Whose Business Is It, Anyway?
ERNIE HOUSEMAN, Tom Winters, and I were having a meeting to discuss Ernie's frustrations as CEO of their company.
"We've got serious problems and I don't know what to do," Ernie began.
Their company had been undergoing rapid growth, the cash flow was substantial, and Ernie and Tom were comfortably affluent. Ernie's complaint had sounded familiar. I nodded for him to continue.
"The employees, they're driving us nuts," he said. "Tom and I have been partners for ten years. I'm president, he's vice president, and we're trapped by details."
Ernie popped out of his chair and began to shout. "We're making $300,000 a piece and we don't know what the hell our functions are. We're lost." He points to his partner. "He's off teaching managers how to sell products and I'm solving every damn problem that comes along. We're expanding rapidly, but we're losing control. The larger we get, the less either one of us knows what's going on, and there are some days when I'm so swamped in details that I don't have time to go to the john."
By now, Ernie was standing in front of me, hands on his hips and glaring at me. Tom was nodding his head in silent, pained agreement.
Peering over the top of my glasses I said, "I assume you are waiting for me to say something." Without waiting for an answer, I continued. "Here it is. I want to find out how each of you spends your time. For the next two weeks, I want you both to write down everything you do, from the minute you get in to the moment you leave. Be as specific as you can. We'll meet in two weeks and review your lists. From the symptoms you discussed, I'd say you can count on some surprises."
Ernie and Tom resisted, but I was able to convince them to proceed.
Two weeks later, we met and the partners handed me their detailed lists of activities. My suspicions were confirmed. I told them, "You are paying about $210,000 a year for clerical and secretarial services."
"What are you talking about?" Ernie quipped.
I explained that 70 percent of the work performed by each of them, at their own admission, was really the work of an executive secretary or clerk. The partners were each making $300,000 a year, and 70 percent of the work they performed could have been handled by a $50,000-a-year assistant. Ernie and Tom had become the company's clerks.
BEING BUSY MAKES YOU FEEL GOOD
Ernie and Tom's dilemma is not unusual. The owners or managers of many entrepreneurial companies often unwittingly become company clerks. This happens because there is a level of security when the owner-manager is busy. Being busy feels good and it tends to satisfy ones need to do things.
We are all schooled in the concept. If we are not pushing, pulling, preparing or being involved in some paperwork, we are not working. To prevent the guilt created by not working we tend to attract lots and lots of details. Eventually, every problem within the company must cross our desk. We become the company clerk.
The basic function of the owner-manager of an entrepreneurial company is difficult to understand. Usually, most owners are highly skilled in a particular field. They tend to work for a company in a specialized area, watch incompetent bosses prosper, and then decide, Hell, I can do better than they can. They eventually leave the company and they're out on their own.
We've seen it countless times: the machinist who starts a machine shop, the pharmacist who opens a drug store, the computer programmer who opens a consulting business, the carpenter who becomes a contractor, and the garment salesman who becomes a manufacturer. Some of these entrepreneurs become successful but the majority does not. According to statistics, almost 70 percent of entrepreneurial businesses do not last more than five years.
The managerial skills of the owners and managers are the most important factors in the success or failure of a business. In the investment community there is an old adage: Invest in a C idea with A people rather then an A idea with C people. In other words, management is vitally important.
When people go into business, they have a good knowledge of the product or service they provide but little knowledge of managing people, marketing, finance, accounting, inventory controls, and a host of other areas needed to make proper business decisions. Most have little knowledge of the proper functions they must perform within their organization as managers.
Ernie and Tom were good examples of this. They were making great money, but they were crying for help. Their frustration with the details of the business became a nightmarish burden. They found themselves wanting to know what to do before they went crazy.
LEADERSHIP THE CHARACTERISTICS DO WE CARE?
The owner-manager of an entrepreneurial company is the company's leader. To most owner-managers, leadership is an abstract concept, one not easy to understand.
We've all heard people refer to someone as a good leader. But when asked to explain what that means, it usually boils down to: They seem to get the job done.
Okay, so leaders get the job done. Of course, the next obvious question is: What exactly is the job they get done? Looking at the literature we find countless books written about the great leaders of corporate America. Most of the information quantifies the innate characteristics of these great business leaders.
