David Passman’s classic remake of Carmike Cinemas is garnering rave reviews from Tinsel Town to Main Street. After falling into a state of disrepair, the nation’s fourth largest theater chain, through Passman’s efforts, has boosted the fortunes of film distributors and once beleaguered shareholders as well as the appetite of moviegoers.
“Hollywood didn’t like us, our shareholders didn’t like us and our employees were driving customers away,” Passman says. “Every option was on the table from bankruptcy to revival or something in between when I came out of retirement to become Carmike’s president and CEO.”
Known as “America's Hometown Theater Chain,” Carmike operates some 245 theaters and 2,476 screens in small to midsized communities located throughout 35 states. Despite enjoying quasi-monopolistic conditions, Carmike’s ticket sales were declining, the stock price had fallen to $1.30 per share and the company had restated earnings three times shortly before Passman traded his board seat for a corner office in 2009.
He’s remodeled aging theaters, paid down debt and consummated strategic acquisitions since taking the helm. After logging net losses for three straight years, Carmike produced net income of $96 million on revenues of $539 million in 2012, driving the average stock price above $20 per share.
Here’s a look at Passman’s steps behind his Hollywood-style success story, which just happens to include a fairy-tale ending.
Undertake the easier tasks first
After conducting secret shopping excursions to several theaters and evaluating competitors’ financial statements and operating metrics, Passman concluded that Carmike was worth saving.
Best of all, his due diligence revealed enough “low-hanging fruit” to produce modest improvements in revenues and profits while he executed a burgeoning slate of long-term strategies.
“Competitors with the same raw attendance numbers in similar markets were turning a profit, yet we were broke,” he says. “My analysis revealed that our operating costs as a percentage of revenue were substantially higher than Regal or Cinemark.
“If you think the underlying fundamentals are OK, then it makes sense to put all your efforts into fixing the problems,” Passman says. “If the underlying fundamentals are unsound, then you stop renewing leases and prepare an exit strategy.”
His stealth visits to Carmike’s rural theaters also revealed poor sanitation, broken marquees and scruffy-looking employees who dissuaded customers with their indifferent attitudes.
“Customers were staying away because the prior CEO tried to manage earnings by deferring repairs and maintenance,” Passman says. “That attitude was further reflected in the appearance and actions of our employees who had become disenchanted with the company.
“I stole a page from Jim Skinner’s playbook,” Passman says, referring to McDonald’s CEO, who steered the floundering company to the best financial performance in its history. “We needed to have a clean, friendly environment before asking customers to return. In other words, we needed to clean up our act.”
Passman replaced under-performing theater managers, authored new hiring and performance standards, retrained the entire staff and spent millions repairing broken signs and theater seats. Admittedly, he took some heat for making substantial repairs and booking a multimillion-dollar impairment charge, but through it all, he remained committed to the idea that improving the customer experience would boost loyalty today and pay dividends down the road.
“Our investments in training and repairs increased attendance, customer loyalty and concession stand revenues,” he says. “The key to getting the most from part-time workers is to hire for attitude and give them training. That’s why Disney is so successful.”
He also asked Carmike’s vendors to sharpen their pencils as part of a comprehensive effort to bring the company’s operating costs in line with those of competitors.
“The conventional wisdom is that you can’t renegotiate contracts until they expire,” he says. “We asked everyone from our refuse removal service to Coca-Cola to give us a better deal even if their contracts were in the middle of the term.”
The revised vendor pricing not only lowered Carmike’s operating costs but boosted customer goodwill and concession revenue by allowing Passman to reduce prices for beverages and snacks.
Although Carmike has traded margin percentage for margin dollars at the concession stand, it’s come out ahead as concessions and other revenue increased to $54.9 million in the most recent period compared to $43.6 million for the same period in 2012.
Repair vital relationships
After witnessing Carmike’s dramatic slide, constituents had not only lost money but faith in the company’s leadership. Since their support was critical to Carmike’s long-term success, Passman launched a series of steps to build goodwill and repair damaged relationships.
For starters, he garnered shareholder support by reducing the company’s debt by $120 million over three years. The company’s highly leveraged position had left shareholders vulnerable and fearful, especially when the economy faltered in 2008.
“Ultimately, deleveraging the company would free up cash, reduce our debt service cost, mitigate shareholder risk and give us more choices,” Passman says. “We stopped paying dividends and put every available dollar toward retiring bank debt.”
Next, he solicited revenue-generating ideas from theater managers, who were initially stunned by his request. After some prodding, however, the managers offered-up great marketing tips including a promotion called Stimulus Tuesday.
“The problem with discounting tickets to drive attendance is that it impacts studios who get a percentage of box office receipts,” Passman says. “You don’t want to bite the hand that feeds you in an effort to increase sales.
“Instead, we offered $1 popcorn on Tuesdays,” he says. “We immediately got a 35 percent increase in attendance and best of all, it didn’t diminish ticket sales on Mondays or Wednesdays.”
Not to be outdone by rank and file employees, Passman’s marketing team introduced a rewards program, allowing moviegoers to accumulate points and earn discounts on concession items and movie tickets.
