Small Business Techniques

Overview of Selling Your Business

by Tom Gray | on Nov 20, 2013 |  Comments

Will you be able to sell your small business? The answer depends on whether a buyer can envision operating it without your own personal role in customer relationships and delivering the product or service. The less it depends on you, the more likely it can be sold.

Selling your business is the end result of a thoughtful process, beginning when you started or bought into the business. It takes time. You must assess your business and its value drivers like a buyer would, “fix” any issues that would concern a buyer, and protect and improve those value drivers in the months and years leading up to the sale.

When is a good time to sell? The best time is when you don’t need to — when the business is growing, results are good, and no personal or other deadline could force you to settle for less than the best offer. Buyers are looking for a business with three consecutive years of growing revenue and profits.

The best time to decide to sell your business is two to three years before you expect the sale to be completed. This gives you

  • one to two years to get the business ready for sale, and
  • one to two years for the sales process itself.

Getting the business ready for sale has major and minor components. The major ones involve minimizing the effect of valuation “discounts” that could make your business worth less. Examples are dependence on only a few customers, and dependence on the owner’s unique role in sustaining business operations. Minor get-ready activities include improving the website, documenting processes and governance, and improving the appearance of the facilities.

The Sales Process itself may take six to nine months if the first deal does not fall through, or longer if it does. The process has five stages: preparation; solicit and qualify buyers; negotiating the offer; due diligence; and closing.

Should You Use a Business Broker?

Business brokers offer to be your guide and act as your middleman/spokesperson with the buyer or his broker. They handle the sales process while you manage the business. The result is a higher selling price and a faster sales process compared to doing it yourself. Brokers will advise you on getting the business ready for sale, develop the Offering Memorandum including a valuation of the business, distribute it to their own network and various websites to attract buyers, qualify and assess potential buyers, and negotiate with the buyers on your behalf.

Brokers charge approximately 10% to 12% of the purchase price, with a minimum payment of $7000 to $9000. You may negotiate for fewer functions and a lower fee, if you believe you can perform some of these functions yourself or find a consultant to do them for less.

Stage One: Preparation

The sales process depends on an Offering Memorandum (OM). This document describes the business: its product, market, competition, operations, performance for the last three years, and financial situation. Typical length may be 12 to 20 pages. This Memorandum will include a selling price for the business, which means a valuation of the business (see next article) must have been done before the Memorandum is complete. The OM presents the business honestly and attractively.

After getting the business ready for sale and performing the valuation to find an asking price, the next step is gathering data to write the Offering Memorandum. As part of this process, you assess the business strengths and weaknesses, opportunities and threats (SWOT). These factors affect the valuation.

Before sending the Offering Memorandum to any potential buyer, you develop other short documents.

  • The Teaser is a one-page summary of the business, its highlights, the asking price, and who to contact. It cites the industry and operating area, but may not name the business.
  • A summary of the Offering Memorandum may be used, to provide more information than the Teaser while excluding key customer and financial data. Its purpose is to keep buyers interested as you ask them to provide information showing they are qualified to buy.
  • The Non-Disclosure Agreement (NDA) is a contract stating that the person asking for the full Offering Memorandum will not disclose its information or use it in his own business.
  • The buyer qualification questionnaire is a set of questions that enable you to reject buyers that do not appear to be seriously interested in or capable of buying the business.

Finally, you will need to create the “Corporate Book,” containing the OM and some of the key documents backing up its assertions.

Stage 2: Solicit and Qualify Buyers

To solicit buyers, you or your agent/broker distributes the Teaser, promising to send the summary (if used) or the full Offering Memorandum to those who are interested. Responders must sign the NDA and submit answers to the buyer qualification questionnaire. Those who do, and who are accepted, receive the Memorandum. The broker’s  network of contacts and websites can be useful in this stage, though you may choose to solicit your own set of contacts first. If a few potential buyers emerge from your own list, you may pay a lower fee to the broker.

While this solicitation process is running its course, you should be gathering documents for the buyer to review in Due Diligence. You’ll also make a list of information about the buyer that you wish to review during the Due Diligence stage.

Stage 3: Negotiating the Offer

A buyer’s request to negotiate (Expression of Interest) triggers Stage 3. You should obtain guidance for this stage, using an experienced deal lawyer or a broker or both. Interested potential buyers usually request a meeting to discuss the material provided, some of their due diligence concerns, and some potential deal terms. After the meeting, they will submit a non-binding Letter of Intent (LOI), with a price and deal terms contingent on full due diligence findings. After Due Diligence (Stage 4), serious negotiations on deal terms take place.

Although deal term negotiations happen both before and after Due Diligence, we discuss deal terms first because the seller may reject the LOI based on preliminary discussions, and refuse to allow further due diligence.

The buyer who sends a letter of intent committing to a price and offering earnest money (deposit) may also request exclusive rights to negotiate on the sale for a certain time period. Do not grant exclusivity to anyone who does not offer earnest money and a committed price in writing.

The offered price is a beginning point for negotiations. Usually the points negotiated fall into three categories: price, terms, and deal structure. “Terms” can include concerns like environmental assurances, transition assistance, staffing plans, or assumption of existing obligations. “Deal structure” means purchase of only assets vs. the entire business; the amount paid; timing and form of payment (e.g. cash or stock or goods); and any contingencies that could affect the amount or timing.

After the two parties agree to general parameters on the price, terms, and deal structure, each of them provides a “disclosure statement” to the other. This is a list of pertinent facts about the business and the buyer, which the party guarantees are true. There will be some negotiations over these disclosure statements, with the buyer demanding stronger assurances of business health and growth prospects than the seller is willing to guarantee.

Stage 4: Due Diligence

In Stage 4 each party examines documents provided by the other party to validate “Disclosure Statement” assurances. This examination is called “Due Diligence.” The process may also include interviews with employees, unions, accountants, suppliers, or even key customers. It may involve site visits or other ways to gather information. When the two parties are finished, they either accept the Disclosure Statements as given or agree on revisions. Then they finalize price and deal terms, and then sign a Purchase Agreement. This completes the “signing” of the deal, but does not complete the transaction. The documents signed will contain Closing Conditions, as noted below.

Stage 5: Closing

Usually the two parties agree on some actions that must be taken before the transaction is actually completed. These are called “Closing Conditions.” Examples include regulatory or lender approvals, obtaining financing, some transition assistance by the seller, provision of certain missing documents, and assignment of leases. Once the Closing Conditions are satisfied, which may take 30 to 90 days, the two parties sign a Purchase Agreement that includes the entire deal and notes the completion of the Closing Conditions.

The next few articles will explain more details about each stage of the process.

Thanks to Bob Fader for his comments to improve this article! Bob is a Senior Consultant at MidCap Advisors, a nationwide boutique investment banking firm.

Tom Gray helps owners save and grow their companies. He is a management consultant focused on small business and telecom, a Certified Turnaround Professional (CTP), a Certified Business Development Advisor, and a Certified SCORE Mentor. He can be reached at 630-512-0406 or tgray@tom-gray.com. See www.tom-gray.com.  For Tom’s new book Business Techniques in Troubled Times: A Toolbox for Small Business Success, see http://www.businesstechniquesbook.com/

Checklist for Making Good Decisions

by Tom Gray | on Nov 14, 2013 |  Comments

Making a good decision is a process. It happens over time, not in an instant. As you ponder your decision, consider this checklist of reminders for good decision-making.

1.      Delegate

Let your people decide, if they are closer to the situation. Coach them and provide some limits, and then encourage them to decide for themselves. Their morale will improve, their decisions are likely to be as good as yours (with practice and feedback), and you can save your efforts for the major decisions.

2.      Decide
Problems rarely solve themselves. As time goes on, events tend to decide for you, limiting your options more and more. You must find a balance between “paralysis by analysis” and snap decisions. Let’s call that balance “prudence.” It involves due consideration, and validating your usually-biased assumptions, but it also means being aware of the perils of delay. There are no rewards for being the fastest to decide (no “manhood points”), but you will not be happy if you wait so long that events decide for you.

 3.      Understand Timing

Throughout the decision process, time can be both a friend and an enemy. It’s an enemy when you let it push you into a premature decision, or when you avoid making a decision until events have forced you into a corner, or when you decide to take a drastic action before preparing for the effects.

Time is your friend if you start the decision process early enough so you have time to consult advisors, listen to employee concerns, and test assumptions before making commitments. Time can also be your friend if you stretch it out after deciding: gather the resources and prepare the audience before implementing, and implement in stages, so you have opportunities to adjust. The idea of “ripeness” is useful here.

4.      Use a Framework

A Framework organizes your thinking. Use it to define the problem, select the relevant facts and numbers, decide what a good solution must achieve, identify the key unknowns, and imagine at least three alternative courses of action. Then you can assess the alternatives, using advisors to offset your blind spots. See A Framework for Making Decisions.

5.      Work Hard at Defining the Problem

What you see is only a symptom. The real problem is what is causing those symptoms. Ask yourself “Why?” several times to get to the real problem. For example, you see a customer problem. It seems to result from employee behavior. Are there other potential causes? Why do the employees behave that way? What benefit do they gain from that? Can you rearrange their incentives?

Here’s an old saying to guide you: “Let not your first thought be your last thought.” Einstein captured the importance of defining the problem correctly when he said: “If I were given one hour to save the planet, I would spend 59 minutes defining the problem and one minute resolving it.”

6.      Check Your Attitude at the Door

a. Attitude toward people

Solve the problem, not the person. Use value-neutral words when you describe the problem, background, solution criteria, and key questions. It’s not you against them. It’s you against the problem.

If the problem seems to be someone’s behavior, keep asking “Why they do that?” It’s probably not because they want to be a problem! It’s more likely they don’t know the effect of their actions, and they get some benefit by acting that way. If you can change the underlying cause, the behavior will change. For example, change the incentives so they get no benefit from acting that way, and they get some benefit from acting the way you prefer. You will not win a frontal attack on behavior in the long term, so work on the causes of that behavior.

b. Attitude toward the opinions of others

Again, it is not you against them; it is you against the problem. With a dose of humility, you will see that others know things you don’t, and they see things through biases different than yours. They can help you recognize your own biases in the assumptions you are making. Others may assess risk differently than you. Others can help you see unintended consequences, and implementation problems. Don’t battle to have your idea win the day – battle to find the best idea. See yourself as the orchestrator, not the dictator.

c. Attitude toward consistency

Do not reason from a single principle – that would be neither prudent nor pragmatic. Take a wider view, considering how others are affected. Be willing to make exceptions to previous positions if the conditions or situation have changed. You might even have been wrong before. If so, the sooner you realize it, the better. Keep an open mind.

7.      Test and Quantify Your Assumptions

You will never have all the information you need before deciding, so you make assumptions. Two cautions can guide you here.

  • First, quantify the impact of not just your facts but your assumptions as well. You may assume something and evaluate it as bad, but that does not mean it is important. You won’t know that until you quantify it and/or its effect. You can quantify by doing more research into your own company’s experience, seeking other company experience, or creating a quick test in the real world. Don’t rely on possibly flawed logic and assumptions about the market. Instead, experiment. For example, try it with a few customers or for part of a week, and see what happens.
  • Second, recognize that bias can play a major role in your assumptions. This is why you test them, and why you get the advice of others (but you must recognize their biases as well).

You will need numbers to decide, so quantify everything you can. Your Framework’s Background Section (relevant facts) should be filled with numbers as well as words.

8.      Create Multiple Alternative Courses of Action, and Then Assess Them

Create at least three courses of action, forcing yourself to open up to other possibilities beyond your first reaction. The worst decisions are those framed as go/no go for one course of action. The best decisions use different perspectives to create different approaches, so you can consider many angles, and perhaps blend some of them into a well-rounded decision. Remember, “let not your first thought be your last thought.”

