winningest franchise (by percentage) in the history of major professional sports, beating the New York Yankees, Montreal Canadians and Green Bay Packers. Moreover, they’ve done it in a market that ranks 37th for television viewers, and is 126th in average household income.

In the sports world, this qualifies as a small business. If the Spurs had a deep-pocket owner it might make up for some of their built-in disadvantages, but they don’t. One of their trademarks is working within the salary cap. They manage that by staying away from high-priced free agents.

So how did a small-market team with no more money than anyone else manage to stun the basketball world with the most successful recruiting season in the country? They did it by attracting and grooming players that want to be in a certain culture, and who are willing to forego other material benefits to do so.

The re-signing of four key free agents, along with attracting two new All-Stars who had their choice of teams, comes down to basic business principles. That’s not surprising for a team that spouts Jim Collins and Patrick Lencione, and who has every new player take a course on values-based leadership.

How did they do it?

A culture of selflessness. Despite having a roster with multiple all-stars, all-NBA selections and MVPs, the Spurs live a culture of “team-first.” Tim Duncan agreed to a salary about equal to first-round pick Karl Anthony Towns, who hasn’t played a minute of NBA ball yet. This isn’t a courtesy “grand tour” year for Duncan. He was still one of the top 10 players at his position in the NBA through 2014-2015, and will be paid about a quarter of what he could have demanded. Manu Ginobili and Danny Green also signed for far less than they could have made elsewhere. Seeing this attitude, David West in Indiana gave up over $11 million to come and play for the Spurs.
A commitment to excellence. While other teams pursuing LaMarcus Aldridge emphasized their benefits (endorsements, fame), the Spurs kept to their true selves, sending 4 players to meet with him and discuss how they worked together as a team, and their focus on winning.
Communication. The team shared their plans from the outset with key players like Green and Kawhi Leonard, who both had enough trust in management to wait for certain contract deadlines to pass, allowing the team more financial flexibility.
Planning. The Spurs did their homework on the player they wanted (only the second free agent they’ve chased in 20 years). They came prepared, pursued the objective intently, and quietly took home the prize without fanfare against much flashier competition.

Yes, I am a fan and (full disclosure) a season ticket holder. I expect people in other cities to root for their home-town clubs. As a small business owner, however, you have to appreciate the Spurs. They assemble a winning team that isn’t built around salary and benefits, but rather around a great culture.

Posted in Entrepreneurship, Leadership, Management | Tagged business ownership, business planning, business strategy, employee performance, employees, entrepreneurs, entrepreneurship, leadership, management, small business, small business advice | Leave a comment

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When Supervisors Become Managers

Posted on July 5, 2015 by John F. Dini

Any promotion means more responsibility. Few steps require as big a leap as the transition from supervisor to manager. Each step up the ladder involves a change in tasks, but an employee’s first managerial position necessitates a change in thinking; one which isn’t intuitive.

Being named a supervisor is an adjustment, but one that can be handled largely through intuition. The likelihood is that the employee who is promoted from the ranks has already shown responsibility and initiative. He or she is a solid performer, and has shown leadership with peers, now subordinates. In most cases, the bestowing of a supervisor title is merely recognition of talent that is already in use.

When a supervisor performs well, the normal tendency is to consider him for manager. As a manager, he will have responsibility for other supervisors. His role becomes more hands-off, planning and directing teams from a tactical, rather then an operational viewpoint. Unless you take the time and effort to mentor a new manager, one of several problems are likely to arise.

