While the light of economic recovery may be appearing on the horizon, many sectors of the economy continue to suffer slow growth and persistent or periodic struggles with liquidity as a result of low demand for goods and services. Until consumers determinatively shake off the historically low levels of confidence and reverse the current trends of debt reduction and increased savings rates, some businesses will fall on hard times.
A struggling business and its leaders (e.g., directors and officers of corporations, or managers of limited liability companies) seeking to avoid the entity’s failure as it experiences liquidity challenges or insolvency need to heed some legal rules that may not be readily apparent.
Smart Business spoke to Steve Dettmann and Douglas Landrum of Jackson DeMarco Tidus Peckenpaugh about a few common legal matters for those businesses, and their principals (and guarantors), to consider when the business experiences difficult times.
Management may be liable to creditors
Normally, the duties of the directors of a corporation and the managers of a limited liability company are owed to the equity holders of the business. However, if a business has insufficient equity or is insolvent, management personnel may become personally liable for approving distributions to shareholders or other equity owners. For a Delaware business entity, the Delaware Supreme Court has held that when a corporation is actually insolvent, fiduciary duties arise for the benefit of creditors in the place of shareholders — under the theory that the creditors of an insolvent corporation become the beneficiaries of any increase in value and suffer the detriment of further decreases in value of the corporation’s remaining assets. Thus directors and managers should ascertain an accurate financial understanding of proposed actions of struggling businesses.
Not all guaranties are the same
Another area where principals become exposed to personal liability for obligations of the business is by executing guaranties. In many lending circumstances involving small and medium-sized business entities, lenders will require guaranties of varying types from principal equity owners. These guaranties come in many forms — some absolute, some limited and some contingent. Some guaranties are unconditional and others may limit the lender’s recourse to a specific set of assets or circumstances. Most guaranties contain a set of waivers pursuant to which the guarantor waives statutory suretyship defenses — some ironclad and others suffering notable deficiencies. Understanding the difference is key.
In commercial real estate lending, the borrower’s principals are frequently induced to give the lender a “springing” guaranty (sometimes referred to as a “recourse carve-out” guaranty) under which the lender’s right to seek recovery beyond the borrower or the specific secured collateral arises only upon the occurrence of specified events. These events typically include “bad boy” acts of the borrower (notwithstanding that only certain of the acts are inherently “bad”) including, among others, fraud, misrepresentation, commission of waste, prohibited transfers, failure to pay real estate taxes or failure to properly apply security deposits, reserves or insurance proceeds. The spring on some guaranties is sprung (i.e., the recourse obligation arises) when the borrower, during times of financial difficulties, seeks legal protection from its creditors through the filing of a petition in bankruptcy — even though the bankruptcy petition may be later dismissed (i.e., like bells that cannot be unrung, certain springs cannot be unsprung). Therefore, if a commercial real estate enterprise is failing, guarantors having influence over the actions of the borrower should consult with counsel to ascertain the potential consequences of a borrowing entity’s proposed actions before those actions are taken, and to carefully navigate through potential foreclosure of real property security so as to avoid, where possible, the triggering of liability under a guaranty.
Completion guaranties are commonly used as credit enhancements for construction financing, but the remedies available to a lender are uncertain. Generally, recovery under a completion guaranty is limited to the increase in value of the collateral that completion would offer; and where a lender on an underwater project cannot demonstrate that the value upon completion would exceed the as-is value, then the completion guaranty may be worthless.
Knowing which type of guaranty binds the principal, and whether there may exist a partial or complete defense to recovery, is essential to determining what actions should be taken or decisions should be made on behalf of the business.
Filing bankruptcy may not be a good idea
While a debtor-in-possession (DIP) usually acts as the trustee upon the filing of a bankruptcy petition under Chapter 11 of the United States Bankruptcy Code, if the business cannot present or implement a viable plan to reorganize in a Chapter 11 bankruptcy, under certain circumstances, the bankruptcy case can be converted to a Chapter 7 liquidation upon request of the creditors. Independent U.S. Trustees appointed by the court in Chapter 7 bankruptcy liquidations are compensated based upon what they are able to collect on behalf of the estate for payment to the creditors of the bankrupt entity. With this motivation, the trustees frequently look into the pre-petition acts of management and equity holders to determine whether the bankruptcy estate may have causes of action that could bring a recovery. A Trustee may therefore act in a manner opposed to management and equity holders, as they look for evidence of insider transactions, misuse of corporate assets for personal benefit, distributions to equity holders at or near the time of insolvency or breaches of duties that could provide access to policies of directors and officers liability insurance.
Accordingly, if a struggling business is unlikely to be able to reorganize in bankruptcy, then it may be a better course for management to wind-up the business and distribute assets to creditors (similar to a bankruptcy liquidation) without filing a case with the United States Bankruptcy Court. Negotiating with creditors for a liquidation of the company’s assets without a bankruptcy case may avoid the appointment of a trustee who turns out to be the worst enemy of former management or owners.
Remember tax obligations
One of the knee-jerk reactions of management in a difficult business setting is to use funds withheld from employee wages (income tax, social security tax or Medicare withholdings) for liquidity purposes instead of paying over the funds to the IRS and other tax authorities. This is one of the worst methods that management could employ to prop up the business as it begins to fail, as any “responsible person” of the business (meaning the individual or group of individuals within an organization who, individually or collectively, has sufficient authority to pay over withholding taxes) may be held personally liable by the IRS for a Trust Fund Recovery Penalty — a 100 percent tax penalty — for failing to pay over taxes withheld from the employee.