He conveyed his revenue-boosting strategies during personal visits with distributors and studio executives who had experienced a falling out with Carmike’s former CEO. His cross-country trek not only bolstered the firm’s relationships with Hollywood moguls, it quashed their fears that the chain might file for bankruptcy.
Carmike’s marketing strategy has led to big gains in ticket and concession sales. Second quarter admissions revenues grew 24.7 percent year-over-year and 13.9 percent on a per screen basis, significantly outperforming the domestic cinema industry increase of 7.8 percent. Beyond the strong gains in admissions receipts, second quarter concessions and other revenue per patron increased 6.9 percent to a new all-time record, extending Carmike’s year-over-year per patron spending growth to 14 consecutive quarters.
Best yet, giving theater managers a voice has created a sense of ownership, improved theater cleanliness, boosted attendance and reduced annual turnover from 40 to 20 percent.
“Not everything we tried worked,” Passman says. “But we kept trying. In fact, my idea of offering graduated concession packages actually decreased revenues based on the results of a 12-theater pilot.
“My philosophy is that you can’t fail as long as you keep trying and CEOs need to lead the way by acknowledging their mistakes.”
Armed with an improved balance sheet, Passman went on another shopping spree in late 2011. But this time, he didn’t travel incognito. In the cinema world, he’s widely recognized as a savvy buyer.
The top four exhibitors control about half of the country's 40,000 screens and many smaller players are looking to sell out. In fact, during the firm’s July 22 conference call, Passman characterized the market as “very buyer-ripe,” adding that Carmike “is inundated with opportunities to purchase assets.”
“After analyzing our income statement, I realized that we could support an additional 300 theaters without adding to our headquarters’ staff,” Passman says. “We were able to use mostly cash to consummate a number of purchases due to our improved performance and balance sheet. Plus, we raised $60 million by issuing additional stock.”
Passman isn’t looking for fixer-uppers or aging venues in declining markets. Rather, he’s looking for turnkey properties in stable locales that stand to benefit from his marketing expertise and Carmike’s highly efficient infrastructure.
“We had a chance to leverage our efficiency and G&A by making strategic acquisitions in maturing markets where the owners don’t have the ability to lower costs and boost their profitability,” he says.
Carmike has purchased 366 screens since the end of 2011. It’s also building new theaters, both to replace existing venues and open new locations. For instance, Passman built three new theaters in the first half of 2013, closed several under-performing locations and raised an additional $88 million in order to hone Carmike’s portfolio amid a maturing market.
“In 1991, the Atlanta Braves became the first team in the National League to go from last place one year to first place the next, and we may be the second team to achieve that feat,” he says. “Our stock has rebounded after hitting rock bottom. Which proves that Wall Street still believes in fairy tales.”
How to reach: Carmike Cinemas: (706) 576-3400 or www.carmike.com
- Start with the easiest tasks.
- Repair vital relationships.
- Use strategic acquisitions to leverage G&A.
The Passman File
President and CEO
Birthplace: Bay Shore, N.Y., raised in Ocala, Fla.
Education: He attended the University of North Florida and received a bachelor’s degree in accounting from the University of Florida. Passman is also a CPA.
What was your first job and what did you learn from it?
I learned how to run a successful concession operation when I was just 13 and sold milkshakes at the local Burger Chef. Later, I learned what it takes to be a successful entrepreneur when I joined the audit practice at Deloitte. I spent the better part of 20 years helping small businesses grow and became a partner. Having a horizontal view of everything that goes on in a company helped me understand what it takes to be successful.
What’s the best advice you ever received?
Attitude trumps aptitude. I’ve met a lot of very smart people who never achieved success because of their attitude. On the other hand, I’ve seen folks with average IQs and a positive outlook rise through the ranks. A positive attitude is how Jim Skinner became CEO of McDonald’s, and it’s one of the main reasons why he was able to save the company.
Who do you admire most in business and why?
Warren Buffet because he’s involved but not overbearing, he’s trusting but not naïve. He’s successful because he sticks with what he understands. He doesn’t invest in unfamiliar businesses; he knows his limitations.
What is your definition of business success?
You’re successful when you improve the return for shareholders, empower people and instill the right values. Ultimately, a leader is successful when he or she leaves a company better off than he or she found it.
The downturn of the economy is clearly behind us. Companies have their feet back under them and are once again focused on expanding, acquiring, adding clients and hiring employees. Now is a great time to grow.
Moe’s Southwest Grill is one of those fortunate companies that made it through and, for the past few years, has been experiencing growth. In fact, Moe’s is preparing to open restaurants at a much more substantial rate than in years past. While this is great news, growth, of course, comes with its own set of challenges and opportunities.
So how do you prepare your organization for growth?
Establish a viable strategy
First, you need to have a sound strategy for how you go about it. Moe’s expects to double in size in the next three to four years — but how many will we open next year, and can our current organization support it? Those are questions that can be answered with a solid strategy.
