Anthony Najem felt something was missing a few years back at the company he co-founded with Karl Meyer in 1987, and he was a little frustrated.
As Meyer Najem Corp. grew and started to change, the challenges involved in adapting along the way became more evident. Some employees weren’t real keen on adjusting to change. They were finding it hard to become more engaged just because of the demands on their workloads — those demands and work-life balances became a key issue.
“As an owner and founder, you get the pulse about what’s happening in the company,” Najem says. “What you find is that people tend to not want change. People become complacent. How do you override the feeling of, ‘Oh, I don’t want to change,’”?
On its way to reaching $62 million in annual revenue with 65 employees, the company started out in light commercial construction and found its niche in health care, institutional, biosciences and other related markets.
“Change is inherent today; it’s much more rapid, so the employees have to start to develop many more skill sets within their role in the company,” Najem says. “And the big one is open and honest communication and dialogue. Once the leaders understand what the individuals are thinking, then you have a much better opportunity to discuss those and come up with plans that will help develop those individuals so they can achieve some of their goals and realize the purpose of their contribution to the whole.
“So what happens is an awakening of how you can take everybody to the next level,” Najem says.
“We brought in some experts to help assess the qualities of the leaders and the next generation of leadership and how we could make them fully aware of their strengths and their blind spots and how they could develop as leaders and as high-performance individuals. We spent a lot of time in that process, we invested a lot of energy and we are starting to see the dividends.
“The energy now with the company is at a high level,” he says. “High performance is not achieved just out of accident. There is a lot of work that goes into being a high-performance or a best of class contractor.”
Here’s how Najem developed a process to awaken employees and key management in a collaborative effect to reach new heights.
Introduce new skill sets
You’ve probably heard it over and over — engaged employees are key to a company’s success. A positive workplace relationship between employee and employer is critical to unlocking productivity complacency. Once Najem realized that achieving positive relationships starts with an improved communication effort — which coincidentally is one of the skill sets that managers and employees often need to develop, he had a plan.
“Stress management and critical thinking are the types of skills we started to develop with our employees and their key management over the last five years because when you receive that feedback, then you have to implement things to help develop those skill sets,” Najem says. “So we instituted a process — coaching/mentoring — that starts with the ownership and works all the way through the company.
In this project, there are 23 current leaders and the next generation of leaders who meet in an environment to see what it is like to experience that part of the company culture.
“When you are sitting in a room with 23 out of 65 employees, you start to see the emerging ones,” Najem says. “But you also get to see that there are people who start to understand how important they are to the whole process and the whole success of the company.
“You may have an estimator who is quite happy being an estimator. But he may take on an outside leadership role in a strategic initiative that comes out of the strategic planning process. We will typically have three to five a year that will emerge as leaders.
The emerging leaders are assigned to those who head a company committee.
“That’s how we move forward with our challenges,” he says. “With that process, you really start to see who is stepping up, who will do whatever it takes. So we’re trying to develop a culture where everybody’s doing whatever it takes without any excuses. There are no excuses because there are so many resources they can tap to make things happen.
“We want an openness policy, which is so important, and the freedom to say, ‘I don’t know that answer. Let me find who within the company can help me with that,’” Najem says. “That’s the fun part of the business; when you create that type of an environment — everybody’s helping each other regardless of what their role or their job description is. That kind of creates a lot of fun.”
As the coaching starts to occur, communication starts to develop naturally and organically.
“Then they start communicating with everybody in the field and throughout the rest of the company,” he says. “The challenge you always have is the home office versus field office and how do you communicate. How do you keep them attuned to what’s happening in the home office? We didn’t want them to feel like they were on an island.”
Many companies practice continuous strategic planning. It’s been a part of Meyer Najem, which celebrates its 25th year this month, and has been more inclusive in the last five years as more efforts have been initiated to engage employees.
“To get people engaged and empowered, you’ve got to also include them in that planning process,” Najem says. “Then you also have to get people to develop self-awareness of who they are and what they bring to the process. Self-awareness is very critical with engagement and in receiving honest and authentic communication.
“Get them involved, get them to create dialogue where they are giving you their true assessments of the discussion so that their voices are being heard, they are being trusted, that what they say you are listening to and so forth.”
A complacency mindset among a manager or an employee indicates contentment with the status quo. In that situation, you may not push the envelope or expand your boundaries. You will just coast along.