If a business is struggling, management and equity holders must be mindful of the many traps that exist from which could arise personal liability, and a small investment in consultation with legal counsel before actions are taken may be essential to avoiding unnecessary loss.
Steve Dettmann is Senior Counsel, Real Estate Practice Group and Douglas Landrum is a Shareholder and a Member of the Corporate Practice Group at Jackson DeMarco Tidus Peckenpaugh. Reach them at SDettmann@jdtplaw.com and DLandrum@jdtplaw.com, respectively.
The Weatherhead 100 was crafted in 1987 when Bob Pavey, Managing Partner of Morganthaler Partners, first noted that Northeast Ohio needed a venue to properly acknowledge, support and praise companies that were the fastest growing in the region. Pavey suggested that Enterprise Development, Inc., the former not-for-profit subsidiary of Case Western Reserve University, not only identify, but bestow a genuine sense of honor upon the fastest growing companies in Northeast Ohio.
Since 2004, the Weatherhead 100 is compiled and managed by the Council of Smaller Enterprises (COSE). For more on the Weatherhead 100, visit Weatherhead100.org.
But, the Weatherhead 100 coverage doesn't stop there. As the new media sponsor of the Weatherhead 100 – a partnership between The Weatherhead School of Management at Case Western Reserve University and the Council of Smaller Enterprises (COSE) to recognize Northeast Ohio’s fastest-growing companies – we’ve launched a microsite at www.weatherhead2011.com to share more insight from the winners.
But before you head to the microsite, stay right here. We've got a lot of Weatherhead 100 content to digest, including:
Also, our own Gregory Jones was able to sit down with some of the Weatherhead 100 winners. Check out these in-depth profiles:
OK, now you're ready to dig even deeper. At the microsite, you can get closer to the secrets behind these companies' successes through Q&As with the CEOs. As Weatherhead 100 winners, these companies have contributed to our communities and demonstrated the region’s entrepreneurial spirit – growing sales as much as 6,000 percent in the process. Read more to learn what makes these winners so successful.
The leaders continue to submit responses on overcoming business challenges, driving innovation through their companies, making a difference in their communities, and other lessons they’ve learned as leaders, so keep checking the microsite for updated content.
Smart Business spoke to Matt Yonchak of Hurricane Labs about protecting your personal information online.
One of the most common responses I get from your everyday user when I bring up the topic of securing your personal information is “Who cares about my e-mail address? It’s not like anybody is going to call me or stalk me or something.” I’ll ask them why the level of caring about their e-mail address is so low and again I’ll get a flippant response such as, “So what if I get spam? I just delete it anyway.”
We all understand that we need to keep our Social Security numbers and credit card numbers safe. We know not to give out the login credentials to our online banking site. These are common knowledge, but what about your e-mail address or the contact information that exists in your mobile phone? How closely do you guard that information? My guess is not as closely as you should.
The fact of the matter is that all aspects of your personally identifiable information (PII) are valuable to someone. Remember the Storm worm? Back in 2008, spam e-mail from Storm was analyzed and was found to be generating 3.5 million dollars of yearly revenue from pharmaceutical spam alone. Trust me, as throwaway as you feel your Gmail address is, someone wants it and is devising a way to get it. Like most illicit activity, it is money that is driving the theft of your information. You may not think about it but your personal information is valuable to someone out there.
How your information gets out
So how is your PII being gathered? Believe it or not you’re giving it away. Yup. You are willingly giving your information to spammers and sometimes worse. I’ve done it the same as you and didn’t think twice about it. Ever sign up for a perks card at your grocery store of choice and give them your e-mail address along with your name and address? I have. How about a loyalty card at your pharmacy? You get money off your prescriptions and save on everyday purchases, right? It makes sense because you’re affecting your personal bottom line positively, but let’s think for a second about how the pharmacy is offsetting that discount you’re receiving. Not only are they gaining a loyal customer who is less likely to shop around for better discounts, but they are also taking your information and correlating that with your shopping habits. Then they take that information and turn around and sell it to a marketing company so that they can construct more targeted marketing efforts for you. Buy a lot of protein bars? Check your e-mail more closely next time and you’ll probably notice that you have advertisements and spam for things like protein shakes and weight loss drugs. Your buying trends are valuable and how is it all correlated? Your e-mail address.
How’s your Facebook page these days? Ever get a friend request from someone you didn’t even know existed? That’s because they don’t; they’re a bot. A fake person created for the sole purpose of gathering the personal information from your profile. Pretty devious huh? Not really, you’ve probably seen that and chose to decline the request because a) you don’t know them and b) their name is Akdjrsk Smith (doesn’t seem like a real name to me either, you would think that they could be a little more clever with their name generator). While that attempt to steal your information is pretty overt there are more crafty ways that Facebook attempts to get a hold of your PII. Playing games on Facebook is a pretty good way to ensure that your e-mail address ends up on some spammers list. It has been well documented that games like Farmville, Mafia Wars, and that game where you have to keep your fish tank clean (never understood that one, seems like more of a chore than a way to have fun) are nothing more than information harvesting vehicles. This is just a reminder that while you may have friends on Facebook, Facebook is not your friend.
The other very common way to get a hold of your personal information is through your mobile phone. If you have a smart phone you’re vulnerable to attempts at gathering your PII. The easiest way to have this happen to you is for you not to pay attention to the permissions on the apps that you’re downloading. If you ever see a permission on an app that says “Read Contact Data” or “Read Calendar Data, Write Calendar Data”, I would suggest taking a good, hard look at what that app does and ask why it would need access to that information. Again we see games as an easy attack vector for the uninformed mobile user. Games often have so many permissions associated with them that people accept and install without adequately reviewing what the game is doing in the background. The easiest way to protect yourself is to make sure that you are smarter than your smart phone.