When you create your alternatives, you will make a quick list of pros and cons for each. Then you evaluate these pros and cons. How good are the pros? How bad are the cons? How much will they cost? Having the alternatives tells you what to investigate, so establish them first and then assess them.

This is the time to ask for the views of others, after you’ve organized the situation into a Framework and developed some alternatives. Their views can change the whole framework, from problem statement to which facts are relevant to imagining new alternatives. Be humble, ask why, and listen to learn. The goal is not to persuade them; it’s to gain insight so you can make a better decision. See Decision-Making: Assessing Alternatives for techniques to assess the views of others and alternative courses of action.

9.      Ethics: “Listen at the Heart of the Spider Web”

This phrase is about feeling the impact of your decision on all those it affects. How would you feel if that were you? What can you do to minimize negative effects and still achieve most of your goal? Perhaps some more imaginative timing, or carving out some exceptions, would ease the pain. For some techniques to see if your solution is ethical, see Decision-Making: Ethics and Resistance Both Require Humble Leadership.

 10.   Work Hard at “Unintended Consequences”

Decisions made for good reasons can turn out to be bad for all if they cause others to react in unforeseen ways. We see examples every day in the political realm. Intentions are good, but foresight is bad. Defense against this risk starts with humility. You could be wrong! Customers, competitors, or employees could do something other than what you predict! Maybe you don’t understand their needs or their choices as well as you thought.

Working hard at “unintended consequences” means imagining several rounds of reaction to your decision, and assuming it is misunderstood at the outset. Test your imaginings with some members of these groups. Then adapt your decision to minimize the unexpected behaviors.

11.   Implementation Requires Forethought; It’s Not an Afterthought

Paraphrasing Edison, solutions are 10% inspiration (the decision), and 90% perspiration (implementation). Think through implementation resources and timing before you finally decide, because inability to get it done when planned could drive you to choose a different course of action. The timing or stages of implementation can be the difference between a drastic solution and a balanced one. Recognize that implementation always happens later than planned, at greater cost, with less effectiveness. After all, we’re human! Given that, is it still a good idea?

Help our readers! What techniques helped you make an important decision?

Tom Gray helps owners save and grow their companies. He is a management consultant focused on small business and telecom, a Certified Turnaround Professional (CTP), a Certified Business Development Advisor, and a Certified SCORE Mentor. He can be reached at 630-512-0406 or tgray@tom-gray.com. See www.tom-gray.com.  For Tom’s new book Business Techniques in Troubled Times: A Toolbox for Small Business Success, see http://www.businesstechniquesbook.com/

Decision-Making: Ethics and Resistance Both Require Humble Leadership

by Tom Gray | on Nov 06, 2013 |  Comments

We all want to live according to our values – the kind of behavior we believe is right and fair. This is ethical behavior. But just like employees who are seduced by bad incentives into performing below standard, decision-makers can be tempted to ignore their own values. The reasons range from greed to power to fear and beyond. These are powerful motivators, so we need simple and strong anchors to make sure our decisions consider the interests of all those affected.

“Listen at the Heart of the Spider Web”

First, make yourself aware of the impact of your decision. When considering which course of action to choose, you must make an effort to see and feel beyond your own motivations. Like a spider at the middle of the web, you must feel all the tensions, influences, and emotions. Ask yourself these questions:

  • Who is affected? Consider employees, customers, shareowners, community, and lenders.
  • How does this decision affect them?
  • What will be their first reaction?
  • Will you have to work hard to explain why you decided this way?
  • How would you feel about this decision if you were one of these groups?

Second, evaluate your thinking in terms of its impact vs. your values.

  • How would you explain your decision to your mother, who is often the source of your values?
  • Assume a local newspaper is reporting on your decision, using its own “value words.” Would you be embarrassed? Would your explanation be simple and convincing?

Third, use some imagination to tweak your decision to minimize negative effects on the various groups.

  • Have you been reasoning from a single value (e.g. short-term profit)? Consider other values like fairness and doing the least harm.
  • Consider the idea of prudence. Could you modify your decision so it is less drastic, allows for your assumptions and projections being wrong, and minimizes harsh impacts?
  • Can you modify the timing or scope of your decision to do less harm, without losing much of the benefits?

The best decisions are balanced. They achieve the solution criteria (goals) while doing the least harm. They also recognize that your reasoning and forecasts could be wrong, and provide escape routes when that turns out to be true, before too much damage occurs. No one can see the future with perfect accuracy. A little humility at decision time can save your business when events prove you wrong, as they always will!

Don’t Be Surprised When Some Key People Resist Your Decision

You can expect some resistance when you describe your decision. If it was hard for you to decide, it will be just as hard for them to see why you decided that way. Your response to resistance can make things better or worse.

First, share the decision and the thinking behind it privately with those affected. If there are too many individuals, select one, or a few. Consider this a trial explanation, and be open to changing your decision. This is not a test of your authority or your courage – it’s an appeal for advice. The private approach makes it easier to modify your plan before publicly committing to it.

Second, really hear their concerns. Resist the natural tendency to try to persuade them by aggressively defending your thinking. Instead, listen and question to find the source of their concerns. Together, understand why those concerns are a problem for them.

Third, find a low-risk and speedy way to test and measure the impact of their concerns. This shows you really heard them and respect their thinking. Then you will both learn whether these issues require changes in the plan.

Fourth, ask them to suggest how the plan could be changed to satisfy their concerns and still solve the problem. This shows respect, and
makes them your partner. Think through their suggestions together, so you both agree on the wisdom of any changes. As a result, they will support the revised plan with others. You will have their buy-in rather than their resistance.

Dealing with resistance this way calls for humility. You are asking for help, and listening. You are not the “great and powerful Oz” with all the answers. Being the one who must decide does not mean you are the only thinker and have all the answers. Behave like an orchestrator rather than a dictator to get the best decisions and the best buy-in.

Did you notice that humility is the leadership style that gets the best results for both Ethics and Resistance? Respect your people, and they will respect you. Then you can move forward together, and implementation will have a much better chance to succeed.

Did you ever change a decision after broadening your thinking to take into account all those affected? Was the revised decision better?

Tom Gray helps owners save and grow their companies. He is a management consultant focused on small business and telecom, a Certified Turnaround Professional (CTP), a Certified Business Development Advisor, and a Certified SCORE Mentor. He can be reached at 630-512-0406 or tgray@tom-gray.com. See www.tom-gray.com.  For Tom’s new book Business Techniques in Troubled Times: A Toolbox for Small Business Success, see http://www.businesstechniquesbook.com/

Decision-Making: Assessing Alternatives

by Tom Gray | on Oct 30, 2013 |  Comments

In your decision-making process, if you defined the problem correctly and created several alternative courses of action, you’re on the road to success! But that was the easy part! Assessing alternatives is the hardest part of decision-making. It depends on judgment, sorting out bias, and testing your intuition. Ask yourself:

  • Is my information (i.e. “background”) correct? Can I get more information to test assumptions?
  • How do I use or weigh this information, and the advice of others, to choose the best alternative?
  • Have I considered ethics in choosing my preferred alternative?
  • How do I deal with resistance from employees and other stakeholders?

This article addresses the first two: information and judgment. The next article deals with ethics and resistance.

Is My Information Correct?

You will never have all the information you would like, but you may have enough information to decide. However, the information you already have may be wrong, or inapplicable. And you may be able to get more of the missing information you would like to have.

In the Background section of your Framework (see A Framework for Making Decisions), you listed the numbers you thought were relevant to solving the problem. Before deciding, look again at those numbers. Who developed them, from what sources? Did they make some assumptions? Of course they did! Examine those assumptions:

  • Are they based on the same type of situation you are facing: the same customers, competitors, technology, etc.? If not, can you or someone else suggest a better basis?
  • How likely is the trend they assumed? Is a different trend equally likely? If it is, use the different trend to develop a different course of action to be considered.

Next, consider the timing they assumed. If the timing were shorter or longer, would the trend change? For example, if it were longer, then competitors would have more time to react, or technology might change, or customer preferences might evolve. Make sure the assumptions on timing for implementation are not too optimistic. If needed, revise the numbers, and then reconsider potential courses of action.

Finally, spend some brain calories to design a quick experiment or test to get more certainty about key numbers. This could be a market test, a promotion, a limited process change, etc. Given the results of such experiments, you may want to revise the numbers and the potential courses of action.

Here is a good mindset: If you had to decide this issue a year from now, what information would you like to have gained? Can you get some of that now?

Judgment: Using the information and the opinions of advisors

First, remove passion and bias. Emotions don’t help your reasoning, or your advisor’s. A couple techniques are using value-neutral words, and evaluating problems not people. If you think a person is the problem, then think through why it is in their interests to behave the way they do. Then change those incentives. You won’t change the person, but you can change their behavior, and that is the real issue.

Removing bias – both advisor’s and yours — starts with seriously considering each step of the logic. What if the assumption at that step is wrong? Would that change the expected outcome? If it does, then dig into that step. Are they ignoring the risks because they’ve fallen in love with a particular approach? Do they have something to gain from that approach? Are they assuming that some prior experience will be repeated here, even if the situation is clearly different? Get another opinion!

Second, here are some techniques for assessing alternatives you created, or those suggested by advisors.

  1. Does the recommended course solve the problem – does it meet the solution criteria?
  2. “I heard your recommended approach. What is your second-best approach? What would have to happen for that to be better than your first recommendation?” Then you can assess a new scenario.
  3. Re-anchor to your vision for the company. See Key Aspects of the Company for “Imagining Excellence”. Which course fits best with that vision?
  4. Ask the advisor (or yourself) for all the reasons you should say no to his recommendation. These are the “cons”. Evaluate whether they outweigh the pros.
  5. Ask advisors “What is our response if your recommendation fails to achieve the solution criteria?” Is that scenario acceptable?
  6. Were there people in the advisory group who disagreed with the group’s recommendation? Talk to them and understand their thinking.
  7. Anticipate several rounds of action and reaction by competitors and customers. This helps identify “unintended consequences,” which could make that course of action unacceptable.
  8. What if the timing changed? Maybe you could do it all at once, or in slower steps. Maybe the scenario assumes that all goes well and all dates are met, which hardly ever happens! Would different timing, usually slower, change the expected outcomes? Would it be safer, giving you more time to adjust if expectations turned out to be wrong?

Americans, especially men, tend to pride themselves on being decision-makers, which means deciding quickly. A fast decision that does not solve, or worsens, the problem is nothing to be proud of! It takes a bit more humility to recognize that you don’t have all the information needed, and neither do your advisors. The best decisions can result if we take a little more time to set up the Framework, validate our assumptions, make sure we have several alternatives to assess, and then examine why our first reaction might be wrong.

The French have a saying that translates roughly as “I was in error but not at fault.” If you decide without testing assumptions and alternatives, without anticipating consequences and competitor and customer reactions, you will be both in error and at fault!

Help our readers! Tell us about a quick decision that turned out wrong, where a better decision process would have prevented the error.

Tom Gray helps owners save and grow their companies. He is a management consultant focused on small business and telecom, a Certified Turnaround Professional (CTP), a Certified Business Development Advisor, and a Certified SCORE Mentor. He can be reached at 630-512-0406 or tgray@tom-gray.com. See www.tom-gray.com.  For Tom’s new book Business Techniques in Troubled Times: A Toolbox for Small Business Success, see http://www.businesstechniquesbook.com/

A Framework for Making Decisions

by Tom Gray | on Oct 23, 2013 |  Comments

Someone once asked a business owner, “Do you have trouble making decisions?” He answered, “Well, yes and no.”