Here are those characteristics:
Successful Leaders Like What They Do: Is it possible to be successful if you don't like what you do? Yes, I've seen it happen, but the general rule is that the love of what one does breeds the greatest success.
Successful Leaders Have a Desire for Wealth: Wealth may not be the strongest motivation for success, but it sure does help. Many successful leaders find the love of what they do more of a motivating factor than the promise of wealth. The ideal situation is obviously loving what you do and making money at it.
Successful Leaders Are Curious: They always look for better ways to do things. They are curious about the future. They have very inquisitive minds.
Successful Leaders Have Courage: They have the courage to take reasonable risks. This may be the one area that separates the entrepreneur from all else. They are risk takers. Most people are not.
Successful Leaders Are Persistent: They tirelessly try to improve their business and themselves. They want to be the best at what they do. They persevere in their desire to solve problems. They rarely give up.
Successful Leaders Have the Ability to Motivate: They motivate employees to be more productive, bankers to lend more money, and customers to return. Effective leaders are focused on human values.
Successful Leaders Have the Ability to Persuade: They have great communication skills.
Successful Leaders Have a Strong Ego: Ego satisfaction can be the strongest motivation for success. Many of the most successful business people are driven by powerful egos.
How many of these eight characteristics do you possess? Can you be a successful leader if you only have two or three of the traits mentioned? What if you don't have any? If you're lucky enough to have all eight, does that guarantee success?
We, the leaders of our businesses, cannot run our companies on the theoretical notions of what leadership characteristics we should have. It doesn't matter. We are the leaders, like it or not. We are the people who must make things happen. We must get the job done.
WE ARE THE RULE, NOT THE EXCEPTION
There are more than fifteen million active businesses existing in the U.S. today. If each owner-manager possessed all the qualities outlined for successful leadership, we would indeed be a fortunate nation. We would be a nation with a cadre of highly effective leaders. Unfortunately, we're not.
A number of years ago writing in U.S. News and World Report, Warren Bennis, then a Professor of Management at the University of Southern California, indicated effective leadership is the exception, not the rule. He indicated that it is possible to increase the number of people with leadership qualities, but they will always be the exception to the rule. He said, "Individuals need some flair and talent to begin with, but we can help them improve."
Some of us may have the innate flair and talent of good leadership but most of us do not. We are people who have somehow become owners of entrepreneurial companies. Our profits will not be huge and we won't be the subject of magazine articles. Our view of our company will not be based on some grandiose social purpose to aid humankind and we will never think of ourselves as leaders within the community. We will fight and struggle to maintain our capital. We will curse the government every time our taxes are raised and suffer the pain of a jumping prime rate.
THE SEARCH
One day we will look around us, shake our heads, and reflect: Times have changed. Employees are different. They don't seem to want to work as hard as we did. They tell us inflation is down yet expenses are up. Competition is tougher. How the hell can they sell their product at that price? Details are maddening. Accountants, lawyers, and bankers are driving me crazy. This place needs help. What do I do?
GETTING THE JOB DONE
In the pages that follow, I am going to outline specific steps that get right to the heart of the matter. Getting the job done. These steps begin with some key assumptions.
Step 1: We must always strive for greater profitability. We must develop a system that allows us to foresee and predict our own financial future. If we want to make a profit we must plan for it.
Step 2: We must develop a system that allows us to monitor the key financial elements of our companies and we must come to understand what financial numbers really mean.
Step 3: We must learn how to delegate authority and how to train people to perform vital tasks within the organization. We must realize that the school systems are not developing the talent we so badly need. When we get new people they will need training to make them better at what they do. We must protect our most valuable asset�our employees.
Step 4: Stop sweeping the floor. Stop running the lathe. Stop filling the prescription. Stop attracting all the details and micro-managing.
As far as I'm concerned, the most powerful key assumption of all of this is: We will take the time necessary to build a better business.
We must get the job done. Let us begin.
EVERYTHING BECOMES FINANCIAL
Every day huge amounts of activity take place within your company: invoices are written, orders taken, receivables collected, bills paid, bills incurred, loans are made or paid, inventory grows or shrinks, services are rendered, deposits made, production increases, production decreases, costs rise and occasionally fall, equipment is bought and sold, sales increase, sales decrease. People here, people there, activity everywhere. All this activity ultimately becomes financial. And the only place you can see the results of this activity is on financial statements, a.k.a. the company score card.