How your information is valuable
Now that we know how the information is being disseminated to those trying to profit from it, let’s examine how valuable it actually is. We’ve talked about how spammers are using your information, but how profitable is it? I did some research to see how I could acquire mass amounts of e-mail addresses and I found a site where I could purchase bulk e-mail addresses for marketing purposes. There I found that I can buy more than 50 million e-mail addresses for $3,499. I found other options as well. I can purchase business e-mails by state. For example, I can buy more than 2 million e-mail addresses for businesses located within the state of Ohio for only $499. For those of you within the state of Ohio, what do you want to bet that I will find e-mail addresses for people within your company? Five hundred dollars is a drop in the bucket compared with either a targeted marketing effort or, worse, an actual attempt to get sensitive information from within said company. Spam is big business. It wouldn’t exist if it didn’t work and, unfortunately, it does.
How about your identity as a whole? How much is your life worth to an identity thief? According to Symantec, the black market value of my life is $22.22. Personally I’m underwhelmed. I thought I would be worth more than that. What they’re taking into account is your age, sex and the amount of data you work with online (bank accounts, 401(k), credit cards, etc.). If that is all that I’m worth do you think it’s really that difficult to purchase that information? The higher the worth the more difficult it is to obtain the information. According to an article by ComputerWorld if I were a 60-year-old male who has more than $10,000 in my checking account, I would only be worth a whopping $32.29. Realizing that it is that cheap for someone to purchase your identity should make you think twice about how much and the method in which you access your financial information online.
OK, lets forget for one second my own personal net worth, how about my company? Can my PII be a liability to my place of employment? Your info can provide a useful attack vector into your business. If I’m a hacker and I want to get into a company, what is the most vulnerable attack vector? The employees, of course. If I know more about you I can construct a clever phishing attempt or I can just call you on the phone and say that I’m from HR and I need XYZ. If I can provide you with your SSN or employee ID, chances are that you are going to be more likely to talk to me and provide me with what I want — a way in. All it takes is one weak link and someone with malicious intent can exploit it to their advantage.
How do I stop it?
As with most issues, knowledge is power. The power the hacker needs to penetrate your defense or the power a user needs to repel such an attack. By knowing what you should be wary of you’ve increased the level of difficulty exponentially that a criminal has to deal with. Chances are if it is too difficult for the criminal then they will move on to an easier target. People are targets of opportunity. Remove the opportunity and the threat will sometimes pass you by. Know what social media is after — YOU. How do these sites stay in business? Ads and your PII. You are fueling social media. This is not to say that you shouldn’t use Twitter, Facebook or LinkedIn. Just use them wisely. The same applies for your mobile devices. Use them wisely. The biggest thing that you can do is to have a healthy level of paranoia about your personal information. Even the things that seem innocuous to you can be valuable to someone. What you really need isn’t software to protect your PII, what you really need is constant vigilance!
Matt Yonchak is a Sales Engineer at Hurricane Labs. Reach him at firstname.lastname@example.org.
Smart Business spoke to Mark Strippy, Executive Director, Payroll Services at Heartland Payment Systems®, about how businesses can maintain compliance when filing payroll.
Last spring, the U.S. Court of Appeals for the 8th Circuit ruled that two owners of a trucking company and its subsidiary were personally liable for more than $2 million in payroll taxes that were not paid to the government, allegedly due to the misconduct of their businesses’ bookkeeper. The bookkeeper embezzled $10,000 from the companies, and had not paid payroll taxes for 13 consecutive quarters for one company and 17 quarters for the other.
The owners sold the assets of the trucking company several months later, and paid approximately $5 million to its employees and creditors. They did not, however, remit the outstanding payroll taxes to the government — and the IRS assessed more than $2.3 million in penalties against them.
This example underscores the significant consequences business owners may face when their businesses fail to pay the payroll taxes they withhold from their employees’ paychecks over to the government. As we approach filing deadlines for 2011, it is imperative you to file your payroll taxes on time, correctly and with the right agency in order to ensure you don’t get penalized or put your company’s existence in jeopardy.
To help ensure processing and filing compliance, there are many payroll tax solutions available that calculate your payroll-related taxes, manage monthly or quarterly employment tax reports and handle year-end paperwork. In addition, such professional services can answer essential questions and offer education about federal, state and local tax compliance. Having the appropriate system in place can make all the difference in growing your company, maintaining compliance and being more responsive to the needs of your employees.
To help you better navigate year-end payroll processing and prepare to process payroll in the next calendar year, follow these helpful guidelines:
- Verify employee demographic data. You can be penalized for inaccurate or missing W-2s that your organization produces or fails to file.
- Check employee wage and benefits data. Make sure you have correctly withheld taxes for the value of any taxable fringe benefits.
- Ensure employee contributions, such as those made to 401(k) plans, have not exceeded IRS limits.
- Check that all state, federal and local taxes were withheld correctly.
- Run month-end for December 2011. Payroll taxes for December 2011 are due on Jan. 17, 2012
- Run quarter-end reports for the 4th quarter. Be sure to file form 941 by Jan. 31, 2012.