Staying too far from the work. New Managers sometimes avoid working side-by-side with their subordinates, in the belief that their new position raises them above all that. They risk losing touch with what is going on day-to-day.
Dipping into the work. Alternatively, the manager may seize opportunities to act in a supervisor’s role, directing first-line employees personally. It’s a skill that got him promoted in the first place; and it’s easy to fall back on when efforts to work through the chain of command are frustrating.
Placing too much weight on position. A title carries authority with it, but designated authority doesn’t replace leadership. As a supervisor, his subordinates did as they were told because it was clearly his job to tell them. As a manager, he is expected to lead others who have their own base of authority, and don’t follow orders blindly.
Ignoring position. “I know I’m a manager now, but you can treat me just as when we were supervisors together. I’m not going to be one of those managers who acts as if he is above everyone. “ Collegiality is great, but the manager has been placed above the others, and needs to keep some distance.
My way or the highway. It’s a supervisor’s job to instruct his subordinates on what to do and how to do it. A manager with competent supervisors should be focused on what needs to be done, and not so much on how to do it. A supervisor shows others how to do things just like him. A manager adjusts his style to fit different individuals or teams, so that others can do what they do best.

The shift from supervisor to manager has one more factor. As my friend and business owner Van Palmer says it, “Supervisors are in a customer facing position. Managers are in an employee facing position.” A manager’s role is to accomplish objectives through the work of others, and it is their success that defines his.

When you make your next managerial promotion, look beyond the high performance of an individual. Look also for the humility to take satisfaction in the success of others. Then take the time to teach the difference, and recognize the success of others as shared by their manager.

Posted in Entrepreneurship, Leadership, Management | Tagged business ownership, business planning, business strategy, employee performance, employees, entrepreneurs, entrepreneurship, management, promotion, small business, small business advice | Leave a comment

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Structural Tension: Is It Good or Bad for Your Business?

Posted on June 28, 2015 by John F. Dini

Logically, no one would enter into a business relationship where anything that is better for one party is worse for the other. Such a zero-sum arrangement would quickly grow tiresome. Either one party is consistently losing in every transaction, or else every little change, every new opportunity, is the subject or maneuvering to see who will come out better.

It sounds like an unpleasant way to do business, but most of us enter into such arrangements on a regular basis. Some business models are build entirely around this type of structural tension.

Imagine that you are standing between two poles, with a bungee cord around your waist attached to each one. The more you try to move in one direction, the greater the resistance from the other. That’s structural tension.

When I worked in healthcare, a popular physician management model was to form a management company, and take a specified percentage of the practice’s income to provide all administrative services. The management company had little direct control over the revenues. Contracts with health plans, government reimbursement rates and the chosen workloads of each physician each had far more influence on how much came in the door.

So a management company had two ways to improve the bottom line. One was to take a higher percentage of the revenues, something the “customer” physicians (who bore the burden of any increase on a dollar-for-dollar basis) were not inclined to embrace. The second profit-improving strategy was to maintain the percentage, but provide fewer or cheaper services. That strategy, too, was poorly received.

Franchises are similarly constructed. Franchisors have a limited market. Their profits have to come from the franchisees. The way they make more money is to deliver lower cost services, or increase overall sales. Franchisors typically control advertising, so how a franchisee manages to deliver a $5 sandwich profitably in New York or California may be less of a concern than the impact of same-store growth numbers on the executive stock options.

Similar tensions occur more directly in the insurance and stockbrokerage industries. When a benefits broker announces that the health insurance carrier has raised rates by 25%, he or she seldom mentions that commissions usually increased by the same amount.

When a stockbroker recommends a trade, or switching mutual funds, it’s difficult for the customer to know whether he just needs some commissions to make the mortgage payment, whether the new mutual fund pays higher commissions, or whether his brokerage house is recommending the stock because they have an interest in its next round of funding. Of course, he could be doing it because the stock or fund is perfect for your objectives, but the fact that he earns a living by recommending trades casts everything into doubt.

Some of the “disruptors” in these industries are among the highest-valued startups in the world. Zenefits offers payroll and HR services for “free,” subsidized by their commissions on health plans. They are likely to reach $100 million in revenue this year, and are valued at $4.5 billion.

Wealthfront, the current leader in Robo-advisors, will manage your portfolio with automated trades according to your chosen profile. It’s fees start at .25%, cheaper then even the flat-fee trading available with online brokers. Wealthfront has over $2.5 billion in assets under management in its third year in business.