ERNIE HOUSEMAN, Tom Winters, and I were having a meeting to discuss Ernie's frustrations as CEO of their company.
"We've got serious problems and I don't know what to do," Ernie began.
Their company had been undergoing rapid growth, the cash flow was substantial, and Ernie and Tom were comfortably affluent. Ernie's complaint had sounded familiar. I nodded for him to continue.
"The employees, they're driving us nuts," he said. "Tom and I have been partners for ten years. I'm president, he's vice president, and we're trapped by details."
Ernie popped out of his chair and began to shout. "We're making $300,000 a piece and we don't know what the hell our functions are. We're lost." He points to his partner. "He's off teaching managers how to sell products and I'm solving every damn problem that comes along. We're expanding rapidly, but we're losing control. The larger we get, the less either one of us knows what's going on, and there are some days when I'm so swamped in details that I don't have time to go to the john."
By now, Ernie was standing in front of me, hands on his hips and glaring at me. Tom was nodding his head in silent, pained agreement.
Peering over the top of my glasses I said, "I assume you are waiting for me to say something." Without waiting for an answer, I continued. "Here it is. I want to find out how each of you spends your time. For the next two weeks, I want you both to write down everything you do, from the minute you get in to the moment you leave. Be as specific as you can. We'll meet in two weeks and review your lists. From the symptoms you discussed, I'd say you can count on some surprises."
Ernie and Tom resisted, but I was able to convince them to proceed.
Two weeks later, we met and the partners handed me their detailed lists of activities. My suspicions were confirmed. I told them, "You are paying about $210,000 a year for clerical and secretarial services."
"What are you talking about?" Ernie quipped.
I explained that 70 percent of the work performed by each of them, at their own admission, was really the work of an executive secretary or clerk. The partners were each making $300,000 a year, and 70 percent of the work they performed could have been handled by a $50,000-a-year assistant. Ernie and Tom had become the company's clerks.
BEING BUSY MAKES YOU FEEL GOOD
Ernie and Tom's dilemma is not unusual. The owners or managers of many entrepreneurial companies often unwittingly become company clerks. This happens because there is a level of security when the owner-manager is busy. Being busy feels good and it tends to satisfy ones need to do things.
We are all schooled in the concept. If we are not pushing, pulling, preparing or being involved in some paperwork, we are not working. To prevent the guilt created by not working we tend to attract lots and lots of details. Eventually, every problem within the company must cross our desk. We become the company clerk.
The basic function of the owner-manager of an entrepreneurial company is difficult to understand. Usually, most owners are highly skilled in a particular field. They tend to work for a company in a specialized area, watch incompetent bosses prosper, and then decide, Hell, I can do better than they can. They eventually leave the company and they're out on their own.
We've seen it countless times: the machinist who starts a machine shop, the pharmacist who opens a drug store, the computer programmer who opens a consulting business, the carpenter who becomes a contractor, and the garment salesman who becomes a manufacturer. Some of these entrepreneurs become successful but the majority does not. According to statistics, almost 70 percent of entrepreneurial businesses do not last more than five years.
The managerial skills of the owners and managers are the most important factors in the success or failure of a business. In the investment community there is an old adage: Invest in a C idea with A people rather then an A idea with C people. In other words, management is vitally important.
When people go into business, they have a good knowledge of the product or service they provide but little knowledge of managing people, marketing, finance, accounting, inventory controls, and a host of other areas needed to make proper business decisions. Most have little knowledge of the proper functions they must perform within their organization as managers.
Ernie and Tom were good examples of this. They were making great money, but they were crying for help. Their frustration with the details of the business became a nightmarish burden. They found themselves wanting to know what to do before they went crazy.
LEADERSHIP THE CHARACTERISTICS DO WE CARE?
The owner-manager of an entrepreneurial company is the company's leader. To most owner-managers, leadership is an abstract concept, one not easy to understand.
We've all heard people refer to someone as a good leader. But when asked to explain what that means, it usually boils down to: They seem to get the job done.
Okay, so leaders get the job done. Of course, the next obvious question is: What exactly is the job they get done? Looking at the literature we find countless books written about the great leaders of corporate America. Most of the information quantifies the innate characteristics of these great business leaders.