Below is a list of key tax changes that went into effect in 2011 that may impact your business:
- Value of health care benefits must be included. A new requirement states that businesses need to include the value of the health care benefits they provide to employees on W-2s. Although this was originally required beginning with W-2s for 2011, a one-year delay was announced in October. Employers may voluntarily report the value of health care benefits they provide on 2011 W-2s, but this will not be mandatory until the 2012 filing. The amount reported is not considered taxable income.
- Penalty for nonqualified distributions doubles. Another health care requirement stipulates that the penalty for nonqualified distributions from health savings accounts will be doubled to 20 percent.
- Penalty for improper filing increases. W-2 and 1099 penalties for failure to file correct and timely returns have increased. Penalties range from $30 – $250 per incorrect return. Employers need to file on time and file correctly to avoid issues.
While there’s no way around your obligations related to payroll taxes, by partnering with a reputable provider you can run your year-end payroll processing efficiently — avoiding costly mistakes.
Mark Strippy is Executive Director, Payroll Services at Heartland Payment Systems, Inc. (NYSE: HPY), the fifth largest payments processor in the United States. A Fortune 1000 company, Heartland delivers credit/debit/prepaid card processing, gift marketing and loyalty programs, Web-based payroll, check management and related business solutions to more than 250,000 business locations nationwide. For more information, visit HeartlandPaymentSystems.com.
Jochen Meyer has built a company from the ground up before. He was essential in helping Flabeg U.S. Solar Corp. grow from two employees to nearly 200 in less than two years. His latest venture is PMJ Service Parts Management LLC, a management consulting company that specializes in optimizing spare parts logistics.
Meyer, CEO is leading the company forward by laying out a focused and driven plan of attack for how the business operates. By staying focused and sticking to the expertise of the company, Meyer expects the company to grow globally.
“Spare parts are really an important part of business and it’s often neglected because most of the management attention is given to developing, producing and selling the original product that a company makes,” Meyer says. “The after-sales service is kind of an afterthought, although, that’s very important to customer loyalty and to the bottom line of the company.”
The company is building trust in the service parts arena by delivering what it says it will.
Smart Business spoke to Meyer about what it takes to grow a young company.
What is the biggest challenge of building a business?
The challenge is in creating your own pace and keeping everything driving. It’s actually very similar to how we started Flabeg with only two people. Now it’s kind of going back to that start-up mode that we have successfully mastered and going back to a leadership situation where you have to be very careful not to do everything, but you have to rely on yourself a lot more.
We have set our goals or sights to small to medium size companies. Those are customers that really benefit the most from what we can do. You have to believe and you have to have trust in your unique selling proposition. You have to test that a little bit before you go out there. Once you see that a lot of the people that you talk to say this is a good idea, this is something that is missing. If it’s important then you have to go with it.
Why is it helpful to have a focused business plan?
It’s important that you stay focused and do not stray and think about doing a little bit of business here and a little bit of business there, but that you stay with your goal and that you stay with what you want to do. Otherwise, you take away from getting over that initial hurdle by kind of running around it. You have to get over that hurdle to be known and to have a name out there. That is something that you cannot cut short. Focus is really what gets you there.
How do you gain customer attention?
You have to understand your customers and try to create that trust in your customers and that interest in the services you provide. We have to build a very reliable partner network. Our approach is not to do everything ourselves. Our approach is to identify what needs to get done and then have the right partners in place that we engage with to execute that part of the supply chain. Those partnerships are very vital and they have to be built on experience.
That’s an important factor where you can show to the customer that you understand what the need is and you have the exact right person to execute that and you have the management experience to manage that whole process for them and be accountable for reaching the goals that you agree upon.
It’s important to have a way how you can create that reference between what you have done in the past with these people and what you’re going to do in the future. That’s the credibility that you have to build. You have to know what you’re talking about. The people that you’re talking to are experts, so you shouldn’t promise more than you can deliver and you’ve got to listen to what their real needs are.
How do you differentiate from the competition?
I would segregate the competition in two separate areas. The one is in the peer consulting world. There are people that are focused on supply chain and logistics and there are people that as part of that also work on service parts. For them it’s a small part of their portfolio. While for us it’s the focus of what we do. That’s the difference there.
You’ve got to define your market space in a way that it’s not the same where there’s already five, six, seven, eight other people. If I would walk up to Ford Motor Company tomorrow and try to pitch against UPS, it’s probably not going to work so well. You have to understand which players are approaching what customers and where that spot is where I can fit in. Once you establish that nucleus obviously you have to grow in a number of different directions.
HOW TO REACH: PMJ Service Parts Management LLC, (412) 213-5300 or www.pmj-spm.com
I am in the process of doing a lot of remodeling and have been spending some of my free time at Lowe’s. As I was coming out of the restroom, I noticed a number of employee lockers and a big sign that read, ‘The IMPACT Model.’ I got a little closer and really concentrated on their IMPACT Model and what it meant.
I — Initiate contact
M — Make assessment
P — Provide assistance
A — Add on sales
C — Close the sale
T — Thank the customer
I really liked the IMPACT concept. I like what it stands for. Doesn’t their model work for every company?
Walking into a restaurant, retail store, stadium, dentist office, auto body shop or thousands of other businesses, don’t we all want one thing? Initiate contact? Most of the time I walk into a store, I have a question — whether it’s that I want to know if my friend that I am meeting has arrived, where I can find an item or if I need to fill out any paperwork while I wait for the doctor. Initiating contact is very critical to every business, and the quicker someone greets us, the better off we feel.
It’s very important, especially in a restaurant or retail establishment. Can I help this customer? Do we have what he or she is looking for? If not, do we have an alternative that we have that can solve this issue?