Making decisions is hard because life is complicated. It’s hard to sort out all the considerations and give them proper weight. So here is an approach that helps you sort everything out. Good decisions are more likely when your thinking follows these steps:

  1. Define the Problem.
  2. List Key Background Information, including all the numbers that may help you weigh impact and compare alternatives. Use “value-neutral” words. You may need 15-20 bullet points.
  3. Solution Criteria: Not the solution itself, but what the right solution must accomplish. Usually there will be two or three measurable developments. Any alternative course of action that does not accomplish these measurements does not solve the problem, and thus can be rejected.
  4. Key Questions: What you would like to know to help you choose the right course of action?
  5. Three Alternative Courses of Action, with pros and cons for each.
  6. Recommended Solution: may be a blend of two or more “alternative courses of action.”
  7. Describe the Implementation Requirements.

Here are some tips on how to use each step.

1.      Define the Problem

You want to find the underlying issue, not just the symptom. To be sure you’ve gotten to the real issue, ask WHY as many as five times.

For example, too many of the people I hire quit after a few months. Why do they do that? They feel pressured because their performance is criticized. Why is their performance criticized? Because it falls short of our standards. Why does it fall short? Do they know what the standard is, and why it’s necessary? Do they have adequate training? Did you verify they understood the training and could perform the task? If yes, then why aren’t they performing the task well now? Do you use incentives, and do they motivate the right or the wrong behavior? Are there implicit rewards that motivate them to skip steps in task performance? Can you change those?

This multi-level thought process takes you from solving ”feeling pressured” to fixing the rewards, or it might lead you to fixing the training. If the underlying problem is rewards or training, relaxing pressure would not solve the problem. So it’s crucial to carefully define the problem you must solve.

2.      List Key Background Information

This step is an attempt to boil down the welter of information and emotion into just the relevant facts and expectations, so you can focus on what matters most. To make it quick, use bullet items rather than paragraphs. Examples include:

  • Describe the market and your position in it.
  • Describe the assets you or your business have, and why they are relevant.
  • What do customers value, and how does your offer compare to competing offers for those value elements, also called “buying criteria”?
  • Who is involved and how?
  • What are the current performance measurements, what are the targets for them, and what are your actual results?
  • What are the important cost elements and the cost of each?
  • What would it take to make this change or that change: skills, cost, time?
  • What would be the effects of each of these changes?
  • Why haven’t you made these changes before now?
  • When do you need to change something, and why then?
  • What happens if you change nothing?

Be sure to include all the numbers that can be relevant to your decision. As noted above, you might use 15 to 20 bullet items to cover the relevant information for making a decision.

Consider bias when you make this list. When you select information, you are excluding some other information. Would another reasonable person mention something here that you have not? Why did you exclude it? Should you reconsider?

One dangerous tendency is describing the facts with value-laden words. These are usually adjectives, like mere, trivial, huge, frightening, foolish, etc. Reconsider your list and edit it to use only value-neutral words. This removes distracting emotions. Instead, just cite numbers (not adjectives) to communicate size or impact. If you are not sure of the numbers, make an assumption and note that it should be tested later. Use numbers rather than adjectives to tell the story. In this section of the Framework, your goal is to list the relevant facts, not evaluate them.

3.      Identify the Solution Criteria

Solution criteria are the measurements showing that the solution – whatever it is – has solved the problem. Criteria might be: sales or profits meet target; employee loss rate changes from x to y; percent rejects falls from a to b; or customer satisfaction survey’s “completely satisfied” category rises from c to d.

Use these solution criteria as tests when considering alternative courses of action (solutions). If that course is not likely to result in the desired criteria (changes in measurements), then it must be rejected as not solving the problem.

4.      Key Questions

These three to five questions are inspired by the solution criteria and background. They will lead you to possible courses of action, i.e. they help you brainstorm. Examples might be:

  • How can we increase sales by x amount by y date?
  • How will competitors react?
  • How will we get the skills to build a web presence?
  • Is our facility big enough to handle the necessary increase in sales?
  • Can we find a faster machine? How can we afford it?
  • What are the alternatives to a particularly troublesome step in our production process?

5.      Select at least Three Alternative Courses of Action, with pros and cons for each

This step is crucial. Its goal is to stop the normal tendency to consider only one answer, or to set up the problem as a choice between two approaches. Research confirms that by casting a wider net, you broaden your thinking and end up with a better overall recommendation. (See Making great decisions | McKinsey & Company).

For example, if the problem is growth, some alternatives might be: change the product; change the price; change the marketing; motivate the sales force. In each case, when saying what the alternative is, say how you would do it so you know what to evaluate. How would the product change? What would be the new pricing structure? What kind of new marketing approach? What kind of new motivation system?

You can get to this point in the Framework in 30 minutes! Then you need to analyze the pros and cons, which you selected based on intuition, to measure their impact. A spreadsheet to compare alternative financials may be useful here. You may also want to assign weighting factors to various pros and cons, because some are more important or have more impact than others.

Now is the point when you should review all this thinking with others. You may find they suggest different alternatives and different pros and cons, or they may weigh the importance of pros and cons differently. They may also suggest low-risk ways to test your assessments of pros and cons, to be sure of your measurements of impact.

6.      Recommendation

Here is where you make your preliminary decision on what to do and how to do it. The best solutions are often blends of two or more alternative courses, with staged implementation to allow adjustments based on findings as you proceed.

7.      Implementation Requirements

A solution that cannot be implemented successfully is not a solution at all! In this final step you list the sequence of implementation activities, and reassess for practicality. This can cause you to change your recommendation, or its staging. Once the implementation requirements are clear and reasonable, you can start work on making them happen, using a project plan to keep yourself on track. Implementation is where good decisions usually come apart, and fail to deliver the solution criteria! Paraphrasing Edison, solutions are 10% inspiration and 90% perspiration!

Can you spare 30 minutes to frame a crucial decision? Try it and let us know if it was useful!

Tom Gray helps owners save and grow their companies. He is a management consultant focused on small business and telecom, a Certified Turnaround Professional (CTP), a Certified Business Development Advisor, and a Certified SCORE Mentor. He can be reached at 630-512-0406 or tgray@tom-gray.com. See www.tom-gray.com.  For Tom’s new book Business Techniques in Troubled Times: A Toolbox for Small Business Success, see http://www.businesstechniquesbook.com/

Making Good Decisions in a Small Business

by Tom Gray | on Oct 16, 2013 |  Comments

Small business owners face decisions every day. They balance opportunity vs. risk, people effects vs. financial effects, and timing: do-it-now vs. later-is-better. Even deciding to do nothing can be a fateful decision (or non-decision). Some examples of small business decisions:

How to do marketing? Move to new location? Grant customer request?
Buy new software? What price to charge? Modify employee schedule?
Make process changes? Should I hire her or fire him? Invest more capital?
Launch new product? What components to make vs. buy? Borrow money?

 

Decision-making is worth special attention because it has great impact and it’s hard to do well consistently. Why is it hard?

-        You never know all you need to know.

-        Time is not your friend; often, you need to decide before you want to.

-        If you get advice, it is divided, or based on poor understanding of your business.

-        You expect resistance from key people: employees, customers, lenders.

-        You don’t like the impact on others; there may be ethical issues with no good solution.

-        Due to the impact, you are afraid to make a mistake, so you delay. When you delay, the situation changes, and often you are left with fewer and less attractive options.

Take heart! There are some techniques – some ways to go about decision-making – that can result in better decisions and less risk.

First, Let Your People Decide for Themselves – Delegate for “Dynamic Decision-Making”

Too often a small business owner makes all the decisions for the firm. You have competent people. Why not use their brains? Large organizations cannot escalate all decisions to the top, so they had to develop a technique to make sure only the most critical decisions come to top management. You can do this too!

Delegate some authority to your people. Let them decide what to do. Train them well, make the processes clear, and then turn them loose within limits. Larger organizations call these limits a “schedule of authority.” This is a company policy set up as table, specifying the decision-making limits of each position or level. For example, frontline people can approve a refund up to $x, or by supplies up to $y. Their supervisors have higher dollar limits. Maybe supervisors can also hire, or suspend but not fire, etc.

You will monitor the quality of their decisions, coaching them or changing the limits as needed. The result will be faster decisions with better consideration of the facts of the moment (“dynamic”), and a happier work force as well. See Delegate Responsibility to Improve Employee Performance.

Second, Get Some Other Viewpoints

Being the decision-maker still leaves room for getting advice! And getting advice does not mean you are stepping back and letting your advisors decide. Advisors can include a partner, another business owner, a lawyer or accountant, a consultant, a key employee, a key customer, a friend, etc. Two advisors are better than one!

Here is what’s good about getting advice:

-        The advisor may know of examples where similar approaches were tried, and their results.

-        The advisor may understand the implementation requirements of a particular choice better than you.

-        The advisor will question things you take for granted.

-        The advisor may have different biases than you, and less emotion, resulting in a more balanced approach.

-        Explaining the situation to an advisor helps you explain it to yourself, organizing your thoughts and making your assumptions clear.

-        The advisor may think of alternatives or impacts you missed.

-        The advisor may know how to estimate or measure impacts better than you do, helping you to evaluate one alternative vs. another.

The next few articles will explain an overall approach for analyzing a situation, and then suggest techniques to use at each stage of the analysis.

Help our readers! What was your hardest decision in your small business? How did you decide?

Tom Gray helps owners save and grow their companies. He is a management consultant focused on small business and telecom, a Certified Turnaround Professional (CTP), a Certified Business Development Advisor, and a Certified SCORE Mentor. He can be reached at 630-512-0406 or tgray@tom-gray.com. See www.tom-gray.com.  For Tom’s new book Business Techniques in Troubled Times: A Toolbox for Small Business Success, see http://www.businesstechniquesbook.com/

Learn Why Employees Leave

by Tom Gray | on Oct 09, 2013 |  Comments

Each employee is crucial to a small business. When an employee decides to leave, the entire staff feels the loss. The owner will need to spend many hours finding a replacement, and everyone will have to deal with months of disruption until the replacement is found and becomes competent.

Sometimes the loss is a good thing, creating an opportunity for new blood and growth for current staff, but usually everyone wants to minimize turnover. To do that, you need to understand why people leave, and then manage the business so people want to stay.

Over the years employee surveys are consistent in revealing the top three reasons why employees leave. Resnick describes them well at Workforce Performance: Know Why Employees Leave:

“The number one cause of resignations is the employee’s immediate supervisor. Most employees don’t leave their companies; they leave their bosses. And the reason usually has to do with employees feeling that they are not treated with basic respect. They do not believe their bosses listen to them or ask for their input. They do not think they are given the freedom to do their jobs. They feel ‘micro-managed.’ These are the primary reasons why people flee a work environment. When turnover remains consistently high in a department, you often have a problem supervisor.

“The number two reason for resignation is lack of opportunity. If employees believe they are dead-ended, they will start to look for greener pastures. If no one ever asks them about their career goals, they believe that no one cares about their future. If they become so good at a particular task and then asked to do the same thing over and over again, they become afraid that they will lose their skills. When this situation develops, you have an employee at risk.

“The third cause is lack of recognition. Everyone wants to be acknowledged. Everyone wants to be told when they’ve done a good job. Everyone wants to be appreciated. Employees even prefer negative feedback to no feedback at all. Yet, most companies provide very little feedback and even less recognition. They assume that employees know they are doing a good job, and are appreciated. But the reverse is true. When employees receive no recognition, they assume they are being taken for granted.”

These three reasons for departure are the inverse of the three job satisfiers noted in Motivating People – The Most Fundamental Management Technique: trust, opportunity for achievement, and appreciation.