Even Uber, currently valued around $50 billion, is part of the transparency revolution against structural tension. Quoted pricing before pick-up and no tipping reduce rider concern about being overcharged, or a driver taking longer routes to pad the fare.

“But every business increases profits at the expense of its customers.”

To some extent that is true, but an open, competitive market limits how far you can pull in one direction without being snapped back in the other. In the healthcare example, raising management fees came with the risk that the customer would find another vendor. In franchising, hammering the profits of the franchisees makes selling new units more difficult.

In industries that work under protective regulation, like stockbrokerage or employee benefits; change is slower, but it is happening.

Posted in Thoughts and Opinions | Tagged business ownership, business planning, business strategy, entrepreneurs, entrepreneurship, health care costs, health care reform, management, sales, small business, small business advice | Leave a comment

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Technology and Bunker Hill Tactics

Posted on June 21, 2015 by John F. Dini

In a small business, underused technology could be considered a “Bunker Hill” error in using your competitive capabilities.

Last Wednesday, June 17th, marked the 240th anniversary of the Battle of Bunker Hill. Ranked as the 6th most costly battle of the Revolution in terms of lives, most Americans forget that it was actually fought over a year before we declared independence. (on 4/4/76) It was far larger than the skirmishes at Lexington and Concord two months before, involving about 1,500 Colonial Militia and 2,500 British Regulars.

What has always fascinated me about the battle is the Americans’ poor use of superior technology. Prior to the first British attack, Colonel John Stark drove a stake 100 feet in front of the fortifications, with orders to hold fire until the British soldiers passed that point. This tactic was further reinforced by the command (attributed variously to William Prescott and several other officers) “Don’t fire until you see the whites of their eyes.”

That command shows up in documentation of previous wars, since it was the common tactic of musket-equipped armies. Smooth-bore military muskets had limited range or accuracy, and were most effective when fired en masse at close range.

The problem with those tactics on the American side is simple. Their troops didn’t have smooth-bore muskets. As militia, the Colonial soldiers provided their own weapons, hunting pieces that were designed to be accurate at a far greater range than the military weapons. They had rifled barrels, allowing effective aiming at 300 feet, and over 500 feet for an especially well-made gun.

The American superiority in targeting ability is also borne out by the casualty statistics. Of the nearly 1,000 British soldiers killed and wounded in the battle, 100 were officers. The typical British unit had about a 30:1 enlisted to officer ratio in the field, which would indicate there should have been about 35 officer casualties from random hits in mass volleys.

How did the Americans inflict triple the expected number of casualties on officers? Because they could aim. Using their superior technology, they crippled the entire British officer corps for months to come. Unfortunately, the American officers managed the bigger battle around the traditional limitations of lesser technology, and lost when the British swarmed the breastworks with bayonets.

Is your business managing around outdated technology? I’m not suggesting that you run out and buy all new computers. However, like the Continental Army, many small businesses use only a fraction of the technology they already own.

“We file paper copies of customer statements, because it is easier to put our hands on them.” “We started a blog, but I don’t think we’ve looked at it in months.” We don’t use cloud-based software, because we wouldn’t know where our stuff was.” We installed a CRM, but no one really updates it.” “We don’t collect email addresses from our customers, because they say that they get too much email already.” “We bought the comprehensive enterprise software, but we’ve only implemented the basic functions.”

Your technology is an asset, and the role of any business leader is to maximize the return on assets. Hanging onto the way you’ve always done something when you already possess the technology to do better is a waste of the investment.

How would the Revolution have changed if the Americans had repelled the British attack at Bunker Hill, and still held artillery positions above Boston when George Washington arrived to assume command a couple of weeks later? Instead, they ignored the advantages of technology they already possessed…and lost.

Posted in Entrepreneurship, Leadership, Management | Tagged business ownership, business planning, business strategy, employee performance, entrepreneurs, entrepreneurship, management, small business, small business advice | 2 Comments

2 Responses to Technology and Bunker Hill Tactics

Mike Havel says:

June 21, 2015 at 10:54 am

Thanks, I love reading history and getting the story behind the story.