It’s a must-have for every business. All of us want our staff to provide assistance. How many times have you called a company or visited a retail store and been bounced around from one person to the next? Sound familiar? It does to me, and when it happens, I take my business elsewhere. Do you do the same thing? If so, how do you think your customers feel if it happens to them?
Add on sales
Wow, talk about creating revenue and increasing the bottom line. You have customers — what else can you sell them? What else do they need for the project? Is there anything that I can add on that I know they will need to buy? This is very critical. My cousin owns a Knockouts franchise (upscale hair salon for men), and he has developed a very creative sales process for his staff to sell hair products after his customers get their hair cut. By putting this in place he has increased revenue eight months in a row.
Close the sale
In the movie, “Glengarry Glen Ross,” Alec Baldwin makes a reference to ABC — which is, ‘always be closing.’ I will admit I may not have liked the language around what he was saying, but if you can get past that, the message is solid. You always need to be closing. Sometimes the message is soft — like when you leave the dentist office and the front office person will ask to schedule your next appointment — but any way you look at it, they are closing by setting up a future appointment, which increases revenue.
Thank the customer
Yes, yes, yes! Consumers have more choices than ever. The economy is very challenging and customers these days really want to be treated well, fairly and yes, thanked. I still make calls and send handwritten notes to first-time clients. I have heard from a number of them who said it made them feel very special that we really cared about their business. Do you have similar things in place for your customers?
How much impact does your company have?
Merrill Dubrow is President and CEO, M/A/R/C Research, located in Dallas. The company is one of the top 25 market research companies in the U.S. Merrill is a sought after speaker and has been writing a blog for more than four years. He can be reached at email@example.com or at (972) 983-0416.
One of the emotional benefits of owning or leading a business is the sense of fulfillment that comes with using your size and scale to benefit a worthy cause.
There are certainly compelling business reasons to build a corporate charitable partnership, but when doing so, be sure to keep your No. 1 goal at the helm: help the cause.
Know that the ROI will be difficult to calculate on a balance sheet. Make the choice to be OK with that, and move forward with the partnership because it is the right thing to do. Trust that the financial benefits will be felt over time.
Philosophically, no one would argue that supporting a charity is awesome, but when it comes to asking colleagues, clients and business partners to contribute their time and money, you’ll often find not everyone is leaping out of their seats at once to pitch in.
Take that in stride. Relationships are built over time. The key to building a successful charitable partnership is choosing the right cause, getting the internal team on board and encouraging consumer participation.
Choose the right cause
There are hundreds of fantastic organizations out there, but you want to pick the cause that is just right for your company. What unique goods and services can your company offer a charitable partner?
It’s important to pick an organization that can truly benefit from the level contribution that you are realistically able to provide. Oftentimes, the consumer reach that a corporate partner can offer to spread a charitable organization’s message is its most valuable asset. What assets can your business bring to the table?
The emotional connection with the cause is equally as important. Putting a face behind the fundraising inspires participation. Can the charitable organization offer a spokesperson that will resonate with your audience?
If your company is national, your charitable partner should be national. If your company has local outlets and connects with local communities, your charitable partner should have local chapters, as well, and the money that is raised local should stay local.
In other words, determine what your company is able to contribute (time, services, goods, cash, etc.), then decide what factors will be most important to the constituents you expect to support the cause.
Get the team on board
Donating to a cause means writing a big check. Creating a charitable partnership is a much bigger undertaking. First you’ll want to get your internal team on board. This means clearly communicating the details of the partnership, the attributes of the cause (once again if you have an actual spokesperson, even better) and what is expected from the members of the team. Before you can get your customers involved, you’ve got to get your team to be emotionally invested in the partnership. The best way is to lead them in a hands-on project with the organization. Reward people who take a leadership role in participating and make it a fun, team-building activity. Now it is no longer just a cause they have read about on paper, but they have actually worked with the organization and personally contributed.
Encourage consumer participation
It is no secret that consumers are attracted to brands that support a cause. According to a recent study conducted by Emory University with 1,600 Moe’s Southwest Grill consumers, seeing a charitable message at the point of purchase will increase return visits, intent to recommend, brand trust and satisfaction. It’s meaningful to get your charitable message in front of your customers. Encouraging participation connects your brand with their desire to contribute to their community. If a guest can feel that he or she has contributed simply by choosing to affiliate with your brand, then that is a win for all parties.
Moe’s Southwest Grill selected the Juvenile Diabetes Research Foundation, whose mission is to cure and treat type 1 diabetes, because we felt that it met our criteria and offered an opportunity for our corporate team, our franchise partners and our customers to get involved at a variety of levels.
When you are ready to commit to creating a charitable partnership, be fearless and jump in with both feet. Resist the urge to do an ROI analysis and keep in mind that you are making a positive impact on a nonprofit organization that needs your help. Trust that your genuine intent will resonate with both internal and external audiences, and when your bottom line feels it, too — well, that’s just an added bonus.
Paul Damico is president of Atlanta based Moe’s Southwest Grill, a fast-casual restaurant franchise with more than 400 locations nationwide. Damico has been a leader in the food service industry for longer than 20 years with companies, such as SSP America, FoodBrand LLC and Host Marriott. He can be reached at firstname.lastname@example.org.
As the flames engulfed Pitney Bowes Presort Services’ main Grand Prairie location last year, Darryl Cremer couldn’t believe what he was seeing.
“When it was obvious that the building was going down in flames and it was going to be a total disaster, I was like anybody else and was in total shock,” the vice president and general manager says. “Everything was going through my mind like, ‘What’s going to happen here; what are the next steps that we need to do?’”