Here are those characteristics:
Successful Leaders Like What They Do: Is it possible to be successful if you don't like what you do? Yes, I've seen it happen, but the general rule is that the love of what one does breeds the greatest success.
Successful Leaders Have a Desire for Wealth: Wealth may not be the strongest motivation for success, but it sure does help. Many successful leaders find the love of what they do more of a motivating factor than the promise of wealth. The ideal situation is obviously loving what you do and making money at it.
Successful Leaders Are Curious: They always look for better ways to do things. They are curious about the future. They have very inquisitive minds.
Successful Leaders Have Courage: They have the courage to take reasonable risks. This may be the one area that separates the entrepreneur from all else. They are risk takers. Most people are not.
Successful Leaders Are Persistent: They tirelessly try to improve their business and themselves. They want to be the best at what they do. They persevere in their desire to solve problems. They rarely give up.
Successful Leaders Have the Ability to Motivate: They motivate employees to be more productive, bankers to lend more money, and customers to return. Effective leaders are focused on human values.
Successful Leaders Have the Ability to Persuade: They have great communication skills.
Successful Leaders Have a Strong Ego: Ego satisfaction can be the strongest motivation for success. Many of the most successful business people are driven by powerful egos.
How many of these eight characteristics do you possess? Can you be a successful leader if you only have two or three of the traits mentioned? What if you don't have any? If you're lucky enough to have all eight, does that guarantee success?
We, the leaders of our businesses, cannot run our companies on the theoretical notions of what leadership characteristics we should have. It doesn't matter. We are the leaders, like it or not. We are the people who must make things happen. We must get the job done.
WE ARE THE RULE, NOT THE EXCEPTION
There are more than fifteen million active businesses existing in the U.S. today. If each owner-manager possessed all the qualities outlined for successful leadership, we would indeed be a fortunate nation. We would be a nation with a cadre of highly effective leaders. Unfortunately, we're not.
A number of years ago writing in U.S. News and World Report, Warren Bennis, then a Professor of Management at the University of Southern California, indicated effective leadership is the exception, not the rule. He indicated that it is possible to increase the number of people with leadership qualities, but they will always be the exception to the rule. He said, "Individuals need some flair and talent to begin with, but we can help them improve."
Some of us may have the innate flair and talent of good leadership but most of us do not. We are people who have somehow become owners of entrepreneurial companies. Our profits will not be huge and we won't be the subject of magazine articles. Our view of our company will not be based on some grandiose social purpose to aid humankind and we will never think of ourselves as leaders within the community. We will fight and struggle to maintain our capital. We will curse the government every time our taxes are raised and suffer the pain of a jumping prime rate.
THE SEARCH
One day we will look around us, shake our heads, and reflect: Times have changed. Employees are different. They don't seem to want to work as hard as we did. They tell us inflation is down yet expenses are up. Competition is tougher. How the hell can they sell their product at that price? Details are maddening. Accountants, lawyers, and bankers are driving me crazy. This place needs help. What do I do?
GETTING THE JOB DONE
In the pages that follow, I am going to outline specific steps that get right to the heart of the matter. Getting the job done. These steps begin with some key assumptions.
Step 1: We must always strive for greater profitability. We must develop a system that allows us to foresee and predict our own financial future. If we want to make a profit we must plan for it.
Step 2: We must develop a system that allows us to monitor the key financial elements of our companies and we must come to understand what financial numbers really mean.
Step 3: We must learn how to delegate authority and how to train people to perform vital tasks within the organization. We must realize that the school systems are not developing the talent we so badly need. When we get new people they will need training to make them better at what they do. We must protect our most valuable asset�our employees.
Step 4: Stop sweeping the floor. Stop running the lathe. Stop filling the prescription. Stop attracting all the details and micro-managing.
As far as I'm concerned, the most powerful key assumption of all of this is: We will take the time necessary to build a better business.
We must get the job done. Let us begin.
EVERYTHING BECOMES FINANCIAL
Every day huge amounts of activity take place within your company: invoices are written, orders taken, receivables collected, bills paid, bills incurred, loans are made or paid, inventory grows or shrinks, services are rendered, deposits made, production increases, production decreases, costs rise and occasionally fall, equipment is bought and sold, sales increase, sales decrease. People here, people there, activity everywhere. All this activity ultimately becomes financial. And the only place you can see the results of this activity is on financial statements, a.k.a. the company score card.