Your goal, however, is not to be happy just coasting, but to build your self-awareness so that you feel a sense of stewardship for the company, a sense of ownership.
“How do you create the next level of leaders to understand what it’s like to be an owner, not of the company but an owner of the project?” Najem asks. “You start to develop in employees the thinking: ‘I’m not just a taskmaster. I am also a great communicator.’ ‘I’m not just a good project manager but I’m a good leader.’
“Just change the dynamics of how they think about it, how they assess a challenge and then how do they go about getting it,” he says. “It’s through more of a collaborative effort than ‘I’m on the island by myself.’ I mean, it’s an everybody’s-in-it-together-type of thing.”
The theme that Najem was hoping for was that employees are all one within the company and that it takes all of us to create success.
“I just think it is so important that people realize how important they are to the whole, and that’s how we’ve organically grown this company — to get them engaged and empowered,” he says.
If a company is showing signs of complacency, it’s time to press the “undo” button. The company probably will have unofficially developed an internal compartmental status and employees have parceled themselves into their own departments or within groups. This situation goes against the grain of teamwork and needs to be rectified.
“What we did was we broke down some walls, we tipped over some silos about how people think and how they compartmentalized themselves,” Najem says.
“I think we achieved getting everybody to think as one and how they fit into one entity, whether it’s a sheet of music or a puzzle, everybody found their place in the puzzle or in the sheet of music. It really helped everybody understand why they are important and why their voice is so critical to hear to develop success.”
At first, there was some skepticism. After all, the apple cart was being tipped over. Najem held sessions with all employees to initially deal with some skepticism, but also some enthusiasm.
“They kind of had this wait-and-see attitude, but what was really validating was that everybody was there,” Najem says. “From the owners to everybody, I mean everybody was in the room at the same time doing the same things, fully engaged, and fully committed to ensuring that there were good things to happen moving forward.
“I can honestly tell you that there was a lot of trust that came into play that allowed for some very authentic communication.”
And at that point, it is easier than you think to see if you are getting employee buy-in. Look for some subtle clues.
“When you are sitting around in a room with folks, and they start to squirm, you know they have some body language that you get from them, and then if they open up and start talking, and they are committed to participating, that’s probably one of the biggest spots of where you see if somebody is engaged or not,” Najem says.
If employees don’t feel threatened when they express their opinions, it shows trust.
“But leaders have to show up with trust,” he says. “You’ve got to show up with it because if you don’t, then you won’t get that. You won’t get that shared dialogue.
“You have to start it by communicating what are the intentions and the goals of the meeting. You’ve got to be able to communicate it effectively, and then you’ve got to create an atmosphere that allows that.
“You want to go to a neutral place where people are away from the daily grind so you almost have to condition them into allowing themselves to say, ‘I’m taking my hat off, my 8-to-5 hat, I’m coming into a leadership or another role that is going to allow me to be a contributing part to the vision of the company,” he says.
Team-building exercises are often used so employees will start to build trust, and you can mix up the varieties.
“There are all kinds of techniques to do that,” Najem says. “You can switch from go-kart racing to lighting a fire with flint and rubbing sticks together. We like to have fun. You’ll do team building through that.
“The team building process starts to allow them to start to trust. Then they start to have some dialogue that becomes authentic and less threatening. And so everybody is starting to get more comfortable with each other. You can’t just open up and say, ‘OK, this is an open forum. Give me your thoughts.’ So it’s been kind of fun watching this develop. Then you really start to see it within the hallways and offices and just the way the people communicate with each other.”
External and internal communications become even more of a greater need when change is occurring and you’ve got to get everybody to hear the same thing. Najem started quarterly company meetings for all employees as a first step. This effort regularly helps employees stay in the loop.
More and more, technology is making it easier to communicate. Companies are regularly developing intranets to get information regarding issues ranging from training to opportunities that exist within the company and with outside of the company. They are also using additional means of staying in touch with each other on the job.
“With the institution of iPads, it’s pretty amazing what you can do,” Najem says. “iChat, where you can see the person, has become a big thing in the last year.
“Trying to get everybody to stay connected has been a challenge but we are doing it through those types of means,” he says. “It’s been interesting to see how technology can help you.”