While it’s most businesses’ nightmare to see their building in flames, Cremer had a disaster-preparedness plan in place. After all the employees were accounted for, he could then get down to business.
They had a second site that had phones and fax machines and copiers, so they were able to set up shop quickly even though the main facility was destroyed. They also were able to route mail to this facility so that business wasn’t completely lost. As part of their disaster plan, they had tested that facility in the past and knew it worked well.
They were also able to use the facility to congregate all of their employees and use it as a central location for communications.
“You need to lead with a positive attitude and even though things look dismal at that moment. You certainly want to keep the employees calm and knowing that you may not know exactly what you’re going to do the next moment, but that it will be all OK, and that you’re all working for the same end results — get back to business as quickly as possible,” he says.
With employees on the same page, he then had to reach out to customers and business partners to make them aware of the situation and inform them of what the company was doing so they didn’t panic if they saw it on the news.
“Another huge benefit that we had was our customer information and contacts and employee information is all online, and we could get the clients’ information,” Cremer says.
As a result, within about six hours, the company had already contacted all of its customers and business partners.
At this point, Cremer knew that the company would be fine because of all the steps they had taken. He said that the other element that allowed them to move so quickly and respond so effectively to the situation was that their corporate office had set up a culture that empowered them to make decisions themselves.
“They empowered all of us to make decisions and not have to have a single source to make every decision,” he says. “We had good marching orders, and then we were able to go and make those things happen — no questions asked. We didn’t have time to review every decision that was being made, so empowerment of your operations team is essential.”
The company opened a new location last year and is in full swing again. While they don’t think a fire could strike twice, Cremer isn’t taking any chances. There’s more communication from the top down about the plan, the company is backing up information more frequently and having more regular fire drills for employees.
“We’re actually going through, step-by-step, our disaster recovery plan again and making fine-tuned adjustments to it and taking it much more seriously,” he says. “We are testing it. … We’re actually putting more emphasis on our disaster recovery plan and making sure people are aware of it.”
How to reach: Pitney Bowes Presort Services, (972) 352-5187 or (972) 623-3700 or www.pb.com
Create a disaster plan
When Darryl Cremer watched his Pitney Bowes Presort Services building going up in flames, he was in shock and never really thought it would happen to him. But just because he didn’t think it would ever happen didn’t mean he didn’t plan for it. Because he planned, they were up and running in a different location in a matter of hours.
“You need to plan in advance and always remember that even though you might not think it, it can always happen to you,” he says.
He says that every business needs to have a disaster recovery plan, but you have to think really hard on the logistics of how that would work.
“You may think you have a good recovery plan that would work for a short-term – maybe a week or two weeks — but take a look at if you had a total disaster, how would it affect your business if you were out for months and months?”
He says you also have to make sure your records are correct and accessible.
“Ensure you have very good, up-to-date client information and your employees and vendors and anyone else that supports you in your business,” he says. “And have it stored remotely because if it burns up, it doesn’t do you any good.”
Ryan Gunnigle’s company Kids II Inc. has grown at almost 25 percent a year for the last four years.
“Just really keeping up with that growth is probably mine and the executive staff’s biggest challenge,” says the president and CEO.
With 400 employees spread out over 12 different offices, it’s quite the challenge for Gunnigle and his staff, but he manages to not let the growth eat him up.
Smart Business spoke with him about how to not let rapid growth consume your organization.
What’s the key to staying ahead of rapid growth?
There’s a lot of components to that but I think it’s strategic planning and trying to do a better job of that every year so you can lay down the plan — not a big, formalized process but really try to lay it down so it’s well thought out and you have everybody’s buy-in and everybody in the organization moving in the same direction. Continually try to do that while your organization is growing fast and changing and becoming more and more dynamic every year.
Really try to innovate and do things you haven’t done before. As you get bigger, some of that effort gets diffused sometimes, so it’s keeping in front of that.
How do you do that?
Your job as the leader is really to visualize where we want to go and a lot of components go into coming up with that overarching vision. The biggest thing is within your organization to come up with a way you can get everybody’s buy-in, and as you grow, it’s harder to put together an environment that fuels that thought process that helps you get to where you’re visualizing.
What I try to do is come up with a very simplistic way to show everybody the very basic way that helps communicate where we’re going as an organization and try to simplify that as best you can so everybody has a clear understanding of what they can do or what they need to do to be able to help the organization get there. As you grow as an organization, your top leaders’ time is consumed with everything but business-driving activity sometimes.
Honestly, it’s the infrastructure we have in place that really fuels the great people that fuel us and help us get to long-term goals. They’re the ones that really develop a lot of it. We work with them and what is their wish list and what is their paradigm-shifting activity that can propel the organization to what our top-line goals are. They’re the ones that come up with the really strategic, outside-the-box [ideas] that makes us more competitive and really fuel the team and have the environment that the teams can prosper in that way and really contribute.
Culture really starts at the top. The bottom line is you really have to give. You have to really care about your team. I think that shows to what you do in your organization.
How do you show you care?
We really strive to not have a real roll-up-your-sleeve mentality. Those kinds of things set the pace. Every year we try to improve the employees’ experience, whether it’s benefits or work atmosphere or it’s activities at the office. Keep it fun, keep it fresh. Get an environment where people really enjoy coming to work, and they’re excited about coming into the office and working for somebody who inspires them. As soon as you stop trying to get to that point, you’ve failed. That really sets the pace for the organization. I fully expect from the Kids II team as much as I expect from myself.