It was important for me to work with the team to set our opening goals together so everyone bought in — now we know next year we’ll open 100 restaurants, 150 the year after that and another 200 after that. Including the team early in the planning allows you to get support, but it also helps you hold the team accountable for the goals it sets.
Explosive growth means opening 100 to 200 restaurants a year, which is also like opening a small restaurant chain each year. The support team that’s in place to support 500 restaurants will also need to grow, so it’s important to understand the people impact of growth. How do you become a recruiting machine but hold on to your company culture? I currently meet the final candidates for nearly every position we hire, even if for just a few minutes, to ensure they can “play well in the sandbox” with the rest of the team.
I stay involved because I know growth is one thing that can fracture our culture and ultimately the company. It’s important to recruit quality people who are the right fit, because when you don’t, there’s a good chance the culture will slip away.
Define departmental roles
In the grand growth plan, every department should play a clearly defined role and be a vital part of the growth strategy.
In the franchising model, franchise sales are the pipeline. Real estate leads the way to introduce the concept across a larger geographic area. Training helps new restaurants open and is on the ground to mobilize what they do in the restaurant. Operations supports training and the franchise partners to ensure customers have a consistent, positive experience. Marketing promotes our products and what our company stands for and grows sales.
As a leader, you know that some of the most exciting times can be the most challenging. But with a sound strategy, the right people in place and departments that are involved and know their roles, you should be full steam ahead.
Paul Damico is president of Atlanta-based Moe’s Southwest Grill, a fast-casual restaurant franchise with more than 500 locations nationwide. Paul has been a leader in the foodservice industry for more than 20 years with companies such as SSP America, FoodBrand LLC and Host Marriott. He can be reached at firstname.lastname@example.org.
If you were to assemble some of the world’s outstanding business leaders in one place and ask them their secret to sleeping well at night amid the pressures of running a successful business, you might think you’d collect the best tips to handling anxiety in the business world.
The truth is that top business leaders often don’t have a secret to reveal — they rely on the strength and confidence they’ve developed over the years.
At the EY World Entrepreneur Of The Year conference, held earlier this year in Monaco, EY Entrepreneur Of The Year country winners assembled to compete for the World Entrepreneur Of The Year title.
We took the opportunity to collect the thoughts of the world’s most accomplished entrepreneurs — innovators, futurists, turnaround specialists and problem solvers — about dealing with worries. ●
“There’s nothing that keeps me up at night. I sleep very well. The challenge we have as a company is to keep delivering the culture we have created and expand it, keep evolving at the speed our customers expect us to evolve and keep creating value for them as we have for the past 10 years.”
Entrepreneur Of The Year 2012 Argentina
“The main thing is to make sure that we are always looking for new, creative ideas that keep our business updated with new technology and creativity. The other thing is making sure we are working faster than before.”
Lorenzo Barrera Segovia
founder and CEO
Entrepreneur Of The Year 2012 Mexico
“Business has its highs and lows, because let’s face it, it’s not easy. It has its challenges. They asked Steve Jobs what was the most important thing in business and he said, ‘Passion.’ If you don’t have passion you would give up when things get difficult. We have so much passion and love for what we do that it becomes a part of our life.”
founder, president and CEO
Entrepreneur Of The Year 2012 United States
2013 World Entrepreneur Of The Year
“What if the stock market crashes? What if there is some unknown thing that happens? What if there’s another 9/11 type of situation? Companies need to carry on, but maybe they don’t need to do events. Maybe they cut back on entertainment and speakers. The worry is what happens if something happens that I can’t control.”
President and founder
SME Entertainment Group
“We are in recovering times. I feel very positive about the economy in general, but I’m still very worried about Europe. And while we are recovering, it’s still choppy and choppy times are times when there are more needs out there.”
Retired global chairman and CEO
"I guess there is a point in my life where I thought it is all about me, and I am going to be the guy that guides everything and controls everything. What I have learned is that the best thing that I have done for our business is learn to let go and learn to get people who are better equipped to manage specific areas, do their thing and not get in the way."
Dr. Alan Ulsifer
CEO, president and chair
Entrepreneur Of The Year 2012 Canada
“Nothing keeps me awake at night becase my work is solid.
My father married at 60 and my mother was 23. They had four children. Then he died, and we quickly had to start thinking about what to do. There was no money — nothing. We had to leave the little town we lived in because of violence there. Thanks to that, I am where I am right now because I still could be on the streets of my village selling tobacco. There is no wrong that can do good. That's what I have to teach people.”
founder and president
Entrepreneur Of The Year 2012 Colombia
The idea of driving aimlessly seems glamorous in movies and songs. In reality, few of us get in a car without knowing how to reach our destination. We’ve created smartphone apps, GPS devices and satellite mapping to make our trips as efficient as possible and to avoid what we know to be an inconvenient, expensive outcome — getting lost.
I bring up this idea because many companies using social media have inadvertently become lost drivers. They start using social platforms with the goal of reaching some number of likes, retweets or shares, but as they embark on their social media strategies, many experience a disconnect between the content they post, blog and tweet and their progress on measurable business goals. These companies are driving without a roadmap; they just don’t know it.