Keep them challenged
With employee engagement, there is no finish line. There’s no point when everyone is as engaged as they possibly can be and there are no new frontiers to explore. The best rule of thumb is that once you feel you have mastered it, you have to start all over.
“You have to continuously keep them challenged,” Najem says. “What happens if you don’t is that they become complacent, and tend not to be as engaged as you’d want them to be.”
New, creative teambuilding efforts have to continue, as do motivational efforts geared toward a multigenerational workforce, which is becoming more prevalent in companies today. Opportunities to discuss and air concerns should be encouraged.
“Healthy dialogue and debate is relevant to company culture because it creates possibilities,” Najem says. “When we have healthy dialogue, we have possibilities and people understand the difference, and when someone starts to argue, they get pretty much shut off. We say, ‘You were off task. Let’s get back to task. It’s important.’
“What really empowers people to do well is knowing where things lie – what’s the most important thing – so that they now have purpose,” he says. “Having purpose tends to allow them to not think so critically about the tasks. They think bigger. They think about how this is all going to result so that they can have a better work/life balance.”
How to reach: Meyer Najem Corp., (317) 577-0007 or www.meyer-najem.com
The Najem file
Born: Indianapolis. I moved to Houston after graduation from college and worked for a co-generator of power and steam. I moved back in 1987 to start in business with my partner Karl Meyer.
Education: Purdue University. I received a degree in building construction management.
What was your first job?
My first job was at the U.S. Postal Service. I was a mail sorter and a dock person. I will remember the job because it was a job I never wanted to do again. Sorting mail was not my cup of tea. But it paid well because it was a federal job. I think I was 15 and I saved enough money to buy my first car. I spent $4,200 for TR-6 Triumph. By the time I turned 16, I had my dream of buying my first sports car.
What was the best business advice you ever received?
I worked in Houston for company called Power Systems Engineering. There are many guys there who were just the best of the best. I remember when I was talking to a couple of them about starting my own business. They said to start a business when you are young because when you get older, it’s tougher to leave the career to start something new. The one thing that I can add to that is that I was told you should learn from someone else’s mistakes and then try not to make them. That was probably the more provocative, so I worked for somebody for seven years before ventured out to do my own thing.
Who do you admire in business?
I admire business leaders who balance their success with family and community. I just know that there are great leaders out there, and many of them are challenged by the daily grind of the business. And when I see individuals including myself that try to balance that, it’s not an easy deal.
What is your definition of business success?
Success comes in all forms. From the great referral letter that you receive for a job well done, to recognizing the employees on the job, to receiving the Crystal Eagle award, which we did, a validation of zero injury from your peers, to the local newspaper voting you a top work place all of the last three years — those are all validations of success. It’s not one thing. But it’s just a host of things. But what we really try to employ here is we want to exceed our client expectations. We’ve always, always instilled that into our people that client satisfaction is No. 1.
Warren Barhorst was getting into trouble at his previous job. His performance reviews weren’t commendable when it came to his interaction with other employees. But as a technical salesperson with a degree in industrial distribution, he was able to stick it out for six years, hoping for a reasonable outcome.
“I would get a performance review, and it would say, ‘Warren is intolerant of other people’s inability to get the job done,’” he says. “That made me realize I probably wasn’t going to be successful in the corporate world. If I wanted to get where I wanted to go, as a human being, I was probably going to have to build something myself.”
Barhorst turned in his notice and had an exit interview of sorts with his supervisor.
“I went to my boss who was a great mentor of mine,” he says. “I left on very good terms. I said, ‘I’m going to quit this gig and start an insurance agency.’ And the boss started laughing and said, ‘You know, Warren, there is an insurance agency on every corner.’ I laughed, and I said, “You’re right. The problem is that none of them are any good.’
At that point, Barhorst made a commitment to himself that his belief and passion would help make him an entrepreneur — and a successful leader.
“You only have to be just a little bit better than your competition, and you can start taking market share,” he says. “That was my belief then when I analyzed it and is still my belief today. My No. 1 requirement for being a leader is that you’ve got to have passion; you’ve got to have belief.”
Barhorst was more than committed; he knew that passion and belief to create a better customer experience was a winning combination.
