The capital for success Featured

8:00pm EDT October 26, 2009

Neal Aronson admires Howard Roark more than anyone. Maybe you’ve heard of him, and maybe you haven’t, because Roark is the protagonist in Ayn Rand’s book, “The Fountainhead.”

“He always stuck with his convictions, even when it was against conventional wisdom, and he always did what he genuinely believed was right and stuck to those convictions and had the discipline and fortitude to stick with it even when it put him at odds with the popular people or the latest trends,” Aronson says.

The result of doing these things? In the end, Roark got all of the accolades and successes that one could hope for in life, but Aronson also learned a lesson from reading the tale of Roark.

“It wasn’t a linear path to success,” he says. “There’s plenty of bumps in the road, but he felt good about himself because he never sold out and always stuck to what he believed in. I guess it’s not just the result, but the journey is relevant — how you get there.”

That’s something that has stayed with Aronson, and he founded his private equity firm, Roark Capital Group, naming it after his fictional hero. Since then, he has grown the firm to have $1.5 billion in capital and 13 brands under management, which collectively bring in $2.9 billion in systemwide revenue.

Through it all, he’s learned a lot, and some of the key lessons that Aronson has absorbed in his career are knowing what he can control, empowering his people and effectively addressing mistakes.

Know what’s controllable

With everything going on in today’s economic environment, it would be easy to get distracted and freak out a bit. But Aronson says that one of the keys to leadership is knowing what’s out of your hands.

“That’s what part of being a leader is, to make sure you know what those things are that just are out of your control,” he says.

For instance, he says the economy is out of his control as well as the price of oil and, more often than not, government regulations, as well.

“We try to think about what those things are that are out of our control, and then we try to really think about what are the things that can move the needle that are in our control and get focused on the things that can have the biggest impact and really try hard to do something about those things that can have the biggest impact,” Aronson says.

Along with that challenge, though, comes the people factor within your business.

“The biggest challenge is keeping people focused on what is in our control and focusing our time and energy and attention on what we can do about those things,” he says.

He says you have to quantify things when you’re looking at opportunities and risks in your business for the upcoming year. Doing so helps you prioritize. Once you’re able to identify those risks and opportunities, then you can take it a step further.

“Then we try to measure those opportunities and risks throughout the year,” Aronson says.

He says it’s important to talk about those opportunities and risks with your team.

“Discuss them to really understand everybody’s perspective on how likely it is to happen,” he says.

As you and your team work through things, be mindful of what really matters and affects your organization.

“Try to think about what will have the biggest impact and what will have the best chance of success,” he says.

Focusing on those two things helps you recognize what areas you can move the needle in.

“Some of it is proactive, and some of it is avoiding the converse — avoiding things that are too much of a long shot, and we try to avoid swinging for the fences,” Aronson says.

In order to recognize if something is a long shot, you really have to talk to your team.

“That’s the discussion among the team about trying to understand what it would take to achieve that objective or goal,” he says. “Instead of just making it an objective or goal, we break it down and say, ‘What are the things that would have to happen — what would have to go right for us to achieve that goal?’ Talk about what has to go right and what could go wrong to get in the way of that.”

It’s important to have that dialogue about the process and not just about conclusions and end results.

“Hopefully, those inputs make it less daunting to make the decision because maybe the inputs are more logical or more easy to get your head around,” he says.

Going through this process then allows you to see what’s worth your time and energy and, more importantly, what’s not.

“We talk about an issue that’s on somebody’s mind, and if we find that it has very small dollar impact or a very low probability, we don’t spend a lot of time on it,” Aronson says. “So the two things we try to think about are the dollar impact and the probability of that happening.”

Empower people

Once, Aronson had an employee who worked around the clock for three months straight on a transaction. He was very enthusiastic about it, and given that in the private equity industry, people often define success as when you complete a transaction, he had an end goal on his radar. However, in the end, he ultimately recommended that Roark not proceed with the transaction, despite the amount of time and money the firm had spent working on it.

Most would look at this situation and say the man failed, but at the end of the year, he was actually rewarded with a promotion.

“Instead of rewarding just people that close deals, we rewarded great insight and great judgment, and we promoted him,” Aronson says. “It was a great message for the rest of the team.”