Sound familiar? If social media isn’t working for you, your social media approaches may be missing a fundamental component: an effective content strategy. Here are three ways a solid content strategy will enhance your company’s social media success.
A like is just a like
All social media engagement is not created equally. To be successful, the social media activity that you generate needs to support your marketing goals — whether you want to improve employee engagement, boost customer conversions or build interest in a new product.
Creating a content strategy before you engage in social media will help your business clarify the specific marketing goals you want to achieve through content, as well as what messages you need to communicate to reach those goals. This process will ensure you get the right likes, shares and retweets from social interactions.
Social is a vehicle
Social media is a vehicle for sharing compelling content with your audience, and it doesn’t work if you don’t know what issues, topics and trends your audience finds compelling. Part of developing a content strategy involves learning how those you are trying to reach want to be talked to. Where do they go for information? How much time do they spend online? What kind of content are they looking for from your industry?
By getting to know the interests and pain points of your audience (customers, employees, shareholders, etc.), you can develop tactics to reach your online audience more effectively, saving you time and enhancing your company’s social influence.
Relevant content is meaningful
Kings of social content don’t become that way by luck. They use strategic tactics to connect with their audience through the right channels at the right times. More importantly, they make these connections meaningful and memorable by posting and sharing strategic, relevant content that their audiences desire.
When you deliver social content that your audience members find valuable or interesting, they’ll reward you by sharing your content, engaging with your business and, ideally, helping to promote your reputation as a thought leader in your business or industry. A content strategy allows you to do that by providing a roadmap for what kinds of informative, helpful, educational or creative content you need to make meaningful interactions.
As a recent Huffington Post article put it, the golden rule of the web is clear: “To know us better is to sell us better.” Ultimately, being successful in the social media space means taking the time to map out what success looks like. In this sense, a solid content strategy is not only an important component of any social media strategy, it’s the key to driving the results your business wants.
Michael Marzec is chief strategy officer of Smart Business and SBN Interactive. Reach him at email@example.com or (440) 250-7078.
When Albert “Chainsaw Al” Dunlap was the CEO at Sunbeam in the late ’90s, he had a reputation for ruthlessness. Besides massively downsizing the company, he was also known to intimidate everyone around him and resort to yelling and fist pounding.
While extreme, Dunlap’s behavior is an example of the type of “dictator” leadership that used to be fairly common in the C-suite. Rules were rules, there were no exceptions for anything and people were just a line item on a budget. Need to cut thousands of jobs? Don’t think twice about it.
On the other end of the spectrum is the Christ-like leader. This leader focuses more on building people up rather than tearing them down. This type of leader understands that there are rules, but sometimes to do the right thing, the rules need to be broken. For example, during the economic downturn, some Christ-like leaders went well beyond what was called for to make sure laid-off employees were taken care of.
They made sure they had the use of office resources to look for a new job and did everything they could to lessen the hardships. They weren’t required to do this; it was just the right thing to do. They saw employees as human, not just numbers on a spreadsheet.
Does it cost money to take the more humane route with your leadership? Yes and no. From a short-term, bottom-line perspective, it probably does cost a few more dollars to help people through a hardship. But long term, it can pay dividends. By treating people with respect and doing the right thing, it helps eliminate animosity toward you and your company from both the ex-employees and current ones. Maybe there are some good employees who you wanted to keep, but couldn’t afford. By showing compassion, when the economy turned around, they were far more likely to consider coming back than if they had just been shown the door with little regard to their well-being.
And what happens when these ex-employees end up in key positions in companies that could be customers? Do you think an ex-employee who you mistreated is going to buy anything from you or recommend your company to someone? It’s a small world, and what goes around often comes around, so it’s always best to treat people as best you can.
You can lead like a dictator and still get results. But do the ends justify the means? Will you conquer all, only to find yourself alone with no friends, the equivalent of Ebenezer Scrooge in “A Christmas Carol?” Or will you have an epiphany and realize there’s a better way to do things?
During this holiday season, think about your leadership style and the long-term effect it has on people’s lives. If this exercise makes you uncomfortable, then maybe it’s time to change how you lead. ●
What would it take for a company to succeed if its leader could effectively do only one of the following: innovate, instigate or administrate? We all know that an innovator is the one who sees things that aren’t and asks why not? The instigator sees things that are and asks why? The administrator doesn’t necessarily ask profound questions but, instead, is dogged about crossing the “t’s,” dotting the “i’s” and making sure that whatever is supposed to happen happens.
Ideally, a top leader combines all three traits while being charismatic, intellectual, pragmatic and able to make decisions faster than a speeding bullet. Although some of us might fantasize that we are Superman or Superwoman, with a sense of exaggerated omnipotence, the bubble usually bursts when we’re confronted simultaneously with multiple situations that require the versatility of a Swiss army knife.
Business leaders come in all shapes and sizes with various skill sets and styles that are invaluable, depending on the priorities of a company at any given point in time.