“You can call insurance companies and they won’t answer the phone, they won’t return your phone call, they won’t give you a proposal or a quote on your insurance,” he says. “It goes on in lots of other businesses. You walk into a car dealership; sometimes it’s hard to buy a car. Nobody seems to want to serve you; no one seems to want to sell you anything.
“I think that attitude is what got me into the business. It could have been any other industry. The insurance industry just happened to present itself.”
Here’s how Barhorst inspires passion and belief in the employees of the company, which was recently rechristened Iscential.
Start with managers
While some leaders and managers may have no problem using their passion and belief to encourage employees to go the second mile, others may have difficulties. The source of the shortcomings may often lie with the manager and not the employee.
“I see it a lot of it in those who lead departments or segments of a business,” Barhorst says.
“Usually if they are struggling with something, if you go back and look at it, their fundamental challenge is their lack of passion and belief for what they’re doing. If people can’t feel passion or belief on you, or see that on you, or smell that on you, for lack of better ways to describe it, you probably can’t lead people. They won’t follow you.”
The fundamental solution is for a leader to teach employees all the tasks necessary to continue to grow the company. By doing so, a leader does not only rally employees to strive for company growth, but it also solidifies the leader’s position as one who can communicate his passion and belief.
“I think our company is no different than any other I have studied,” Barhorst says. “You start it and you run it on the power of yourself and a couple of other people, and then you realize pretty quickly that if you really want to take it somewhere, you’ve got to leverage yourself and other people. You’ve got to teach other people how to do things so that you can continue to grow the company.”
That’s the role of influence: take employees’ passion to improve and encourage their attitude to become contagious to the rest of the organization.
“What has to happen to an owner or a manager, it doesn’t matter which, once you realize that for you to be successful you have to leverage yourself to other people,” he says.
A frame of mind that includes a picture of the organization showing its outdated conceptions must be updated.
“You have to change your mindset about employees,” Barhorst says. “I know this buzzword has been around for 50 or 100 years — that we should treat employees as assets. It’s kind of a paradox because if you look at a balance sheet, or a P&L or any financial documentation for a business, the employees are always on the liability side of the ledger and a chair that you buy that gets tattered and worn out is considered an asset.”
This is a matter of retraining your thoughts that employees actually appreciate in value over time.
“An asset doesn’t depreciate in value,” Barhorst says. “A chair that you buy, the day you get it, it’s getting older and uglier; whereas an employee that you hire, if you mentor, teach, coach and train them, they actually become increasingly valuable to your company.”
Recognizing opportunities for existing employees and delegating responsibilities appropriately can go a long way toward pleasing employees who want to grow personally and professionally.
“People talk about the buzzword of employees as assets, but it starts with that fundamental mind shift. What we are talking about here is, ‘Do I understand that they are an asset to our company and that through them I can actually grow this business?’
“I think the managers and leaders that get that — those are the ones that really rock and roll. The ones that don’t, you can tell by a couple of questions about their employees and just their mindset that they’re probably not very good leaders because they look at the employees as a liability or a pain in the rear.”
Change your mindset
If you are going to value an employee as an asset rather than a liability, you need to put employees in positions to utilize their strengths, which may mean changing the company culture. Managers and leaders who value employees that way will find the team just bursts at the seams and goes forward.
One of the modifications that Barhorst made to show his commitment to employees was to change the name of his company.
“When you name it after the founder, no matter what you do, no matter how you try to build the culture, no matter how you try to make things work, it always ends up being about the founder,” he says.
His team made up the name Iscential, a play on the word “essential.”
“We didn’t want to be about Warren Barhorst the founder,” Barhorst says. “It’s really about you, you as a customer, you as an employee and you as a vendor or partner of ours. That reflection or realization for me was a big change in the way our company acts and in the way it looks. That realization made me understand how important the culture element is in a company.”
One culture that often forms on its own and should be avoided is the interruption culture. This is when the phone rings or a customer walks in the front door, and you almost hear people say, “Oh darn. There is a customer” — you are interrupting their day.
“If you don’t work on your culture, the interruption style ends up becoming the default culture in a lot of businesses,” Barhorst says. “The culture element really characterizes how to act as well as what to do with customers — or with employees or with your vendor partners.
“You see so many people talk about the one way they want to be but then you look at how they treat their employees, and you realize, ‘Well, if you’re going to live that culture, you’ve got to live that in your entire business.’ You’ve got to treat your employees, the people who are supporting you, your vendors or your partners in business and your customers all the same. You can’t have a different culture for those people, or those things, because that dismantles the effort, it’s not aligned, and the company blows up because of that.”