Rewarding people is just one way that you can empower your employees, and it also helps create an environment where people can thrive, which is another challenge Aronson has faced in his career.

“Ideas are often in the team’s head, and so facilitating and creating an environment where people feel comfortable and excited to share their views is really one of the most important things,” he says.

One of the key things you can do is to reward your employees for the positive contributions they make.

“People don’t celebrate successes enough,” Aronson says. “The world is very competitive, and the economy is difficult, and we’re all under pressure for more results, and so we’re putting out fires all day, and we forget to step back and make sure that we celebrate the successes along with the challenges.”

You may not always be able to give someone a promotion, like the man who recommended that Roark not proceed with the transaction, but at least calling to other people’s attention your employees’ successes can still go a long way.

“Make sure that people proactively spend time focusing on successes and who helped lead those successes and call those people out with their peers and their subordinates and their seniors,” he says. “Make sure everybody knows when somebody has done something well and hopefully reward them so you’re focusing on both successes, not just challenges.”

Another way to create an environment where employees feel comfortable sharing their ideas is to make sure you don’t talk down to them.

“We work hard to recognize and reward good ideas and good work ethic and good focus, and we also make it really clear that if we disagree, we treat that disagreement with

respect, and we really don’t talk down to anybody,” Aronson says.

In those situations, he says it’s key to explain why you disagree and thank that that person for participating so that they’ll be encouraged to participate again in the future.

“We really want to hear the ideas, so in order to make good decisions, we want to hear what the possibilities are, so try to create that environment where people feel good about sharing good ideas, and they don’t feel bad about sharing bad ideas,” he says.

Address mistakes

One of the things that Aronson is proudest about at Roark is that in any given week, two or three of his CEOs will call and tell him what went wrong that day or week, and that’s a testament to how he treats his people when they make mistakes.

“They only do that because they know we’re going to be supportive and sympathetic and potentially helpful in how do they solve some of their problems and challenges,” he says. “If they thought they were going to get beaten up, they wouldn’t be calling.”

Making people feel comfortable bringing up the bad news is another challenge that Aronson has faced, but the key to overcoming it is to know how to act in those situations. First, you have to recognize that people will make mistakes.

“We don’t think you can be successful if you don’t make a bunch of mistakes because you have to try a bunch of things, and if you try a bunch of things, you’ll make some mistakes,” he says. “Nobody has ever gotten successful avoiding mistakes.”

Recognizing that people will make mistakes prepares you for when they actually do. When that happens, be a good listener.

“We try to ask questions like what did they learn.” Aronson says. “We try to ask questions how they would go about something differently, and we make sure we understand how long it went on and how painful it was before that mistake was admitted. Then, in the end, we try to be supportive and encouraging.”

It’s also important to communicate to people that you want them to come forward with their mistakes.

“We deal with bad news really well, and we deal with surprises really poorly,” Aronson says. “So by articulating that to people, we say, ‘We don’t mind, tell us all the bad news — it’s no problem,’ but we really discourage surprises, because if you don’t know about it, you can’t fix it.”

Then, you have to let your actions gradually make people feel comfortable coming to you with those mistakes.

“In the end, I think it’s about, you can talk about it, but people will follow your actions more than your words, so I think it’s being consistent and uniform with everyone and having everybody have a good experience when they come to talk to you about what went right and what went wrong and trying to be balanced about the goods and balanced about the bads,” he says. “We try not to get overly excited about some good news and try not to overreact to the bad news.”

You can also work to educate your people about how to make better decisions instead of trying to make every decision for them. Aronson printed out a two-sided paper that had the firm’s values on one side and its investment strategy on the other. He gave one to each person and asks all of his employees to read it every day when they come in. If people can make decisions based on those values and that strategy, then it will help Roark make better decisions more frequently and lessen the amount of poor decisions.

“We’re certainly not perfect and try to learn all the time,” he says. “But if we can get people to think about what’s the right thing to do and make sure it’s consistent with what we’ve all agreed we believe in, then we have a better shot at making better decisions.”

How to reach: Roark Capital Group, (404) 591-5200 or www.roarkcapital.com