Making People Want to Stay

  1. Listen to your people. Have the “Breakthrough Conversation”. Then act on what you heard. Remove obstacles and improve processes.
  2. Provide opportunities for growth. Develop leaders. Assign a variety of tasks. Delegate responsibility.
  3. Look for good performance. “When you see it, say it.” Show your appreciation personally, and celebrate competence to the entire group.

Don’t Depend on the Exit Interview

The exit interview is an opportunity to learn why employees leave, but don’t depend on it. People often pull their punches in an exit interview. They have already “checked out” mentally, so they decide not to spend the calories to make your business better. It’s not their business any longer. They don’t want to cause problems for former co-workers, and don’t want to tell you that you yourself may be the reason they are leaving.

Instead, regularly ask your people what they think while they are still with you. This gives you a chance to “save” them and improve the business. Listen without becoming defensive. They may not tell you what they really think, but at the very least they will appreciate the respect you show by asking for their views.

Another technique is to ask them what they think anonymously. Big companies use a survey. You can do that too with Internet tools like Survey Monkey. The weakness of a survey is that you cannot ask follow-up questions or explore a particular area in detail.

You could also have an outsider ask them what they think. When I’m at a consulting client’s business, I am continually amazed at the candor and frankness I see when I sit down with each employee of a business I’m consulting with. People seem to feel more comfortable telling their story to someone they do not work with every day. Sometimes it’s because the boss has not asked and does not listen.

However you decide to learn what your people are thinking, the important thing is to do it, and then act on what you learned by making things better. Understanding their concerns is the key to keeping your people!

Tom Gray helps owners save and grow their companies. He is a management consultant focused on small business and telecom, a Certified Turnaround Professional (CTP), a Certified Business Development Advisor, and a Certified SCORE Mentor. He can be reached at 630-512-0406 or tgray@tom-gray.com. See www.tom-gray.com.  For Tom’s new book Business Techniques in Troubled Times: A Toolbox for Small Business Success, see http://www.businesstechniquesbook.com/

Find and Develop the Leaders among Your Employees

by Tom Gray | on Oct 02, 2013 |  Comments

In every work group, one or two people seem to be the core. They understand the whole process, not just their task. They seem to make good decisions. Their peers respect them and want to know their views. Whether they explain their thinking or simply “make it look easy” with quiet competence, they seem to influence those around them. That’s leadership.

An employee can be a leader without a title. Leadership is not measured by the position you hold. It’s measured by the effect you have, i.e. your influence on others. An employee with leadership skills can use them to advance the company’s goals, or to frustrate them.

Identifying the “leader in the ranks” is the first step. Then you can use that insight to develop the leader’s abilities and apply them more broadly.

I once ran a small company where I noticed three pairs of employees where one seemed to lead the other person in the pair. I realized that to improve results in their areas, I needed to manage the leader, and the other would follow. One of these leaders turned out to have abilities we were not using, so we gave her more responsibility. She appreciated the recognition, and became a very creative contributor. Two used their leadership in a negative way. Once they were terminated and replaced, the performance of their followers was much better.

Developing Leaders

Not everyone wants to “be developed.” But those who choose not to take on more responsibility are still effective communicators to and from their work groups. Make sure these leaders understand your thinking and your values so they can help with work group buy-in. You’ll also want to make sure they are comfortable coming to you with issues that bother their work group, so you can solve problems before they fester and reduce morale.

Other leaders are open to the challenge and satisfaction of greater responsibility. How can you help them grow?

People learn effective leadership by watching other leaders, by practicing, and by reflecting on what works, what doesn’t, and why. Formal training can supplement this process, but experience is much more important. As management theorist Mintzberg said, “Leadership, like swimming, cannot be learned by reading about it.”

This means you develop leaders by spending time with them to develop their abilities, both before and after widening their scope.

  • You explain to them why you led the way you did, and discuss other models as well. Learning from models is the best way to train for effective behaviors.
  • You help them reflect on which leadership skills are crucial at various levels of the business: hands-on demonstration and follow-up as a foreman; hands-off coaching when you are managing foremen; collaboration across functions at more senior levels.
  • You assign them work where they must exercise higher level skills, often as part of a team. You coach them as they work on the project, and reflect with them about effective behaviors during and after the project.
  • Then you assign more developmental projects.
  • Soon you can assign them wider areas of responsibility, where they can “learn by doing” in their own area. Again, the techniques to ensure their development are coaching and reflection. One CEO said: “Among the elements of leadership, 80% is experience. Our first line of offense is just to put them (promising executives) in a job.” You’ll be taking a risk, but risk is the only way to gain rewards. An oil company CEO said, “You have to be willing to challenge people and always advance them a little bit sooner than you think you should. We drill dry holes with people, just like we drill dry holes looking for oil and gas.”

The Payoff

Developing leaders helps solve the small business owner’s problem of isolation and workload/burnout. People are always around, but you need someone to consult with, someone who understands the business, the customers, your staff, your processes. That person can be the leader you developed. They can be the “sounding board” to help you reflect, and they can take responsibility so the owner need not do it all.

The other payoff is that you keep the best employees by giving them opportunities to grow, and by showing respect, trust, and appreciation. These are the crucial elements of job satisfaction. Keeping your best employees means your business keeps performing at its best, and that’s a tremendous payoff!

Developing the leaders among your employees require your time and effort. The payoff is a smoother operation, more delegation, better alignment, and all the other hallmarks of a well-run business.

Tom Gray helps owners save and grow their companies. He is a management consultant focused on small business and telecom, a Certified Turnaround Professional (CTP), a Certified Business Development Advisor, and a Certified SCORE Mentor. He can be reached at 630-512-0406 or tgray@tom-gray.com. See www.tom-gray.com.  For Tom’s new book Business Techniques in Troubled Times: A Toolbox for Small Business Success, see http://www.businesstechniquesbook.com/

Make Every Hire Count – Manage Their First 90 Days

by Tom Gray | on Sep 25, 2013 |  Comments

Small businesses do not hire extra people! When they hire someone, they know exactly why they need that position. But finding the right people seems to be one of the most difficult tasks a small business faces. You need the right skills, but also the right fit: attitude, reliability, behaviors.

Before Interviewing

When you decide to hire, your first question is usually “where do I find someone?” Instead, it should be “exactly what do I need this person to do, how well do they need to do it, what skills/experience are crucial, and what other skills are nice to have?”

In other words, you need to write a job description, define their role in your processes, decide the level of performance that is acceptable, and define how to measure it. Thinking through these criteria will help you choose someone with the best chance of being the competent contributor you had in mind.

The Interview

There’s plenty of advice on the Internet about interviewing, so I’ll just add five questions to ask after you’ve covered skills and experience. The answers to these tell you about the person, not just their history. They will help you decide whether this person fits your company and team culture:

1. What is your single greatest accomplishment?

2. What is your single greatest failure – the one thing you would do over, if you could?

3. What is your single greatest strength?

4. What is the single thing about you that you would change, if you could?

5. What do you do to relax?

The First 90 Days Are Crucial

During the first 90 days, you need to decide if this hire was a mistake. Certainly you hope not, after all the time and effort that went into your search! You have two tasks: do everything you can to set up this hire for success, and don’t kid yourself that everything will work out when you spot problems soon after hiring.

Setting Up Your New Employee for Success

  • Provide a thorough orientation. In addition to general information about the company, pay, and benefits, make clear your Vision for the company, and the behaviors you expect (values). Explain the employee’s role in the big picture: how their department fits in, and what they can do to make their department a success.
  • Make sure they understand their whole job, not just the basic tasks they will start on. Be clear about the expected performance level, and how it is measured. Then explain the training period, and how long it should take before they reach the competence level that you are measuring. This is the payoff for thinking through the job description, the role in your processes, and the standards for performance ahead of time.
  • Designate a Coach or Mentor, a go-to person for questions and concerns.
  • Schedule feedback weekly for the first month, and perhaps less often in the next two months. Ask them what they wonder about. Tell them how they are doing. It’s much easier to change their behavior at the beginning than later on.

Act on Problems

When the fit is not right, you will see warning signals in the first 30 days. However, it’s hard to admit to yourself that you might have made a mistake. You dread the thought of redoing all that hiring work. You naturally hope things will get better over time. Often they don’t.

When you see problems, have a very explicit conversation with the employee, and tell them what needs to change. Ask them if they think the fit is right, i.e., is this the company for them?

See if behaviors become acceptable in the next couple weeks. If not, make the hard decision then. The sooner you get the right person in the job, the better off the company will be. You and your company don’t have the time to “save” someone who does not want to be saved.

Have you ever fired a new hire too late? Why? Have you ever fired a new hire too soon?

Tom Gray helps owners save and grow their companies. He is a management consultant focused on small business and telecom, a Certified Turnaround Professional (CTP), a Certified Business Development Advisor, and a Certified SCORE Mentor. He can be reached at 630-512-0406 or tgray@tom-gray.com. See www.tom-gray.com.  For Tom’s new book Business Techniques in Troubled Times: A Toolbox for Small Business Success, see http://www.businesstechniquesbook.com/

Management System: Link Vision, Strategy, Performance, and Compensation

by Tom Gray | on Sep 18, 2013 |  Comments

A well-managed company has all the players paddling in the same direction, toward the same goal. It has a framework that makes all the parts support each other.

  • The foundation is the Vision – what we are trying to become in three years.
  • Gap Analysis shows what we must do to move from today’s situation to the Vision.
  • Prioritizing the strategic projects to bridge the gaps produces the Strategy to get there.
  • Key Performance Indicators (KPIs) are the most important measurements showing progress toward the Vision.
  • Assigning responsibility to key employees enables progress, secures their “engagement,” and provides job satisfaction.

See Vision Development for a description of the techniques to get to this point. This is an action-oriented plan, but it is still only a plan. Success depends on execution, and execution depends on motivation, resources, and rewards.

Project Execution

Projects get done with the classic approach: “plan the work; work the plan.” The boss’s job is to demand planning and status reports, intervene as needed with advice and new resources, adjust targets when new information comes to light, motivate the team, measure progress, and provide rewards.

Once projects are assigned, the project owners must provide a step-by-step project plan to the boss in a week or two. One of the first steps will be to designate the project team members, and make sure they (and their boss) accept the responsibility.

Every two weeks the project owner should provide an updated project plan, showing the status of each activity. Encourage revisions to activities and due dates as more information becomes available.

The boss should be sure to assign one or two projects to himself. These will be initiatives that he or she is in the best position to accomplish, such as HR matters (hiring new skills, bonus plan) and key external efforts such as managing professional advisor expenses and developing new markets. The boss should prepare a plan, and provide biweekly updates. She must be just as accountable as the other project owners, and they should see her biweekly progress reports. Her project management should be a model for all the project owners.

Targets

The company needs two types of annual goals: progress on strategic projects, and profitability. The goals should have measurable targets. These measurements themselves are called Key Performance Indicators (KPIs).

Once the boss creates those goals, in consultation with employees, then he must prepare a budget. This is a realistic forecast of sales, revenue, expenses, and profits for the next 12 months. It will provide some expenses for strategic projects, and also account for any expected profit improvements from those projects in the coming year.

Then the employees prepare their own “one-page plans” for their performance for the year. These are the goals they agree on with the boss: both base goals and stretch goals should be mentioned. These plans should focus on planned accomplishments, not mere activities. Types of goals are operational (KPIs), teamwork, external impact (market, customers, community), and personal development. Each one page plan will have a section for each of these four types of goals, with bullet points for planned accomplishments and target level of achievement in each of the four sections. The boss must do his own one-page plan.