In evaluating employees and people, one of the quickest things that comes up to me, let’s say you have an A-player, but they just don’t fit corporately, that type of person will not succeed at Kids II. I’d rather have a B-player that cares about the business as much as or more than I do than having an incredibly smart person who’s distracted in certain areas.
How to reach: Kids II Inc., (770) 751-0442 or www.kidsii.com
A few of our cover companies were involved in mergers and acquisitions in the last few years, and one sold itself to new ownership. It’s always met with mixed reviews.
“You always get a mixed reaction,” says Phil Rykhoek of Denbury Resources. “Some people love it — the ones that are more aggressive and wanting to grow and get excited by the change. Those people love it, but a lot of employees don’t adapt to change as well, and those are the ones that will resist it.”
One of the keys to successful mergers and acquisitions is communication
“Communicate early and often,” says Jeff Markham of Merrill Lynch “You can almost overcommunicate. Make sure you’re sharing the vision, that it’s not just that there is a vision; there is a strategy behind this. When you’ve got uncertainty like that, people do want to be a part of something larger than themselves, and we’re all created that way, so they’re going to tie into that vision and strategy. Some of them will happen further down the line. Some of them will jump in there quickly. You over-communicate and begin to share capabilities and really point out the most important thing to both cultures and that is we’re a client-first organization.”
You have to communicate often, too.
“My rule of thumb if that you have to tell people 11 times before it sinks in, so we go back and check with people,” says Richard Holt of Bank of America. “Once I can hear my client managers kind of rolling [the changes] out with their broader team, then I know it’s starting to sink in.”
Sometimes it gets challenging, but that’s part of the process.
“You just have to persevere and just keep a level head and keep working the deal and not let it get emotional when problems come up,” says Tom Sanderson at Transplace, who led his company in finding new ownership. “You have to be prepared to walk away,” he says. “There were a couple of points where we said, ‘We can’t go on like this,’ and that has a way of getting people back to the table as well.”
No business is going to succeed unless it maps out exactly where it’s going and how to get there.
“Next to the right people, strategic planning is one of the most important functions you can do,” says Steve Mansfield of Methodist Health.
He says one of the keys is to include a variety of people outside your company in the process.
“Have thought leaders from your industry come and talk to your leadership,” he says. “We tend to get myopic in our focus on our own organization and our own market, and we think that’s the way the world’s running, but, in fact, there may be trends occurring outside of your market that you need to take into account for your market.
… “You may not agree with all of them, and some may not work for your market or your company, but it’s helpful to expand our horizon of thinking at the beginning of a strategic planning process. Then you take it from broad to narrow and make it work for your organization and your service area or market.”
You also need to involve the right people from inside your organization, too.
“Whoever’s going to be tasked with the primary responsibility for delivering on your plan needs to be involved in your planning process so they feel ownership in that plan,” he says.
Nancy Brown of the American Heart Association created a think-tank group to help her in generating new ideas and planning. When utilizing a group to plan, you have to be strategic in your approach.
“It can be deadly to have a random discussion that takes you nowhere, so by having strategic discussion questions framed in advance, the discussion is more focused, and the feedback is as valuable as possible,” she says.
When you’re trying to narrow ideas down, it’s important everybody is on the same page.
“Upfront, before you start the selection, make sure that you have agreed upon the criteria that you will use to focus on ideas because if not, people then will lobby for their favorite idea,” she says. “If you have objective criteria upfront — say, must reach the maximum number of people possible or must generate the maximum number of revenue possible, or whatever the criteria area — and you work through a facilitated process to narrow down the list, the likelihood of success is better because people will not focus on their pet project but rather on the things that can truly make the biggest difference.”
Change can be one of the most difficult tasks to accomplish in a business situation, but the past couple of years have meant change for almost every business. Some grew by leaps and bounds, and others had to cut back. But both scenarios have one common denominator: change.
Barry Davis led more difficult changes at Crosstex Energy. Those times call for solid leadership if you want the change to be effective.
“People want to see the confidence and see into the eyes of the guy at the top,” Davis says. “Are you demonstrating that you’re going to get through it, and do you have a plan? Are you committed or are you wavering in your commitment? There was never a wavering.”
A decade ago, Mark Cuban had to take a floundering Dallas Mavericks organization and turn it around. He was frank with his team on day one.
“I said, ‘Look, we’re speeding up, and either you’re on the train or off the train,’” he says. “’If you keep up, you stay on, if you don’t, we’ll still be friends, but you know, you’re going to fall off the train, and we’re going to figure out how to move forward without you.’”
To succeed in leading change, you have to be completely focused on what it is you want to do. The result? His organization won the NBA title last year.
“You have to go in and be very specific about what your goals are, what you’re willing to accept and what you won’t accept,” Cuban says.
Through it all, it’s important to stay upbeat because your people need that in order to buy in to change.
“People want leaders, need leaders, who are positive,” says Catherine Monson of Fastsigns. “You can be positive realistic. Positive doesn’t mean Polyanna and not seeing the reality, but your people need to believe that you see a way to get to the end result, and you have to portray that in a positive way.”
Leading in tough times
The downturn has been difficult for many businesses to continue navigating, but honesty has been the key in successfully doing that. Barry Davis had to let some employees go at Crosstex Energy.
“Be very clear and generous in the exit process, meaning the severance that you give people, the time you give them to find other jobs, to be generous in the support you give them in finding those other jobs,” Davis says. “Be quick and decisive in the process — these are things that need to be done in a short time frame and not drug out over a period of time. It needs to be as deep and as broad as you can think — don’t make multiple reductions. One time needs to get it done. Be generous, be supportive and do it in one time, and be very caring in the execution.”