Most companies have a mission statement and a vision statement as well as a set of core values or behaviors as important elements of the culture. These in a way can be used as metrics.
“We kind of think of them as our measurements or our ways that we want to be,” Barhorst says. “So if you look at them in general, they are teamwork, dedication, attitude, communication, goals or objectives and respect — those are the measurement devices or the things you aspire to be. Then you build them on a foundation of a process or program.”
Use continuous learning as a tool
Customers who call wanting your help are not an interruption and a company should be thankful for them. To drive home that attitude to employees, a process called repetitive continuous learning is very useful.
“When you graduate from college, and you get into a professional environment, you really stop practicing, you really stop learning,” Barhorst says. “You might go to a training seminar, or you might go something to learn a new system for your business or whatever, but you don’t really practice. You don’t do your math tables like you did when you were in the third or fourth grade.
“Repetitive continuous learning is the practicing of the same thing over and over — you keep teaching the class over again,” he says “Over time, their proficiency, their learning, their skills grow.”
To analyze the most effective way to teach continuous learning, use a model originated by Gordon Training International about the four stages of competence:
“The first stage is what I would call ‘ignorant bliss,’” Barhorst says. “It’s what they call unconscious incompetence.”
The employee does not know how to do his task and does not recognize that it’s a problem. To move on to the next stage, the employee must acknowledge the lack of knowledge and want to learn the new skill.
“Then you can move up so you discover something and you advance to conscious incompetence, where you are unsettled about something — ‘Now I learn that I am consciously incompetent about this,’” Barhorst says.
Next, you start learning and you become consciously competent, or driven to do something.
“Then ultimately, hopefully, you get into the zone and you become unconsciously competent,” Barhorst says. “A good example is like driving a car. If you have any kids or you know someone who’s ridden in the car, they probably have the knowledge of how to drive a car but they don’t have the skill to drive the car. You have to transition that.
“When I talk about that repetitive continuous learning from a perspective of the fact that I’m in ignorant bliss and I need to be unsettled, I need to be learning every day, learning something — that’s kind of the core piece that we use or apply to the business.
“We continually teach our employees that this is the mindset that you should have. Teach them to ask themselves, ‘Maybe I don’t understand where this is coming from. Maybe I’m in ignorant bliss. Maybe I need to ask some questions. Maybe I need to get unsettled about this. Why is this important?’”
Then it’s time to reinforce the core values in respect to the measurements of where you want to be.
“We call it ‘Always say please and thank you,’” Barhorst says. “The thank-you part is pretty easy. It’s about being thankful and being gracious and thankful for the opportunity you have. The ‘please’ part involves a lot more.”
Barhorst’s PLEASE acronym is not just about selling a product, it’s about developing the person.
“P is for passion,” Barhorst says. “Are you passionate about the business, about what you are doing? If you’re not, life is too short. Go find something you are passionate about.
“The L is for learning. Are you learning something every day? You have to understand that people should learn from their mistakes and from their successes. So many of us chastise people over failure and you can’t do that.
“The first E is for enthusiasm. Are you enthusiastic? I will tell you this, of all the things that we do, this is the one you can ‘fake it until you make it.’ If you act enthusiastically, you will become enthusiastic. It really is, ‘You reap what you sow’; that’s a self-fulfilling prophecy, rooted in enthusiasm.
“The A stands for action. You’ve got to have a bias for action. A great plan poorly executed will never outperform a poor plan greatly executed. That’s all about action. Take action. Some action is better than no action in every case.
“The S stands for skills. Skills is an interesting subject because if you poll or talk to people, they believe that knowledge is what pays the bills. I know a lot of smart librarians who don’t make very much money. In order to convert your learning to a skill, you must take action. There must be physical practice, physical action to convert your knowledge to a skill. Skills are what pay the bills.
The last E is for Educating. Are you taking what you have learned and teaching other people? It could be a customer; it could be a colleague on your team. It could be a peer. It could be a vendor. It could be your child or just a friend. Are you sharing that? “PLEASE is actually a circle or a wheel and you can put whoever you want in the middle. Put the customer in the middle, you can put anything in your life in the middle. All of those concepts will apply to that situation.”