Every business needs an innovator to differentiate the company. Without a unique something or other, there isn’t a compelling reason to exist. Once those special products or services that distinguish the business from others are discovered and in place, it takes an instigator to continuously re-examine and challenge every aspect of the business that leads to continued improvements, both functionally and economically. It also takes an administrator — someone who can keep all the balls in the air, ensuring that everyone in the organization is in sync and delivering the finished products as promised to keep customers coming back.
As politicians and pundits of all types have pounded into our heads in recent years, “It takes a village to raise a child.” All who practice the art and science of business have learned that, instead of a village, it takes a diverse team working together to make one plus one equal three.
On the ideal team, each member possesses different strengths, contributing to the greater good. The exceptional leader is best when he or she is an effective chef who knows how to mix the different skills together to create a winning recipe.
In many companies, however, leaders tend to surround themselves with clones who share similar abilities, interests and backgrounds. As an example, a manufacturer may have a management team comprised solely of engineers, or a marketing organization could have salespeople who came up through the ranks calling all the shots.
If everyone in an organization comes from the same mold, what tends to happen is, figuratively, one lies and the others swear to it. This builds to a crescendo of complacency and perpetual mediocrity.
There is a better way. Good leaders surround themselves with others who complement their capabilities, and savvy leaders select those with dramatically different backgrounds who will challenge their thinking because they’re not carbon copies of the boss. This opens new horizons, forges breakthroughs and leads to optimal daily performance.
Strange bedfellows can stimulate, nudge and keep each other moving toward the previously unexplored.
To have a sustainable and effective organization, you can’t have one type without all the others. While everyone on the team may not always agree, each player must always be committed to making the whole greater than the sum of the parts.
The single most important skill of the leader who has to pull all the pieces and parts together is to have the versatility of that Swiss army knife — selecting the precise tool to accomplish the objective at hand. ●
Michael Feuer co-founded OfficeMax in 1988, starting with one store and $20,000 of his own money. During a 16-year span, Feuer, as CEO, grew the company to almost 1,000 stores worldwide with annual sales of approximately $5 billion before selling this retail giant for almost $1.5 billion in December 2003. In 2010, Feuer launched another retail concept, Max-Wellness, a first of its kind chain featuring more than 7,000 products for head-to-toe care. Feuer serves on a number of corporate and philanthropic boards and is a frequent speaker on business, marketing and building entrepreneurial enterprises. “The Benevolent Dictator,” a book by Feuer that chronicles his step-by-step strategy to build business and create wealth, published by John Wiley & Sons, is now available. Reach him with comments at firstname.lastname@example.org.
More than 800 years ago, medieval philosopher Maimonides outlined eight levels of charity, the greatest of which was supporting an individual in such a way that he or she becomes independent. In Maimonides’ view, support was defined as a gift or loan, entering into a partnership or simply helping that person find employment.
Few things are more powerful than philanthropy — especially when its end goal is to better the lives of others. These days, philanthropy, and corporate philanthropy specifically, has assumed a broader role in society.
Today, companies give back more strategically than ever before. They align themselves with nonprofits that foster missions they believe in. The wealthiest people on the planet have even coordinated the Giving Pledge (www.givingpledge.org), where they’ve committed to dedicate the majority of their wealth to philanthropy.
At last count, more than 115 people had taken the pledge. Warren Buffett and Bill Gates may be the most prominent names on the list, but others include Spanx Founder Sara Blakely, Cavs Owner Dan Gilbert, Progressive’s Peter Lewis and Netflix Founder Reed Hastings.
Last month, one member, David Rubenstein, CEO and co-founder of The Carlyle Group, discussed the importance of philanthropy during a presentation at EY’s 2013 Strategic Growth Forum.
In his pledge letter, Rubenstein explains why: “I recognize to have any significant impact on an organization or cause, one must concentrate resources, and make transformative gifts — and to be involved in making certain those gifts actually transform in a positive way.”
One way Rubenstein is being transformative is through “Patriotic Philanthropy.” He has given $10 million to help restore President Thomas Jefferson’s Monticello home and underwrote renovations to the historic Washington Monument. Yet Rubenstein’s most noteworthy initiative is the whopping $23 million to acquire a rare copy of the Magna Carta, ensuring it remained in the United States. After its purchase, Rubenstein gifted it to the National Archives.
Not everyone has Rubenstein’s vast resources. But every organization and any individual can make their own impact.
In the workplace, for example, organizations that give back elevate their status perception-wise among competitors and peers. It doesn’t take much. But by being a company that cares, prospective employees want to work for you. For your existing team, deliberate and well-organized corporate philanthropy programs quickly take on a life of their own, becoming a rallying point.
Think strategically and get started by finding your cause. We all have them. They exist at our very core, forming the belief system we live by every day. So why shouldn’t our philanthropy follow that same course? Consider aligning your giving or volunteerism with something you personally believe in or care about; something that fits with what your company does or something that is close to your employees’ hearts.
Most important, get involved and just make a difference. It really comes down to that. One initiative that has always impressed me has been the annual CreateAthon event undertaken by WhiteSpace Creative, a member of the Pillar Award class of 2005. You can read a first-hand account of this year’s program here.