The boss reviews employee one-page plans for approval, making sure they are reasonable and relevant to Key Performance Indicators. This is where the boss makes responsibility for measurements clear to each employee, including collective accountability (see Collective Accountability Prevents Delegation from Destroying Teamwork). Some measurements will focus on strategic project progress, and others will be operational, such as sales or cost control.

Measurements

Publish measurements of the company’s progress vs. strategic plan and budget each month. Ask employees for their plans to catch-up if they are falling short. Change target levels of performance or add new targets if new information dictates. Manage the targets in a helpful way: avoid blame; explore reasons; coach for improvement; continue to show respect for employees and flexibility in how they should address new or unforeseen challenges.

Recognition and Rewards

Recognition for success should be frequent and timely. Rewards (compensation) should be quarterly and annual. Rewards should be based on accomplishment of results committed to in the one-page plan, as modified during the year for unforeseen developments, not for mere effort or longevity.

At the end of the year, discuss company results compared to the plan and budget in an all-employee meeting. Comment on progress and reinforce the Vision. Use this as the starting point for next year’s plan, budget, and one-page plans.

Management System

Now you have a Management System – a framework linking Vision, Strategy, Performance, and Compensation! Everyone in the company knows what they need to do, and what results they need to achieve. It’s about accomplishments, not activities. We call this “alignment” – everyone paddling in the same direction, helping each other with complementary efforts and teamwork. Here’s a summary of the sequence:

  • Vision
  • Gap Analysis
  • Strategic Projects and Strategy
  • Owners for strategic projects, processes, and perhaps vendors
  • Project Plans and Biweekly Status
  • Key Performance Indicators (KPIs)
  • Annual Plan and Budget
  • Individual One-Page Plans for accomplishments and measurements
  • Monthly Measurements
  • Quarterly and Annual Rewards based on one-page plan targets, modified during the year

What happened in your company when it did not have a system like this for alignment? What should that company have done better?

Tom Gray helps owners save and grow their companies. He is a management consultant focused on small business and telecom, a Certified Turnaround Professional (CTP), a Certified Business Development Advisor, and a Certified SCORE Mentor. He can be reached at 630-512-0406 or tgray@tom-gray.com. See www.tom-gray.com.  For Tom’s new book Business Techniques in Troubled Times: A Toolbox for Small Business Success, see http://www.businesstechniquesbook.com/

Raising Team Performance

by Tom Gray | on Sep 11, 2013 |  Comments

Every set of workers has members at different performance levels. And every member can move up to a higher performance level, even your stars. What are you doing to make that happen?

Too many small business owners spend most of their time on operational tasks, rather than on their people. Tasks don’t talk back, they don’t have personal problems or emotions, and you know when you completed them. People aren’t like that! People are harder than your to-do list, and maybe that’s why working on the performance of your people seems to be the last thing you get around to doing. Yet your people are more critical to small business success than any task.

Assume you’ve set the stage for their success:

  • You’ve developed and communicated a vision, and they buy-in.
  • You’ve delegated responsibility, and created reasonable (collective) accountability.
  • Processes are optimized; training is complete; job aids are visible; and resources are available.
  • You’ve created recognition and rewards aligned with topnotch performance.
  • You’ve set high expectations, and model them yourself.
  • Your employees have participated in setting goals, both base and stretch.

In a small business, the next step – privately assessing employees – goes on every day. But, what do you do with that assessment? Here’s a set of techniques to move them up a notch.

1.      Segment Employees by Performance

A: Your star(s)

B: Potential to be an A with additional experience or coaching

C: Steady and reliable

D: Marginal; requires supervision; work must be re-done too often

F: Substandard; negative influence on the team is an open secret, sometimes acknowledged

2.      For Each Employee, Select a Key Area or Behavior to Improve – one that would move them up a level

Small business owners know their people well. So you should know their performance weaknesses, with a bit of reflection. Which one of these weaknesses would have the most impact on results if it were improved? How feasible is that? What could you do? Are you doing it?

3.      Start from the Top

Resist the tendency to spend all your time with the worst performers. The opportunity to turn them into stars is a long shot. Focus your efforts on your best people first, because their potential to improve is the easiest to realize.

Ask the A player what they need to be better. They already know. Make it happen for them.

Help your B player understand the difference between B vs. A performance. Give them the opportunity to learn and stretch. Maybe you can pair them on a project with an A player, or give them their own extra opportunity or project to make their mark. Provide plenty of support as they stretch into that new role. Then watch them blossom, and give credit.

C players need to know they are C level. In today’s world of protecting self-esteem, they may believe they are already at B or A level performance. Make your expectations clear, and set up a coaching plan for that crucial behavior that can make all the difference. But, the coach should not be you! You need to be spending your time with the A and B players, where the potential to improve results is greatest.

D players may also be surprised to find their performance is marginal and their job may be at risk. These employees need a 90-day improvement plan designed for that key behavior you identified. Assign them a coach, again not you. A strong B player may be the best candidate – this can be their stretch project.

F players should be removed from the business quickly. There is little prospect of a good return from coaching efforts. You should not have waited so long! Your credibility will rise, and the team performance will improve right away.

Summary:

Privately assess your people, select one key behavioral area to make the greatest impact on their performance, and then spend your personal time with the A and B players, and with moving the F player out of the business.

Enable the A player; challenge the B player to stretch; be clear with the C and D players; provide coaching to both, with a 90 day time limit for the D player’s improvement.

Acknowledgement: This article is based on “Raising the Performance Bar” by Harold Resnick of worksystems.com.

Tom Gray helps owners save and grow their companies. He is a management consultant focused on small business and telecom, a Certified Turnaround Professional (CTP), a Certified Business Development Advisor, and a Certified SCORE Mentor. He can be reached at 630-512-0406 or tgray@tom-gray.com. See www.tom-gray.com.  For Tom’s new book Business Techniques in Troubled Times: A Toolbox for Small Business Success, see http://www.businesstechniquesbook.com/

To Get Great Results, Expect Top Performance

by Tom Gray | on Sep 04, 2013 |  Comments

Remember those three fundamentals of job satisfaction: opportunity to achieve, trust, and appreciation? That’s from the employee’s point of view. The boss wants not just a happy workforce – he or she also wants great results.

The boss can set the stage for great results by setting high expectations for employee performance, and by providing the opportunities for employees to meet those expectations.

Expectations

You want your employees to behave professionally, help each other, think like an owner, and be creative in their solutions. So tell them that! Explain what that means in your business. Give them examples, as models to remember.

Regardless of their history, make sure they believe that

  1. You believe they have the ability to meet your high expectations, and
  2. They will be rewarded when they do.

Treat them with respect, and they will respond to both your confidence and the rewards. As Liza Doolittle said in My Fair Lady, “The difference between a lady and a flower girl is not who she is, but how she is treated.”

Those who need some help should have the opportunity to get it. Give them positive, specific, and frequent feedback and coaching. Talk about their behaviors, not their personality! This enables you to continue to show respect for them as a person.

Give them training and job aids. Help them practice by pairing them with model performers, by reflecting with them on how others succeed, and by thinking with them as you problem-solve together. You can even reward the high-performer for the improvement of the person they were paired with.

Rewards

When people live up to your high expectations, you must live up to the promise of rewards. Deliver praise and recognition. Set up a bonus program, and honor it. Make sure it has several levels, so the best performers get great rewards, and others get rewards as well. For those who did not get the highest level rewards, offer coaching and tips for success, and give them opportunities to do more.

Goal-Setting

Once you establish and communicate your expectations and rewards, sit down with each employee to agree on their own goals. Discuss behavior and teamwork as well as individual results. Have the employee suggest a base level of performance, and a stretch target. Make it “challenging yet achievable.” There should be rewards for performance beyond the base level, but no penalties for missing the stretch target. However, missing the base performance goal should have consequences. Otherwise your expectations lose credibility with all your people.

The Boss’s Job

Your job has two parts:

  1. Enable your people to reach their stretch goals by providing resources and feedback. Their success will strengthen your business!
  2. Set stretch goals for yourself, and model your high expectations with your own behavior. Your success will help them succeed.

This is the positive approach to managing performance by managing expectations. The opposite works too. If you expect little, that’s what you will get. If your message is blame, people will behave to avoid being singled out, rather than striving to achieve. If you set high objectives and then withhold resources or rewards, employees will laugh at your efforts and seek work elsewhere. Don’t be that boss! Don’t just be firm – be positive and helpful as well.

A high-performance work force is the mark of a high-performing business. Expect it and support it. In this type of context, goal-setting gets results.

Tell us about your experience with preventing stretch goals from becoming “stress” goals. What worked for you?

Tom Gray helps owners save and grow their companies. He is a management consultant focused on small business and telecom, a Certified Turnaround Professional (CTP), a Certified Business Development Advisor, and a Certified SCORE Mentor. He can be reached at 630-512-0406 or tgray@tom-gray.com. See www.tom-gray.com.  For Tom’s new book Business Techniques in Troubled Times: A Toolbox for Small Business Success, see http://www.businesstechniquesbook.com/

 

Collective Accountability Prevents Delegation from Destroying Teamwork

by Tom Gray | on Aug 28, 2013 |  Comments

The coach says, “There is no I in team.” meaning the team cannot succeed if the players focus on personal goals rather than team success.  But when you delegate an area of responsibility (and authority) to one of your employees, you risk destroying the teamwork of people who see themselves as peers. Maybe the issue is jealousy, or maybe they take offense at the area boss’s clumsy attempts to use their new authority.

Whatever the reason, the behavior from other employees can look like this:

  • “It’s not my job to make you look good.”
  • “I work for the owner; I don’t work for you.”
  • “Who died and made you the boss?”
  • “Do it yourself, Miss High-and-Mighty.”

Meanwhile, the behavior of the newly-responsible area boss can look like this:

  • “The owner said I’m in charge, so do what I tell you.”
  • “You always did  a sloppy job, but I won’t put up with it.”
  • “Do it my way or I’ll report you.”

The problem gets even worse if the area boss can earn a bonus for the team’s performance, but the team does not share in the bonus.

Structural Conflict

In addition to the personal conflicts that arise in a small business, other conflicts are basic to any business. We’ll call them “structural” because they arise from the way the business is structured.

Harold Resnick from worksystems.com puts it well:

“Internal conflict exists in every organization. Cost and customer service pressures often push against each other. Sales and profitability pressures push against each other. Manufacturing throughput and quality controls push against each other. New product development and short term profitability push against each other. These conflicts are inherent in organizational life and help create the balance that optimizes business results. As long as each person is held responsible for a part of the solution, that individual will seek the best results for his individual area.” See Workforce Performance: Accountability Generates Performance#article.

The problem with each person optimizing their own area is that the team – the business – has no way to resolve conflicts other than escalating everything to the owner for a decision. Those who lose that argument may become dissatisfied, further weakening any teamwork that remained. Meanwhile business operations as a whole become much less efficient and customer-focused than if the owner did it all himself. Then he wonders why he delegated any responsibility in the first place!

Solution: Collective Accountability

The solution is to link consequences to collective results. A small part of rewards (bonus) can still be tied to achieving individual goals, but most of the rewards should be earned when the business as a whole succeeds. This means that an employee’s compensation depends largely on factors he or she is not responsible for and cannot control.  The employee can influence those results, but cannot control them.

People don’t like depending on someone else’s performance for a good part of their pay, but the business only succeeds if everyone works together – “there is no I in team.” You have to do your part, and help others do their part as well.

Resnick illustrates the point with two stories:

“One example is a company in which a group of selected managers were brought together and assigned collective accountability for the operational performance of their business. Individually, they represented sales, service, operations and finance. Traditionally, they had each been held responsible for their own areas.