Now in its 19th year, Iscential is a $60 million company with about 100 employees and is a captive hybrid agency representing more than 50 insurance carriers
“Some employees have been here 15 years,” Barhorst says. “You can actually see when we brought people in by the length of time they are with the company. So there are two or three guys with 13, 14 or 15 years of experience.
“Then there’s a bigger group of people with 10 years of experience, and a bigger group of people with five years of experience as the company has grown. That bucket of people stays around. But the bigger thing for me was to see how people have developed, how they have changed over time, to watch them interact at a company function and see how well they like each other.”
How to reach: Iscential, (800) 582-4368 or www.iscential.com
The Barhorst File
Born: I was born in Dayton, Ohio. My father worked for Honeywell for 42 years. He grew up in the Cincinnati area, moved to Dayton in probably 1963 or ‘64. We moved to Texas in 1972, and I have lived in five houses in the same neighborhood in Texas.
College: I went to Texas A&M University and studied industrial distribution.
What was your first job?
I probably always had been an entrepreneur. I had a paper route as my first job. I had a pretty good lawn mowing business when I was 12 or 13. My first W-2 paying job was as a busboy in a restaurant called Hickory Hollow. Its claim to fame was the biggest chicken fried steak and baked potatoes in Texas. But the chicken fried steak was kind of a trick. They would take chicken fried steaks, put them on a 25-inch pizza plate together then pour the gravy over them, and it looked like just one giant steak.
What was the best business advice you ever received?
My father-in-law, Ray Highsmith, told me something. I used to worry about outside influences on our business. His advice to me was to just spend very little time worrying about those outside influences. You can’t control them, so just focus on some (that) you can control. It was great advice from him. He is a very dear friend of mine.
Who do you admire in business?
I have a lot of people who I admire; most of them are nonfiction authors because I read a lot, and I admire them because of their creativity, and thought process — that they can come up with an idea: Malcolm Gladwell; Marcus Buckingham; Larry Bossidy, who used to run Honeywell; Jon Gordon and “The Energy Bus.” I look at those people more just because the creative side of them makes me in awe of their skill sets.
What’s your definition of business success?
Happiness. Shawn Achor is an author from Waco, Texas. He went to Harvard and wrote a book called “The Happiness Advantage.” Achor says it best in his book. People try to become successful to get happy, and the reality is happiness drives success. If you’re happy, everything else doesn’t matter.
J.J. Rodeheffer says in all honesty, it is not that difficult to be a great company. All you have to think about is how you want to be treated. As part of any interaction that you would have, treat people the same way and you can build an excellent company.
You might find it difficult to argue with that since the third-party logistics company, Zipline Logistics LLC, has doubled its revenue each year over the past five years and topped revenue of $10 million in 2011. It employs 17 people.
Rodeheffer and his two partners claim their success formula is simple: focus on doing what’s right; treat your clients and customers fairly and honestly; pay your carriers on time; and value long-term business relationships over one-time business transactions.
Smart Business talked with Rodeheffer, partner at Zipline, about building a great company.
Q. With company growth comes the challenge of disseminating information and market knowledge down to the next new level of employees. What do you see as a key factor in doing that successfully?
A. Training has been something that we have taken great pride in. I don't necessarily know if we ever had the thought when we first opened Zipline that training would be one of our biggest strengths. But we realized early that we've got to pass along not only the information but the drive and the motivation, and to do that you simply just can't expect a person to pick that up.
You want hard workers, and you interview for the type of person that you want — a competitive hard-working, multitasker — but in the end, the person still has to have knowledge. In the last two years, we really have spent a significant amount of time building a training program. When we did our first training guide we thought we were way ahead of the curve. We had an 80-page booklet and about four to five weeks of classroom training. For this next class, our fourth group of trainees coming in, 80 pages have turned into a few hundred and the topics have continued to grow.
Q. Once they are trained for the job, what are the keys to keeping people motivated?
A. First, once training is up, that's not it. You have to strive really hard to further the education, whether that be logistically, and learning about your industry or what's going on out there but also within the local community from networking, to knowing the businesses that are around here, whether that be potential suppliers, learning more about your competition and what they are up to. Keeping the eye kind of straight ahead and knowing what's out there in front of you — I think has been important.