Being a good corporate citizen goes well beyond making good business sense. When you align yourself with causes you care about, whether big or small, you make a difference in someone’s life. And the bottom line is this: It is all of our duties to get involved. It’s no longer a question of if, but rather of what, when and how. ●
Dustin S. Klein is publisher and vice president of operations for Smart Business. Reach him at email@example.com or (440) 250-7026.
We deeply want to be led by people who know what they’re doing and who don’t have to think about it too much — but there’s one glitch in that: The amount of success it takes for leaders to become overconfident isn’t terribly large.
Some achieve a reputation for great successes when all they have done is take chances that happened to work.
The fierce personal confidence and sense of infallibility that characterizes many leaders serves as a breeding ground for mind-bugs (non-conscious flaws in the way humans think and make decisions).
As a result, leaders can fall into a trap of believing they are better informed than they really are. Then fact gathering, analysis, insights, judgments and decisions suffer — as you’ll see from the real world examples below.
A Penney can’t become an Apple
In the fall of 2011, Ron Johnson, the whiz behind Apple’s $50 million-per-store retail business, was appointed not just as CEO of J.C. Penney Co., but as the savior responsible for transforming one of the dowdiest dinosaurs in American retail.
Seventeen months — and many mistakes later, he’s out of a job. What happened? Johnson so desperately wanted J.C. Penney to become the Apple of department stores that he failed to understand his customers and ended up alienating them.
Johnson could have easily known better but refused to test his ideas in advance, reportedly shooting his critics with the pushback, “We didn’t test at Apple.”
Johnson was unknowingly a victim of a mind-bug called the “informed leader fallacy,” when a leader believes he is better informed and has better instincts than others simply because he is the leader.
Is Hewlett-Packard blind to that fact?
Hewlett-Packard Co.’s terrible track record of making and integrating acquisitions speaks for itself. After buying Palm for $1.2 billion in 2010 and announcing the TouchPad in early 2011, HP killed these products six months later with a record $3.3 billion write off.
In August 2011, HP announced the acquisition of Autonomy, which provided so-called intelligent search and data analysis. HP didn’t stress the price — $11.1 billion, or an eye-popping multiple of 12.6 times Autonomy’s 2010 revenue — but focused on Autonomy’s potential to transform HP from a low-margin producer of printers and PCs into a high-margin, cutting-edge software company.
HP stunned its still reeling investors when it said it was writing down $8.8 billion of its acquisition of Autonomy, in effect admitting that the company was worth an astonishing 380 percent less than HP had paid for it.
So what is HP’s CEO Meg Whitman planning to do now? Return to making acquisitions, of course: “We will be incredibly measured and disciplined. We are very mindful of the event that we just came off with Autonomy, so don’t worry about that.”
While only time will tell, Whitman would be wise to worry about the Informed Leader Fallacy mind-bug.
Be wary of transformative thinking
What these leaders have in common should serve as an enduring lesson.
Just as Johnson was going to transform J.C. Penney into America’s retailer, Autonomy was supposed to transform HP into a software powerhouse.
So-called transformative thinking that renders traditional valuations irrelevant and silences critics is a breeding ground for bugs in leadership thinking and decision-making. ●
Larry J. Bloom spent 30-plus years helping grow a small family business to over $700 million in revenue. He is the author of “The Cure for Corporate Stupidity: Avoid the Mind-Bugs that Cause Smart People to Make Bad Decisions,” consultant, board member, and owner of a startup media and software company that promotes better thinking. He was born and resides in Atlanta, Ga. For more information, visit www.curecorporatestupidity.com or email firstname.lastname@example.org.
Follow Larry Bloom on Twitter @CureCorpStupid
With Larry Bloom on LinkedIn http://linkd.in/16qIMg8
John Marshall and AirWatch ride high atop the mobile technology wave after undergoing a timely transformationWritten by Leslie Stevens-Huffman
After four years, the inability to manage change often results in the premature demise of 37 percent of information industry startups.
John Marshall, co-founder of AirWatch, sees the validity of that statement, but relishes in the fact that his company isn’t a part of the statistic. It’s a modern day miracle that a small firm like AirWatch has not only endured, but found a way to ride the crest of the technology tsunami.
“Coming up with a good idea is hard, but executing it is even harder,” says Marshall, who is also president and CEO. “You need to have the right team with the right vision and strike a balance between ideas and execution or you’ll never get out of the gate.”
After bootstrapping AirWatch since its launch in 2003, Marshall orchestrated what he describes as a strong pivot three years ago. His well-timed pivot gave AirWatch the opportunity to cash-in on the “bring your own device” to work trend, establishing the firm as a pioneer in the management of mobile assets.
The BYOD craze was rearing its head — almost 70 percent of workers who own a smartphone or tablet use it to access corporate data, according to Ovum. The problem is that most IT departments were caught off-guard by the mobile computing frenzy and lacked the staff and systems to securely manage a barrage of different employee-owned devices.
AirWatch has taken the lead in mobile management, scoring more than $200 million in funding and adding more than 1,400 employees to provide mobile device management and security to 8,000 customers, including Lowe’s, Toyota, United Airlines and Delta Air Lines.