“The collective accountability was twofold. First, these individuals were still individually responsible for their own functional areas. Secondly, they were now held collectively accountable for the monthly operational business results. It was their job to make the day-to-day balancing decisions to optimize the business using their collective functional authority. The results were astounding. Conflicts that were previously escalated up to senior management vanished. Customer satisfaction increased dramatically. Capacity and throughput increased. And so did profitability!

“The second example is in large project management, such as design-build projects. Large projects in this industry typically have an initial concept and design phase; an engineering phase; a construction phase; completion and handover to the customer; and follow-up service.

“In many companies a project manager works with each of the organizations that provides its part of the project. When problems arise each part points fingers at someone else. Each group accepts responsibility for its own area, but accountability for the entire project rests only with the project manager. Breakthroughs can occur in this model when an integrated team is pulled together that represents the entire project and this team is then held accountable (rewarded) for the completed project.”

Collective accountability linked to collective rewards solves the potentially-divisive impact of delegating responsibility. Adding this key technique changes the relationship dynamics among the employees. Now the comments are:

  • “Do this well so we can make a bonus!”
  • “Together we will look good; let’s both do our parts.”
  • “Let me help you with that.”

Have you seen this work? Have you seen delegation ruin teamwork when there is no collective reward?

Tom Gray helps owners save and grow their companies. He is a management consultant focused on small business and telecom, a Certified Turnaround Professional (CTP), a Certified Business Development Advisor, and a Certified SCORE Mentor. He can be reached at 630-512-0406 or tgray@tom-gray.com. See www.tom-gray.com.  For Tom’s new book Business Techniques in Troubled Times: A Toolbox for Small Business Success, see http://www.businesstechniquesbook.com/

 

Is Monitoring Employee Performance a Lost Art?

by Tom Gray | on Aug 21, 2013 |  Comments

Remember the adage, “Hope for the best, but plan for the worst”? We know people want to do their best, and sometimes we can make the conditions right so they really will do their best. But how do they know what “their best” really is?

Have they been trained on the best practices? Even after training, how do they know they are really doing those best practices the right way? Are they experts themselves, after being trained? Not likely. Has anyone ever watched them work, and coached them on how to do it better?

Athletes know how easy it is to slip into a bad habit, whether it’s footwork or the baseball swing or the golf swing. So athletes have coaches. Dancers have coaches. Singers have coaches. Do your employees have a coach?

Yes, this is the New Age when self-esteem is a goal in itself. We are very careful not to hurt anyone’s feelings by suggesting they are not perfect. But the fact is people are imperfect – by definition, because they are human!

Previous articles explained that the most basic step in supervising employees is to ensure that employees know how to do their work. Those articles talked about

  • Organizing the work so employees know what they are supposed to do.
  • Documenting the proper work procedures and outcomes: drawings, policies, job aids, methods and procedures (detailed work instructions), process maps, productivity expectations.
  • Training employees on this documentation and these methods.
  • Making the training and the documentation readily-available at work stations
  • Observing employee performance and providing.
    immediate feedback together with an improvement plan if needed.

This last step is often ignored in today’s small (and large) businesses. For example, in manufacturing shops, supervisors keep busy fixing parts shortages. For a whole series of reasons, bosses rarely take the time to actually observe how workers do key elements of their jobs on a regular basis, and if necessary, help them get better at it.

Yet common sense and experience both tell us that humans are not perfect, and need to be reminded of how to do things right. So here is a classic process for doing that.

Use an Observation Worksheet

A worksheet for employee observations tells boss and employee what to look for in the observation. Here is one version. You may customize it for your own type of business. Copy and paste it several times to create a one page record of several observations so you can see patterns and progress.

Date Product or Process Task
Accuracy Speed Skill Tool Care Product Care Ovl
Corrective Action/Notes

Employee   Initials:

 

  • Where and When: date and “product or process” provide employee and supervisor with the context. Time of day could also be entered.
  • What is observed: each employee’s job may include several skills (“task”). This form enables the supervisor to observe these skills one at a time.
  • Assessment: the supervisor looks at accuracy, speed, and skill level for that task, as well as hygiene/pride issues such as tool care and care of the unit. (Care of the unit means that the employee does not scratch or otherwise damage or create a need for rework for the unit being processed.) The assessment can use points out of 5 or 10, or High/Medium/Low vs. benchmark performance. A spot for an overall assessment is also provided.
  • What to do about it: the supervisor enters corrective action needed and/or any explanatory notes after discussing it with the employee.
  • Employee initials: the employee initials the form after the discussion with the supervisor, to be sure the results were communicated.

Set Standards

The company should set clear standards by task for accuracy, speed, skill, tool care, and unit care. Those standards should be expressed as measurements to remove concerns about subjective bias in supervisor evaluations. In addition to describing ideal performance, the standards should define high, medium, and low level of performance for that skill or task. The standards should be part of the employee’s training, so they know what you expect of them.

Regular Frequency

Schedule observations for a particular day and frequency in a week or month. This routine reduces employee concerns about special scrutiny, and makes sure you plan the time to actually perform the observations.

Employees with excellent skills and performance need not be observed as often as those who need help. For example new people might have observations once per day (different task/skill each day); routine might be once per week; topnotch people once per month. Since each employee has many tasks/skills, the observation frequency for Task A may be different for Task B for the same employee, if his/her skill at doing A is better than B.

Feedback

Use observations to improve performance, not for discipline This is the reason for the corrective action section in the form. Feedback should be private, prompt, and constructive.  After corrective action (training) is completed, an observation should be done the next day, and again each week for a month, to ensure the improved technique is being used.

Supervisors must keep a record of their observations, as well as a record that the corrective actions taken, when, and with employee acknowledgement. The supervisor’s boss should periodically verify that the observations are being made and the corrective actions are being implemented, and that this is done SOON after the observation showed they were needed. Thus supervisors should keep a file for each employee with observations and records of corrective action.

Recognition and Rewards

Consider some event or celebrate excellence at a particular task or mastery of all tasks, to recognize excellence. Think of it as certification, or a badge of proficiency. There could also be some bonus rewarding excellence. However, I believe a bonus is not necessary – the bonus is the reduced observations, since no one likes his boss looking over his shoulder! A financial bonus also creates an incentive for skewing the supervisor’s ratings.

Fit with Delegating Responsibility

Earlier articles recommended delegating to motivate the best performance. This regular observation process can reveal when an employee is ready for delegation. It also provides the owner or boss with control to ensure that delegated responsibilities are being done well. The regular scheduled aspect of the process reduces employee concern that they are being singled out for excessive supervision. The certification element provides positive feedback and a sense of achievement, both important for motivation.

A New Age way to use this classic technique is to have the observations normally done by co-workers. Peer pressure can be a strong motivator! But even with this approach, the boss must occasionally observe as well, to provide quality control of the observations themselves.

Observation has its risks. If done in a negative or heavy-handed way, it can ruin motivation. But if observation is not done at all, delegation can ruin results, and the resulting lack of delegation can ruin the business as well as the owner’s work-life balance. So the best business will marry delegation with a regular scheduled observation process.

Share your experience! Have you seen an observation process done well or poorly? What happened when there was no observation process?

Tom Gray helps owners save and grow their companies. He is a management consultant focused on small business and telecom, a Certified Turnaround Professional (CTP), a Certified Business Development Advisor, and a Certified SCORE Mentor. He can be reached at 630-512-0406 or tgray@tom-gray.com. See www.tom-gray.com.  For Tom’s new book Business Techniques in Troubled Times: A Toolbox for Small Business Success, see http://www.businesstechniquesbook.com/

 

Setting Up Employees for Success, or Failure

by Tom Gray | on Aug 14, 2013 |  Comments

Have you ever heard a boss moan, “How could you do this!?” When employees don’t do what you want them to, your natural reaction is to blame the employee. Instead, a more productive response is to blame yourself. Ask yourself these questions:

  • Did I make it clear what I wanted done, with what outcome?
  • Did I make it clear how I wanted them to do it, or clearly state that the method was up to them?
  • Did I make sure they understood what I wanted, and knew how to do it?
  • Did I fail to remove obstacles to their success?
  • Did I fail to replace incentives that reward them for doing what I don’t want them to do?

Employees rarely set out to upset the boss! They often make mistakes with good intentions. This graphic provides a menu of actions to guide bosses to help employees succeed. Skip a step, and you are helping them to fail!

 

 
 

1.      Define the Work

Discipline yourself to write down the way you want things done. This is unusual for small businesses, which may be a reason they stay small, and certainly contributes to chaos in the workplace! Writing is valuable because it forces you to organize your thinking, and because it provides a consistent reference. Before starting, it’s best to do a little flowchart, called a process map, showing who does what when, with what inputs, producing what outputs. See Improve Profits by Process Improvement.

Defining the work has three dimensions: (1) policies, such as behavioral expectations (values); (2)product drawings and specifications; (3) methods. Most importantly, you must write how to do the work. Employees should not be expected to read your mind!

2.      Organize the Work: Framework for Success

Anticipate possible failures, and create safeguards.

  • Schedule the work and the people so the resources (people, tools, materials) are available and deadlines are achievable without extraordinary efforts.
  • Provide forms, checklists, and reminders where the work is being done. These are called “job aids,” designed to help employees through potential trouble spots.
  • Design measurements and progress indicators so employees know when they are on schedule with acceptable quality. Make sure these indicators are easily visible as the work is being done.
  • Create readily-available references such as right way/wrong way photos at the work station.

3.      Write and Deliver Training

Again, small businesses rarely write things down. Training is usually word-of-mouth. As a result, training is inconsistent, and no training material is available for reference when employees are in doubt. They end up making their own “cheat sheets,” which are usually incomplete. If you want consistency, write down your thoughts!

Training is not just how to do the work. It also covers who does what when, and most importantly it explains why you think your way is the best way to do it. Employees who understand the goal and the reasons for a particular method are much more likely to recall how to do it. Unlike automatons or lab rats, humans always want to know why! Take advantage of this trait to create memorable training.

Telling is only the beginning. They will remember only a small fraction of what they are told. Practice raises the recall rate dramatically, so training must include some supervised test cases where employees actually do what you told them to do, and the trainer coaches them through it. The third element to lock the training into their minds is the demonstration step, where they show you they know how to do it right without coaching. Now both you and they can have confidence they know how to do the job. Once you both have confidence, you can delegate responsibility.

4.      Observation and Feedback

The best feedback is provided by the job itself. When you design the job, build in checkpoints and visual cues for interim feedback on quality and quantity. “Right way photos” are one example. Interim completion deadlines are another, such as “complete steps one and two in the first hour.” Fail-safe indicators are also very effective, such as a parts kit where a missing part is obvious due to a gaping hole in the kit box. Testing the product is the ultimate visual cue, so provide the criteria for such a test, and make sure the employees can do the test themselves.

Manager observation and feedback will be covered in the next article.

Tom Gray helps owners save and grow their companies. He is a management consultant focused on small business and telecom, a Certified Turnaround Professional (CTP), a Certified Business Development Advisor, and a Certified SCORE Mentor. He can be reached at 630-512-0406 or tgray@tom-gray.com. See www.tom-gray.com.  For Tom’s new book Business Techniques in Troubled Times: A Toolbox for Small Business Success, see http://www.businesstechniquesbook.com/

Delegate Responsibility to Improve Employee Performance

by Tom Gray | on Aug 07, 2013 |  Comments

Good bosses influence employees to behave as if the business was their own – to take responsibility, and to act responsibly. When employees feel ownership for a defined area or function, and appreciate being trusted to manage it as well as the owner himself would, they manage themselves, and you get the best they can do.