Moreover, charity group work is vital — not just a simple donation but some actual participation. That just kind of creates the awareness of where the company is now, where you are going, and I think that creates a positive attitude that comes into the day-to-day job as much as it does to the outside of the office.
Q. What are some of the keys to developing customer relationships that last?
A. I think too many companies get focused on small decisions and short-term thinking, and that leads to thinking about short-term profits. That gets in the way of developing long-term, long-standing relationships. You want to be here in the same role in five years, and 10 years, not how you are going to make your next quick buck. You have to really solidify in your customers’ minds that you have their best thoughts in mind. That could be, ‘Hey you know what? I know I quoted you $1,700 on this, but I'm only going to charge you $1,600. I found a cheaper truck, I'm still making a fair rate and I just wanted to let you know that I have your best interests in mind.’ Things like that just go a long way.
How to reach: Zipline Logistics LLC, (888) 469-4754 or www.ziplinelogistics.com
Ralph Sanese Jr. was pondering what to do with a substantial drop in revenue for his food service, vending machine and in-house cafeteria business that was started in 1946 by his father, Ralph Sanese Sr., and his uncle, Al Sanese. The drop had been a one-two punch: after Sept. 11, revenue was slipping, and then when the 2008-09 recession hit, the national vending industry dropped almost 30 percent in revenue.
The founders had accomplished a rags-to-riches dream, starting from scratch and taking the company above the $50 million mark in 50 years and — Sanese wasn’t about to give up.
“We were fortunate, our revenue only dropped about 20 percent, but still you have to manage a declining number, and it’s very difficult when you are a paternalistic organization — you’re trying to take care of people, and you have less revenue coming,” says Sanese, president of the 750-employee Sanese Services Inc.
“It was one of the toughest times, the declining revenue and all your people looking at you saying, ‘Ralph, what are you going to do about it? What do we do? What do we do?’”
Over the years, Sanese had sought help from several consultants. The results were mixed, and in one case, detrimental.
“I’ve been that route with the wrong consultants and sometimes we went the wrong way, and it cost us the worst financials that we ever had,” Sanese says. “They didn’t understand the business and what it took to really make it work, and even though we weren’t doing everything right, we were doing some things right.”
But as time went on, he was as determined as ever to get his company on the right track. He would try another set of consultants, but this time, the experience was unlike any Sanese Services had ever been through.
Here’s how Sanese vetted his next set of consultants, took the suggestions they made and parlayed the proposals into profitable results each month.
Lay the groundwork first
If a company that is several decades old doesn’t adapt to meet changes in customer tastes and preferences, it could very well suffer a decline in business or eventually go out of business, regardless of the economic climate. This time around, Sanese knew that he had to bring in an outside company to help him reconstruct and find a way to run a business model that definitely needed to be updated since its 1946 inception.
“That was difficult because we felt we knew everything about this industry,” Sanese says.
“If you need some outside help, that’s the first thing. Do you need outside help or can you internally make some changes work? A lot of times, the old rule of thumb is consultants are people that you bring in to say something to your folks, something you know you should do but what you can’t say. It has to be done. It’s the truth. Get somebody else to say It. For us that’s how that worked for some matters.
“The one thing that I did learn is that before, in my younger years, I would have said, ‘This is what we’re doing, guys, and that’s it.’ What I did this time, I brought this company in, I interviewed them and I felt good about them.”
Sanese attended a presentation a firm gave at the Conway Center for Family Business in Columbus.
“I liked what they had to say, and I got references from customers” he says.
But once bitten and twice shy, Sanese decided he would visit companies where the consultants were on the job. That way, he figured, he could see them in action and decide if the firm was a good fit and could deliver for Sanese Services.
“We actually went to this facility, and we went right into the shop floor where they were helping this company with its manufacturing processes — and I walked the floor with the owner of the company,” Sanese says. “He told me quite frankly at first he didn’t believe the consultants. But he said, ‘I am going to tell you, here’s what they did,’ and I walked the plant without the consultants, with the owner and he showed me how it was working.”
Sanese also visited a couple of other companies to make sure that the consultants had a vested interest in what that company needed — and not what they wanted to bring to it.
“I would definitely check their references, that helped us, and I would check those references to the nth degree,” he says. “That’s what we did.”