Here’s a look at how Marshall turned a rather unremarkable Wi-Fi service provider into a market leader with revenues of about $100 million in 2012.
Catch a wave
Once Marshall decided to consider the mobility space, he made sure his decision was neither rash nor fortuitous. He evaluated data and anecdotal evidence before asking 15 developers to create an enterprise program to manage smartphones.
“The key to market timing is to look at everything,” he says. “I keep a lot of data points in my head. I not only assessed user adoption rates, but whether the cab driver in Singapore was using a smartphone. Misreading the adoption curve can be fatal, especially for a small tech company.”
For instance, Marshall knew that wireless service providers were switching to 3G networks and offering “all-you-can-eat data” plans as users became addicted to mobile devices. In addition, businesses were looking for new ways to lower costs and create efficiencies as the economy was taking a nosedive in 2008-2009.
Providing 24/7 access to data and communications seemed like a viable and affordable way to boost worker productivity. Marshall, however, remained on the fence until a fateful conversation with an Apple executive provided the tipping point. The knowledgeable source described the ongoing development of smartphones and tablets and the migration from desktops and laptops to mobile computing. So when Apple released iOS 3, Marshall decided it was time to act.
“My conversation with the Apple executive gave me the confidence to move forward,” Marshall says. “The ecosystem was forming and I could see that it would be maturing over the next few years. I wanted to be ahead of the wave, not paddling from behind.
“You need to understand the growth phase to take advantage of it,” he says. “Invest too early, and you’ll spend all of your time educating the customer. Invest too late, and you’ll be forced to play catch-up. In this case, our timing was just about right.”
Build a nimble organization
While amassing information before taking an initiative is important, the project needs to advance once it is ripe. Check your company’s foundation and feel confident it can handle change.
AirWatch’s infrastructure functions like a bumper car. When change occurs, employees absorb the shock, reposition and step on the gas.
“You can’t labor over decisions or shoot for perfection when you’re in a hurry; you need to get a product out the door,” Marshall says. “You can’t be afraid to make changes or give stuff away during the early phases of development. It’s a stressful and somewhat lonely time, but you have to push forward.”
AirWatch has a fairly flat organizational structure because Marshall believes that hierarchical decision-making begets fiefdoms and impairs speed-to-market.
“Ambiguity and management by committee won’t work when you need to move quickly,” Marshall says. “It’s better to fail fast and fail early.”
He filters and communicates competitor intelligence or feedback from AirWatch’s early adopters to the company’s core leadership team on a weekly basis.
“You can’t communicate everything to 1,500 people or everyone will head off in a thousand different directions,” he says. “I strategically share information with our core management team, and they pass it along. We use concentric circles to transmit critical information.”
Marshall’s finely honed communications strategy helps his team develop what he calls a tactical cadence to clients’ evolving needs. For instance, initially customers wanted a tool to manage mobile devices, but data security soon emerged as a top priority as companies created a plethora of mobile applications.
“We don’t waste a lot of time in meetings because we constantly communicate,” Marshall says. “Our product developers, marketers and other team members sit together on the floor. They collaborate, white board issues, make quick decisions and write new code. Eighty percent of our product changes are ad hoc.”
The company’s 400 developers utilize a rapid application development methodology and release product updates every two weeks. In fact, the entire company is built around the notion of two-week sprints that keep staffers from working too far ahead.
“We’re experts at executing course corrections; it’s woven into our DNA,” he says. “It may seem like organized chaos, but it’s a natural movement for us that works.”
It’s easy to veer off course when you inject 1,300 new employees into a dynamic work environment over a span of two to three years. But through trial and error, Marshall has developed a comprehensive plan to keep AirWatch workers aligned with the company’s vision.
“If you bring someone on too early, they won’t have enough to do, and they’ll end up working on things that aren’t strategic,” he says. “I’ve learned that you need to hire at the right time and clearly define roles and responsibilities to make sure everyone’s working on the right product at the right time.”
For example, Marshall says he met the perfect candidate to launch a European division, but AirWatch wasn’t ready to expand. Instead, he focused on building the North American market and refining the company’s solution suite while waiting three years to extend an offer.
“He would have failed if I hired him when we first met,” Marshall says. “I waited until the time was right and now we have 270 people working in our European division.”
Also, his recruiting team has improved its success rate for new hires by assessing a candidate’s ability to thrive in a fast-paced environment. Then, they quash ambiguity and foster line-of-sight from the outset by putting new hires through an intense two- to three-week training course.
Every AirWatch employee knows how daily activities align with the broader mission, Marshall says. In addition, employees have clearly defined roles and responsibilities, which is the secret to keeping people focused during periods of rapid change and growth.
“One of the things I borrowed from Steve Jobs was the concept of the ‘directly responsible individual’ or DRI, which is critical to managing growth,” Marshall says. “Under DRI there’s a point person responsible for solving every problem or driving every initiative to completion.”
Apple summons speed and accountability by inserting the name of the DRI next to every item on a to-do list, Marshall says. As a result, there’s rarely any confusion about who should be doing what.