Why Delegating Responsibility Generates Performance

Here is the logic:

  • Achievement and trust are two of the three key motivators (see Motivating People – The Most Fundamental Management Technique).
  • To achieve, I must have an area where I own the results, to “show my stuff.”
  • Trust enables delegation of responsibility, a great benefit to all unless the small business owner really enjoys 80 hour work weeks! And it works both ways: absence of delegation shows absence of trust.
  • BUT, delegation of responsibility is a lose-lose proposition unless you prepare the employee and the organization.
  • Given the tools to succeed, employees who are trusted to achieve shared goals for a defined area of their own become the most motivated employees you have.
  • High motivation leads to high results, given training.

Preparing for Delegation

First, define the area of responsibility, the measurements for success, and target levels of performance on those measurements. This may be the first time the owner has created such measurements and targets, which in itself makes this effort productive. You cannot improve unless you know (1) where you are and (2) how to measure change from that point.

Second, write down how you want the job to be done. Again, writing procedures is probably a first for the owner. The process of writing should lead the owner and the employee to reflect on how to do it better. The resulting improvements are another payoff from the delegation effort. Note: preparing a process map (see Improve Profits by Process Improvement) before writing helps keep your writing organized, and provides a tool to redesign the process for better results.

Third, decide how to train a new person to do the job the way you want. What tools will they need, such as job aids, ready references, and right way/wrong way photos? You design training for a new person to make sure you think it through without skipping steps, or assuming a base of knowledge that may not really be present in every employee.

Fourth, produce the training, and fifth, conduct it for the assigned person. Take enough time to do it well. The last thing you want is a failure in the delegated area! Your training has three elements: telling, practice, and then demonstration of competence by the employee. Even if you and the employee think they have the competence, make them show you! This way you can refer back to their demonstrated success if they later slip up, to remind them they really do know how.

This graphic sums it up (more on this in a future article)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Last, prepare the organization. Anticipate process and relationship changes. Notify other employees of the employee’s responsibility and authority, the reasons for the change, and the improved results you expect. Listen to their questions, and adapt as needed. For any employees where you expect major concerns, talk to them privately before having a group discussion.

Note: just as accountability without responsibility can be a cruel joke, responsibility without authority is more de-motivating than empowering. Delegate the authority with the responsibility if you want your employee to deliver his or her best efforts.

Follow-Up to Ensure Success

Once you have delegated the responsibility, be available for advice but avoid your tendency to do it for them! Don’t micro-manage. Remember why you picked this person and this area of responsibility, and remember the competence they showed in training.

Your job after delegation is to share the results of the measurements, discuss ways to improve the results, observe, and coach. Be the orchestrator – don’t play all the instruments yourself! One good way to avoid micromanaging and nagging is to schedule periodic observations rather than always looking over their shoulder. Then make sure your feedback is immediate and private, and deliver it in a positive but specific and useful way. Leave room for discussion of why the employee did what they did, and be prepared to change your measurements and training if their solution improves operations.

Team Issues

Expect some jealousy and resistance to the newly-delegated authority from some team members. Also expect some mistakes by the new “area boss,” such as heavy-handed or timid actions. You will need to intervene to support the delegatee’s authority, and you will need to coach him or her on dealing with other employees.

When you intervene with other employees, the same feedback advice applies: immediate, private, positive, specific. Your message is that you all share an interest in the success of the business and its customers, so these must be the primary focus, not personal issues. High school and its judgmental cliques are over, and so is the time for indulging in destructive emotions like envy, jealousy, vengeance, and all the other immature behaviors people sometimes have a hard time growing out of.

Future articles will expand on three topics introduced above: training, observation and feedback, and team issues.

Share your experience! Has this worked for you? If there were problems, did you or the boss skip a step?

Tom Gray helps owners save and grow their companies. He is a management consultant focused on small business and telecom, a Certified Turnaround Professional (CTP), a Certified Business Development Advisor, and a Certified SCORE Mentor. He can be reached at 630-512-0406 or tgray@tom-gray.com. See www.tom-gray.com.  For Tom’s new book Business Techniques in Troubled Times: A Toolbox for Small Business Success, see http://www.businesstechniquesbook.com/

 

To Improve Performance, Have the “Breakthrough Conversation”

by Tom Gray | on Jul 31, 2013 |  Comments

When was the last time you really listened to your people about what gets in the way of doing the best they can do? Odds are you haven’t in a long time, maybe because you think you know the “excuses” they will make. If so, you are at an impasse. You are not satisfied, and they’re not either. When they’re not satisfied, they don’t do the best work they can.

Human nature works like this: when the issue is your own performance, you first blame the environment that blocks you – people, processes, customers, technology, etc. When the issue is someone else’s performance, you first blame that person. Obviously, the truth is usually somewhere in between. Your people often feel this way too. It’s never their fault. The obstacle is always something they do not control and hence cannot be responsible for fixing.

You can only make progress when you recognize this subconscious blaming pattern, and take steps to learn what really blocks people from doing their best. As the boss, you don’t have the luxury of simply blaming obstacles. Your job is to remove the obstacles, to do the fixing! To improve performance – both yours and theirs – you must get past the blame impasse.

The Breakthrough Conversation

To get the best from your people, you need to understand their work challenges. Only then can you understand their obstacles, and remove them. How many bosses understand everything their people do? “She does that in the computer somehow” is not good enough!

The conversation can start with “Show me how you do that.”

Next question: “What gets in your way? What makes doing that harder than it needs to be?” The answers may cover the whole business: not enough resources; I haven’t been trained on an easier way; the people I send it to are slow to respond; I do it this way so I can go home earlier (an incentive); constant interruptions make me forget to do some steps; our products have some shortfalls that we in the office have to make up for; our process for (whatever) is slow, bureaucratic and paper-driven.

Swamped by this deluge, Question 3 is where you try to come up for air by sorting through it all to find the fundamental issue(s): “So which of these problems seems to be the most important obstacle to doing this better and faster?”

Now, focusing on the most important issue, Question 4 asks, “How does that obstacle prevent better performance?” The answer is a start toward solutions, because it brings into play what the employee himself could do differently (better) even if nothing was changed.

Question 5 looks at the bigger picture: “Why do you suppose we do it that way? Why did we think that was good for us, at some time in the past?” Now you are on the same side, trying to understand the objectives so you can achieve them in a better way.

Question 6 asks the key question: “What would be a better way, so you could do your job better and faster?” If you can think through this together, find a solution, and make it happen, then you have the employee’s buy-in (commitment) because it is their idea. Their buy-in means they have to deliver improved performance when the obstacle is gone.

You make this more tangible with Question 7: “How should I measure the change in your performance, so we know that removing the obstacle is worth doing? If the change is quality, will I see fewer complaints or less rework or more return customers? Roughly how much or how many? Can we agree that if the change is quantity, the time you take to do this operation will change by how much?”

Conclusion: “OK I will make this change happen, and we’ll see how it changes our performance. If this change works, then we’ll move on to some of the other obstacles you mentioned. Thanks for thinking this through with me. I may come back to you to check on whether the fix we figured out really makes your job better – would that be OK with you?”

Payoffs from the Breakthrough Conversation

  1. The boss is human, which enables you both to talk more and learn more. A relationship starts, or is strengthened.
  2. The employee feels good: “He listened to me, which means he respects and appreciates me, so I’m going to perform better even without the change, just because I feel appreciated.” Appreciation = motivation.
  3. When you remove obstacles based on buy-in that it will improve performance, you have the basis for accountability. You’ve sent this message: “the way you do your job matters to company performance (that’s why we are having this conversation), so it is worth measuring and evaluating.”
  4. Results may even improve because the employee was right!

So if you want to improve performance, listen to your people and take action to remove what they perceive as obstacles, in return for their buy-in to do better once the obstacle is gone.

What do you think? How did you feel when your boss asked you what would make your job better?

Tom Gray helps owners save and grow their companies. He is a management consultant focused on small business and telecom, a Certified Turnaround Professional (CTP), a Certified Business Development Advisor, and a Certified SCORE Mentor. He can be reached at 630-512-0406 or tgray@tom-gray.com. See www.tom-gray.com.  For Tom’s new book Business Techniques in Troubled Times: A Toolbox for Small Business Success, see http://www.businesstechniquesbook.com/

Getting Your People to Do the Best They Can: Start with the Big Picture

by Tom Gray | on Jul 24, 2013 |  Comments

“Performance Management” is an unfortunate expression. The idea is good: getting your people to do the best job they can. But it’s a big-company term. It’s distant, condescending, and mechanistic — light years away from the mutual dependence of boss and employee that characterizes small business.

So let’s focus on the idea, not the terminology. “Getting your people to do the best they can” is the heart of small business success. When it’s working, everyone is satisfied – employees, customer, and company. Customers come back, and employees stay with you. Your business listens to ideas from both groups, so it grows by meeting the needs of its market. The business is healthy, and the employees feel secure and appreciated.

How do we get to such a beautiful place? This is the first of a series of articles showing the way! We’ll cover accountability, goal-setting and expectations, tracking results, feedback, training, coaching, and more. But the first step is creating and explaining an inspiring vision.

Start with the Owner’s Vision

People do their best when they are working toward an outcome that is not just satisfying, but inspirational: one that will make them feel proud. So the first step is creating and then sharing an inspirational vision for the company: one that is in tune with employees’ values.

Their values are probably similar to yours. At the basic level,they value family, integrity, and trust . Going a step higher, they value professional competence, fair treatment of others, and financial success and security. At perhaps the highest level, they value the betterment of people and community, and the personal satisfaction of making a difference in achieving that improvement.

They value “doing things right,” but they get inspired by “doing the right things.”

So an inspirational vision pictures a company succeeding by improving the lives of people around them, and doing it in a smoothly competent way.

The owner is responsible for orchestrating the vision together with his or her key people. Why are we in this business? What are we trying to accomplish, and become? The vision is a multi-dimensional company description, set three years in the future. It uses one sentence or phrase to describe each dimension of that future company: customers, products, key processes, facilities, cash flow, organization, employee numbers and skills, and perhaps other key aspects of the company at that future time. For more on how to create a vision, see the first three articles in Vision Development, or read the first chapter in my book Business Techniques in Troubled Times: A Toolbox for Small Business Success.

Get “Buy-In” to the Vision

“Buy-in” is a current buzzword using the images of co-ownership and investment (“buy”) to capture the ideas of belief and commitment to Vision. Employees who buy-in accept the envisioned outcome as a good thing for the organization, and for themselves as well. Further, they are willing to devote persistent effort to achieving it.

Those who developed the Vision – the owner and key employees – explain to everyone else why this is the kind of company that will meet evolving customer needs better than competitors, and why that will be good for both customers and employees. The explanation is a two-way conversation, listening to concerns as well as explaining.

If the vision is inspiring yet achievable, the best employees will buy-in. Some may opt out, and should be replaced. Others may withhold buy-in awaiting proof – owner actions that show his or her personal commitment. This third group requires special attention, with more one-on-one explanations and listening.

Explain the Roles of the Owner and Each Employee to Achieve the Vision

“What are you, and we, going to do to become that kind of company?” The vision can only affect performance when people believe in it. Belief follows from a (1) a realistic plan, (2) evidence of commitment, (3) knowing what the vision means to me, in terms of what I must do differently, and (4) confidence that making such changes is both feasible and rewarding:

-        What needs to be done?

-        Who will do it?

-        Where will they get the resources and training to do it?

-        How will the effort of changing be rewarded?

The explanation must personalize the vision to get buy-in. The owner must personally commit to remove obstacles and provide resources, and show progress in doing so. Each employee must understand how their own job will change, and how they will fit into changes in process flows within the business. Change is never easy, so the explanation must also change incentives, so it becomes uncomfortable to resist the change, and rewarding to work differently. Communicating the Vision: Pursuit of “Buy-In” explains more specifics on how to gain buy-in.