He says you have to also plan out that separation process and not just go at it blindly.
“First of all, focus on the person,” he says. “It is a relationship, so you have to focus on the person. Second, be very diligent in the planning process because the execution is critical at the time, in the moment. You have to have a great plan. Then, thirdly, be real. Be a human, be transparent and be loving. That’s a word we don’t use often in business, but I think everything really comes back to that and to love the other people just like they are family.”
Catherine Monson deals with franchisees as CEO of Fastsigns. With so many people all over the country, she had to be honest with her team.
“Given an information vacuum, people will always assume the worst,” she says. “If we don’t share what’s going on, our employees are listening to the news, they’re watching the headlines, they’re picking up a newspaper, they’re talking to their friends who have been, perhaps, laid off, and in the vacuum of honest information and direct information, they’ll just assume the worst.”
Four Tips: Leadership
“You have to be brutally honest with yourself,” he says. “You can lie to yourself. You have to know what you’re good at and what you’re bad at. You can’t all of a sudden be a homerun hitter. You can’t be a dunker if you can’t dunk, right? It’s that simple. …You better figure out what you’re good at and be great at it.”
Mark Cuban, Dallas Mavericks owner and HDNet chairman, president and CEO; March
“The day you think you’re the best as you can be is a bad day for any organization because that’s the beginning of a downfall,” she says. “There’s always ways that things can be improved or reinvented, so setting that culturally as the expectation that we can always improve, we always want to do better, there’s always new and better and different ways to improve the work that we’re doing – that creates an environment where people are willing to be open about what works and what doesn’t work.”
Nancy Brown, CEO, American Heart Association; June
“A strong board is tremendously important,” he says. “You can’t underestimate that. Some CEOs like to get a board that’s sort of their cronies that will rubber stamp what they want to do and is sort of a yes, man, yes, woman type of approach, and pat them on the back and congratulate them for doing a good job. … It’s far more helpful to have a board that you can bounce ideas off of and will challenge your thinking about things,” he says. “You don’t want a board that thinks they know your business better than you know it as CEO. They can’t know your business as well as you do as CEO — you don’t want them to tell you how to run your company, but you do want them to challenge the way you’re thinking about your business and get you to think creatively and question the way you’re doing things.”
Tom Sanderson, president and CEO, Transplace; August
“You do as much research as you can and then you make a decision. Part of leadership is being willing to make a decision without having all the answers because you never can have all the answers. If you have to wait until you have all the answers, you’re just going to have analysis paralysis. Part of it is taking educated risks.”
Catherine Monson, CEO, Fastsigns International Inc.; January
Three Tips: Building a team
“You have to have the right people that care and are proactive and ask questions that go beyond what is just expected. By talking to them [in the interview], you can really feel that they would be the right person. If they ask good questions in the interview process, they’re probably going to be a questioning kind of person to begin with.”
Camille Cheney Fournier, owner and CEO, SWS Re-Distribution Co. Inc.; February
“If someone I’m with treats the wait staff in a way that’s not reflective of appropriate, respectful appreciation, I’m done. That’s all I need to see. That’s how they’re going to treat other parts of the enterprise. Maybe not their direct reports, but that’s how they’ll treat other team members.
“One of my personal theories is that no one will ever lead anyone else better than how they lead themselves, so I look to see how they’re leading their self. … If they’re doing things with vigor outside of their career, that’s a real positive. If they take personal responsibility for their physical health, that’s a real positive.”
Carlos Sepulveda, president and CEO, Interstate Batteries; October
“Initially, our ability to hire the best quality people was somewhat low because that was linked to the old quality image. Until we really started building momentum in the company and changing the image and reputation in the industry, it was difficult to hire the very best people.”
Jim Nixon, Varel International, December
Three Tips: Communication
“Good leadership is being able to explain how you’re going to kick your competition’s ass and being able to explain to everybody how they’re going to participate in doing that,” he says. “Otherwise, what are you doing there?”
Mark Cuban, Dallas Mavericks owner and HDNet chairman, president and CEO; March
“Unless you educate employees about the financial structure of your company, they assume that 98 percent of revenue flows down to the bottom and is profit,” Monson says. “It’s important to educate them about what are the cost of goods — what’s our overhead, what does it cost to turn on the lights here.”
Katherine Monson, CEO, Fastsigns International Inc.; January
“It’s one thing for everyone to state they have an open-door policy — so whenever you have an issue, come on in my office, and I’ll always be there to listen. In practice, there needs to be some more formal, regular, structure to bolster that, even if it’s a true statement that the organization’s leader has an open-door policy.”
Ken Menges, partner in charge, Dallas office, Akin Gump; September
What’s the best advice you’ve ever received?
“My father ran a butcher shop, and he worked extremely hard to provide for the eight children he had. He told me, ‘Son, your role in life is to find the gold in everyone and polish it up.’ Basically what he was saying find the good in people and don’t waste your time trying to make them perfect -- just make them as good as they can be at what they’re good at.”
-John Nixon, Varel International, December
“I’ve gotten a lot of good advice and I know I need a lot more, but the best I’ve ever received was from my father who told me a long time ago, there’s always a better way to say it. I think that advice came to me in junior high or high school. It has stuck with me because I can think of no truer words. When I think of other people occasionally who say something out of emotion or without forethought, I’m thinking, yep, there’s always a better way to say it.”
-Ken Menges, Akin Gump, September