Also, Marshall prevents scope creep, which can be the nemesis of tech firms that develop cutting edge products for rapidly evolving markets.
“Don’t let one customer get you off track,” Marshall says. “Learn to say no to requests for customized products or one-off solutions that deviate from your broader mission. You have to know what you want to be when you grow up; otherwise it’s easy to lose your way.”
Finally, he waited until the time was right to pursue strategic acquisitions. For instance, AirWatch acquired Motorola Solutions Mobility Services Platform last June, adding some 1,500 customers to the firm’s portfolio.
“You can’t integrate another firm or technology platform when your company or team isn’t mature; it’s a recipe for failure.” Marshall says. “We waited until we had 1,200 employees and a mature management team before consummating an acquisition. And we got there by being crisp, focused and developing one product at a time.” ●
- Develop a great sense of timing.
- Build a flexible organization.
- Focus is the key to sustaining growth.
The Marshall File
Name: John Marshall
Title: President, CEO and co-founder
Birthplace: Racine, Wis., and raised in Charlotte, N.C.
Education: Bachelor’s degree in industrial engineering from the Georgia Institute of Technology.
What was your first job and what did you learn from it? I started cutting lawns when I was 9 or 10, grew the business, and had anywhere from five to 15 people working for me throughout high school and college. I learned that there’s no substitute for hard work, the importance of hiring the right people and why it’s critical to make course corrections, even as a small business. If you don’t hire reliable people, you’re not going to meet customer expectations, which is vital when you’re trying to build a business.
What’s the best business advice you ever received? One of my mentors told me that the grass is greener where you water it, which essentially means that any company can be successful. Now, you have to be aligned with a market that’s doing well and you have to execute, but if you do those things, every firm can succeed.
Who do you admire most in business and why? Steve Jobs because he was a pioneer in the mobility space and definitely understood the importance of market timing. He also built a flexible infrastructure that allowed him to capitalize on new ideas and changing product cycles.
Why is AirWatch based in Atlanta instead of Silicon Valley? Atlanta has a good economy and an ample talent pool. How can a small firm like AirWatch compete for talent against Facebook or Google? I would never start a tech firm in Silicon Valley.
AirWatch Social Media Links:
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How to reach: AirWatch (866) 501-7705 or www.air-watch.com
A rather gruesome quote has been attributed to Sean Parker, entrepreneur and Facebook’s first president: “Running a startup is like eating glass. You just start to like the taste of your own blood.”
While that analogy is certainly descriptive, it does ring true for many entrepreneurs. I find startups both energizing and exhausting, and I’d compare the thrill to the adrenaline rush a runner gets. In fact, it’s the rush that inspired me to jump into the startup arena after a foray into the corporate world.
My path to entrepreneurship started in the least risky of ways. I went to the University of Waterloo for electrical engineering, and then I did what most Canadian engineers do, I went to work for one of the big guys — Nortel.
I quickly realized that I was a terrible engineer and found myself wondering more about product pricing, sales models and addressable markets. This curiosity didn’t go over too well with my manager, but definitely helped make me a better entrepreneur today.
Work with wicked smart people
The entrepreneurial path can be full of bumps and jumps. During the height of the dot-com craze, I had the great fortune to connect with a group of amazing entrepreneurs, and we founded Cbeyond. Over the course of 12 years at Cbeyond, the team experienced a lot of great and challenging times.
I learned a valuable lesson at Cbeyond — work with great people that do what they say they’re going to do, have a passion for serving customers and give back to their communities. You and your co-founders will spend every waking moment together, so make sure they’re the kind of people you want to hang out with at the airport bar.
Cbeyond survived the dot-com and telecom busts, completed an IPO in 2005 and grew to more than $450 million in revenue.
In early 2012, while an Entrepreneur in Residence at Georgia Tech, I met the partners for my new company, Springbot. We provide an e-commerce marketing platform to help smaller online retailers compete against giants like Amazon.com Inc. The growth of Springbot has been rewarding and has relied heavily on our team, committed investors and the great startup ecosystem in Atlanta.
Tips from an experienced risk taker
When asked about starting a new business venture, I offer the following advice:
- Avoid running alone. If you are considering diving headfirst into the entrepreneurial waters, run with a pack. The aforementioned “rush” is 10 times better.
- Avoid naysayers, doubters and those who say that being a technology entrepreneur is too risky. Perhaps that’s their reality. But, I say that the real risk is never discovering what makes you happy. Ask “why” three times. The answers will guide you.
- Entrepreneurship is not for everyone but it can be great.
- Starting a business is a rewarding and exhilarating experience that requires a ton of work, dedication and risk-taking. Given the recent challenges at Nortel and BlackBerry, however, it certainly looks like being a technology entrepreneur may not be as risky as the more traditional and so-called “safe” route — plus being a technology entrepreneur certainly beats working for a living. ●
Brooks Robinson is co-founder and CEO of Springbot, a technology start-up that leverages big data and marketing automation to deliver an e-commerce marketing platform for smaller online businesses. He can be reached at