When people commit to achieving an inspiring vision, they will do most of their own performance management – they will do the best they can. This is why working in a start-up can be so intense and so satisfying. But we all know that start-ups make all kinds of mistakes as well. So inspiration is just the beginning. The rest of the articles in this series will cover how to help employees do their best, and how to support their efforts.

What about your experience? Have you worked differently when there was no vision, or it seemed mundane, vs. an inspiring vision?

Tom Gray helps owners save and grow their companies. He is a management consultant focused on small business and telecom, a Certified Turnaround Professional (CTP), a Certified Business Development Advisor, and a Certified SCORE Mentor. He can be reached at 630-512-0406 or tgray@tom-gray.com. See www.tom-gray.com.  For Tom’s new book Business Techniques in Troubled Times: A Toolbox for Small Business Success, see http://www.businesstechniquesbook.com/

 

Cash Falls Flat: Show Appreciation Effectively with Non-Cash Recognition and Rewards

by Tom Gray | on Jul 10, 2013 |  Comments

Employees want to be appreciated, but owners want to do so effectively. This means the method is appreciated by employees, it motivates the right behaviors in the future, and it’s affordable.

“Cash Often Falls Flat”

Many studies show that non-cash recognition and rewards are the most effective. This quote sums it up:

“As a reward, cash often falls flat. Employees given cash rewards quickly forget how they spend the cash, and most often the cash goes toward an unmemorable expense: bills. In industry surveys, 50% of cash reward recipients said they either used cash to pay bills or could not remember how it was used.

“In addition to being easily forgotten, relying on cash rewards to engage employees and drive performance quickly becomes a management challenge. Over time, cash rewards become viewed by employees as an entitlement, and managers run the risk of creating high employee expectations that cannot be satisfied. Soon, the denial of a merit raise, or a merely incremental raise, becomes a form of punishment instead of a performance-based decision.

“Another study found that when it comes to gifts, it’s the thought that counts, not the price tag. ‘The recognition that’s conveyed through timely smaller gestures, perhaps done more frequently is just as meaningful, if not more so, than large, splashy gifts,’ the report stated. Simply accompanying recognition moments with a memento, such as a handwritten note, certificate, or desktop gift reminds the recipient about the recognition transaction and drives performance.

Recognition should be immediate. For the greatest effect, praise should occur as soon after the event as possible. Delaying the recognition for a monthly or annual event diminishes the impact.

Recognition should be specific. Recognize employees for more than a job well done. Praise them for the specific actions they took that contributed to the overall success. Your praise will be more meaningful when it’s specifically focused on the individual.

Recognition should be meaningful. Meaningful recognition ties the praise and gift back to an individual’s personality, such as their persistence or attention to detail. It’s important that the gift is relevant for the situation and the individual’s personal preferences.

Recognition should be frequent. Recognizing employees every seven days is a key element to employee engagement, and it also opens the lines of communication about desired behaviors that fuel performance.”

See http://www.baudville.com/Noncash_White_Paper/pdfs

The Right Behaviors

Whether the award is cash or non-cash, the boss first needs to decide which behaviors they want to encourage, and then be consistent in recognizing them.

Possible Non-Cash Rewards

The previous article (see Small Business Incentive Plans) mentioned gift cards as incentives. Some other ideas include a health club membership, tax advice, concierge service, or even a weekend away. Here is a list of many more reward types to consider:

1. Collate positive hand written statements about the employee from their colleagues, frame and present to the employee.
2. Provide the employee with some one-to-one coaching and mentoring sessions with a senior member of the organization for six months.
3. Register the employee for a conference or training session of their choice.
4. Share an inspirational success story with all and make it all about the employee.
5. Allocate a day in a week for them to do anything creative and of their choice for a month.
6. Give them a new job title or update their current job title.
7. Start an organizational “Wall of Fame” board in a prime spot and add their name to it.
8. Let the employee suggest a way they would like to be rewarded other than cash reward.
9. Pick up the tab to fuel their car for a week or a month.
10. Prepare, present, and disseminate a short video mosaic that celebrates the employee’s accomplishments.
11. Get the employee some career counseling sessions.
12. Find out what the employee is passionate about and give them a gift related to it.
13. Pick up their family’s tab for a dinner at their favorite restaurant.
14. Present the employee with a pair of tickets to a concert or a show so that they can invite their partner along.
15. Get them an iTune voucher if they own an iPod, iPad, iPhone etc.
16. Give them a day pass to a spa.
17. Present the employee with a handwritten thank you note.
18. Name a meeting room after the employee for a year.
19. Give the employee a reserved parking spot for six months.
20. Present the employee with a bouquet of flowers.
21. Make a public thank you announcement and give money to their favorite charity.
22. Arrange for the employee to take a fun class, such as jewelry making, scuba diving, or skydiving.
23. Present the employee with a tasteful framed certificate to show how valuable the employee’s contribution to the company has been.
24. Give the employee a gift card to their favorite shop.
25. Get them a voucher to download eBooks from their favorite author.
26. Cover the cost to have a professional family portrait of the employee taken.
27. Allow the employee to be flexible with their working hours for one month.
28. Give the employee a day or two off work.
29. Get a mobile car valet service to do a full valet of their car.
30. Help to pay for a trade association membership of their choice.

See http://catherinescareercorner.com/2012/12/02/30-non-cash-rewards-to-give-at-work/

Help our readers! Tell us what non-cash recognition and rewards have worked for you.

Tom Gray helps owners save and grow their companies. He is a management consultant focused on small business and telecom, a Certified Turnaround Professional (CTP), a Certified Business Development Advisor, and a Certified SCORE Mentor. He can be reached at 630-512-0406 or tgray@tom-gray.com. See www.tom-gray.com.  For Tom’s new book Business Techniques in Troubled Times: A Toolbox for Small Business Success, see http://www.businesstechniquesbook.com/

 

Small Business Incentive Plans

by Tom Gray | on Jul 02, 2013 |  Comments

In the film Caddyshack, Carl (Bill Murray) reports that after he caddied for the Dalai Lama, he asked for a tip: “‘Hey, Lama, hey, how about a little something, you know, for the effort, you know.’ And the Lama says, ‘Oh, uh, there won’t be any money, but when you die, on your deathbed, you will receive total consciousness.’ So I got that goin’ for me, which is nice.” The Lama offered no cash. And then there’s the boss who growls, “You get to keep your job.”

Incentive plans are supposed to be win-win for company and for employee. But many plans fail to improve company results, and even create demotivation when they seem to be unfair or unattainable.

Appreciation is one of the three things that define a great workplace. In a small business, employees are the most important source of customer satisfaction. Happy employees make for happy customers. You can show appreciation with non-cash recognition and rewards, and many studies show these are more effective than cash bonus plans (see next article).

But when you decide to use compensation to show appreciation, we have also noted that annual bonuses are the preferred way to increase compensation, rather than increases in base salary. See Compensation: Salary and Structure

Designing a bonus or incentive plan takes some careful thought. This article describes how to do that. It excludes sales force compensation, which was covered in Sales Team Compensation Package.

Step One: Preparation

Decide the behaviors you want to promote, as well as the results you want the company to achieve. If you focus only on individual results, you may destroy teamwork and pay out rewards without improving company results. So every plan should reward all three levels: individual accomplishments, teamwork, and company results.

Each of these three performance arenas must be measured on quality or customer satisfaction as well as productivity. If not, your plan can cause quality to suffer when employees pursue productivity goals.

The plan must be simple enough to explain clearly, and it must be perceived as fair. Dimensions of fairness are:

  • I do well when the company does well.
  • I get credit for exceeding expectations (goals).
  • I get credit for exceeding the performance of my peers.
  • I get credit for helping my peers succeed.

The most effective plans deliver rewards frequently (e.g. quarterly, not annually), and their design enables the employees to track progress toward both goals and rewards.

Step Two: Design the Plan

Given the above principles, create the plan. Here is a classic design from a big company:

  • Set a quality threshold that must be achieved to enable any payout (e.g. 95% customer satisfaction).
  • For company results, you might pay a small percentage of company growth over the prior year’s same quarter. For example, if the company grew 10%, the bonus pool might be 1%, or 10% of the gain. That percentage can be higher for higher level employees.
  • For team results, use the same percentage of gain approach but base it on the team’s productivity.
  • For individual results, set a target payout to be earned by completely satisfactory (but not extraordinary) performance, and a threshold below which nothing is paid. Then award a percentage of the target payout matching the percentage by which individual goals were achieved or exceeded, up to a ceiling of 120%, or even 200%.

One problem with this design is the degree of goal-setting and measurement required, which may not be practical for a small business. A points system is much easier to explain and administer. For example, if you are operating a maid service and you want to reward houses cleaned with no complaints:

  • Supervisors get 10 points and workers get 5 points per house cleaned with no complaints.
  • Points can be redeemed for whatever list of rewards you want. Management can adjust the awards and the points needed to earn them without changing the way points are earned. For example, the award might be gift cards with a certain cash balance. Maybe 100 points earns a $10 gift card. Make sure the awards are large enough to be meaningful, but this can still be a small amount if the awards are frequent. Ceilings are not recommended; you do not want to limit performance that improves company results.

This Points Plan offers easy measurement, consideration of both quality and quantity, shared responsibility for the team, and frequent payouts. The most effective rewards for motivating behavior have only a short gap between behavior and reward, because the link to recent behavior is clear. You have also shown appreciation for behaviors that enhance company results, and you’ve increased compensation, without increasing base salary.

Step Three: Plan for Administration

Administration involves budget, eligibility, goals/standards, assessment of performance, tracking and publishing progress, and making the award. Your goal is simple administration!

Your budget for the awards can be based on a percentage of salary. This way you will know what you can afford. You can limit eligibility by job title and by time on payroll. For example, eligibility can be begin after a probation period for new employees, and usually ends when the person leaves the company. However, if the departure is the company’s idea and not for “cause” (theft, violation of ethical code, etc.), many companies pay previously-earned but not-yet-awarded bonus upon departure.

Performance goals must be measurable and in writing. This is the basis for awards. Note: simply creating such goals can be a major benefit to a loosely-administered small business.

Then you must devise a simple way to track performance and compare it to the goals. One example would be to spot-check each team’s work using a standard checklist, in addition to counting the units of work completed.

The incentive plan is not an incentive unless people can see their progress and modify their behavior accordingly. This calls for a frequently-updated spreadsheet on the company’s internal website and/or a poster in the break room.

The final piece to the puzzle is making the award itself. Quietly including it in a paycheck is a bad idea! You want to show appreciation, so make a show of it. In addition to congratulating and thanking those receiving awards, you want the other employees to emulate the best teams, ask them how they did it, and try to outdo them. That only happens if you create a periodic (monthly?) awards ceremony.

This public approach does not work well with the corporate plan described at the beginning of Step Two. Envy and jealousy get in the way when bosses allocate a finite pool of money. Also, the one rewarded can feel uncomfortable or even guilty, because her award means others get less. If the plan awards must be confidential, it is not the most effective plan.

In contrast, the Points Plan does not create internal disputes, because the awards pool is not finite. You estimated a budget, but you did not put a ceiling on it. Everyone can do well by helping the company do well.

Have you tried an incentive plan in your small business? What worked? What would you change?

Tom Gray helps owners save and grow their companies. He is a management consultant focused on small business and telecom, a Certified Turnaround Professional (CTP), a Certified Business Development Advisor, and a Certified SCORE Mentor. He can be reached at 630-512-0406 or tgray@tom-gray.com. See www.tom-gray.com.  For Tom’s new book Business Techniques in Troubled Times: A Toolbox for Small Business Success, see http://www.businesstechniquesbook.com/

 

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