Usually a new hire will bring to our attention features and options we were not aware we had. I have encouged out of office one day tech class, and they have always paid off.

One of the best ideas we set up a few years ago was a “sales” email address, with all emails received in that email address forwarded to a sales2 email address. The sales2 address is viewed by the managers and myself. We can view customer communication, but the responsibility is still with order entry.

Allows management to review, be aware, and get involved when needed.

We only view sales2 and delete. Deleting from sales 2 does not delete from the orginal sales email address.

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Paul Johnston says:

September 23, 2015 at 7:11 am

I love the analogy thank you! It made me think of the civil war as well. A major contributor to the north winning the civil war was communication. The Telegraph was key to passing critical information from the battlefield. Coupled with the strategic development of railways it enabled the North to immediately request supplies and troops and report enemy positions, and then had the means to deploy resources quickly and accurately.

Business lessons can be learned from this history. The use of the Militia’s smooth bore muskets support the need to adapt to new demands, the telegraph reinforces the effectiveness of communication directly from the front line and down from leaders. The railway development teaches us to deploy both strategically and tactically.

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You Can Go This Far, but No Further

Posted on June 14, 2015 by John F. Dini

When someone starts their first company (especially a technician as defined in my book Hunting in a Farmer’s World) he or she is usually the sole key employee. She (I’ll use one pronoun for readability) does the hands-on work of the business, along with the marketing, sales, administrative and executive functions.

Sometimes that is all the business is — a mechanism for one person to earn a living. That is a job. If, however, the founder is smart and ambitious, she begins adding employees to assume some of those functions on a daily basis. The job becomes a company.

The first leap in a company’s growth comes when the founder finds a key employee; someone who can make decisions and who follows through on tasks without being supervised. That employee frees the owner to concentrate on fewer things, whether they involve development or execution. The owner brings in more business, or manages the delivery of its products and services to more customers.

The relief of having someone who shoulders a part of the load is huge. The key employee is advanced, paid more, and given more responsibility. In some cases, the owner decides that she can’t run the business without this help, and bestows partnership or other equity upon the individual who made this success possible.

But not everyone can sustain growth forever. An owner has (or should have) a vision for where the company is going. The key employee may understand the vision, and may even share it, but that doesn’t mean he can execute it.

What do you do when a key employee has reached his ceiling of capability? As the owner, you want to keep expanding, but the employee is at his limit of performance. He may become comfortable with his income. He may not have the managerial skills to handle more responsibility. You might have graduated to a customer base that is beyond his experience. He might be protective of his status in the company, and sabotage or handcuff others who wish to rise.

Perhaps you have a new, enlarged vision of what your company can do, but he doesn’t share it. Sometimes the pressure of responsibility wears thin, and the key employee begins unilaterally narrowing his job description. He may express his disagreement with your focus on growth. The business is manageable at its current level, and he delays or ignores your initiatives to take it further. When there is ownership involved, he may remind you of his “partner” status, and expect that to encompass shared decision-making regarding the company’s direction.

No employee has the right to tell you that you can only go this far, and no further. Whether it’s by word or action, the key employee is now a hindrance. As an owner, your frustration is not only about performance, but includes the realization that your control over your own business has been curtailed.

You are loyal to the employee, and still have gratitude for the early days when he enabled your growth. Demotion seldom works well. Bringing in a higher level of talent to take over is fraught with dangers of unrest and negative attitude. There is no easy solution, and it is usually made worse by your refusal to address the situation until it has become unbearable.

Parting ways will make you feel like an ingrate. It may be expensive if a buy out is involved. It probably requires that you assume additional responsibilities for a time. Filling the position with another, more skilled manager will probably necessitate a lucrative compensation package. It’s easier to hope the employee will make the leap to the next level, so you wait. And wait. And wait.

There is emotional and economic cost to ending your relationship with a key employee who has gone as far as he can go, but it is nothing compared to the cost of hobbling your company.