Decide on the core issues
When considering a company makeover, turnaround or whatever you want to call it, it’s best to focus on a minimum of key issues. Trying to solve too many problems the wrong way could lead to a letdown.
One of the approaches was to appoint a team of trusted employees to work with the consultants. The team members will be the go-betweens and should be able to vigorously defend their positions if they feel strongly about a particular matter.
“I brought in a team that was going to help me make it happen, and I let them go through their motions with the consultants,” Sanese says. “I brought in our people because we had been through consultants before, trying to find that silver bullet. I brought in the right people to help me execute a well laid-out plan to improve our core business.
“And once you decide that this is the right thing to do, make sure that the team embraces it and that they are going to be a part of this process and not buck the movement.”
The two teams hammered out a two-pronged approach: reducing product costs and getting delivery routes and labor costs more in line.
“Those were the key things, so you start out with a couple of key fundamentals that you want to get a handle on,” Sanese says. “We showed them what we had and they wanted to expand upon those tools with an improvement in software and managing.”
The company put together a dashboard website that provided current financial information on the company’s revenue and expenses. It was a way for employees
to get right into their own financials and understand their business division.
“They would be able to understand the key components and the key indicators of what each business division works off and how they could help to manage and navigate their own business division to make better and quicker decisions,” Sanese says.
The introduction of new technology to manage financials may come with some bumps along the road, however. There may be issues with employees not wanting to accept change and with others nervous about the openness of financial information.
“We’ve gotten better using some of the technology,” Sanese says. “Some folks had to change — they didn’t want to use technology. Some of these guys have been around for a lot of years and they didn’t want change. So you have got to go through some of those things with them. We have had to make several changes with people that had been with us for a while.
“Then you have to share the financials with every employee. We share everything so that they know how we are doing. We’re very transparent. I don’t hide anything. I just think it pays you dividends in the long run. I don’t think showing too much is a big mistake.”
Sanese found that sometimes, financial officers were not always comfortable about sharing information.
“You never want to be vulnerable to one person anymore,” he says. “What I wanted to do was to have our folks, including me, be stronger at our home company financials to understand where they can make responsibilities and make changes and make them quickly.
“Transparency is what employees want nowadays,” Sanese says. “They want to be a part of something. They want to see if they can make improvements to the organization. They want to be measured on that.”
This contrasts with some older or more conservative attitudes that in previous times, you didn’t want to share too much. You were afraid the wrong eyes would see the data.
“That’s what they did back in those days,” Sanese says. “Close to the vest. Don’t tell them everything. Don’t ask how we are doing. Your business heads had to wait for your financial people to tell them how they did.”
Build enthusiasm with successes
Many business experience seasonal problems with cash flow problems, Sanese Services included. But the company put itself on the road to a better performance by using its new dashboard reports — and other plans to increase business.
“We’ve done an analysis on each business division every week for the last 2.5 years and before, we would always lose money in January, June, July and August,” Sanese says. “Always. Not anymore. Now we consistently earn a profit, not a lot during those months, but turning a profit versus a loss is a great swing.
“So that’s what you need to do when it comes to improve each of the businesses and then your business heads don’t wait for your financial people to tell them how they did ? they already know it. They are measuring it with metrics.
“You know the old saying, ‘Measure twice, cut once’?” Sanese asks. “Well, now we are measuring a whole lot more than just twice, I can tell you that. And it’s working.”
It helped the company with everything from keeping track of product transfers from a tractor-trailer, to products being processed, ordered and shipped to the actual location and how it’s tracked.
“Our own folks got enthusiastic because they could see the differences that they were making, and they could see if their costs were shrinking, let’s pick an average of 52 percent product cost, and our goal was set at 42.5 percent — they wanted to see how they were doing toward that goal,” he says. “Then we rewarded them, and did other things for them. To this day, we have a managed cost per route and that’s how we operate this business today.”
To help keep costs down, the up-to-date financials gave a picture of what was given away or wasted.
“We have to give away a lot of product in the food service industry,” Sanese says. “But we never did know how many cases of napkins or forks, knives and spoons went out; or a gallon of gas or diesel fuel that went in the truck; or waste of product, if you are loading too much on a truck.
“So we employed the consultants’ recommendations to help us control our waste on these routes, and that was a big and important part.”
While looking at the concepts a modern business model needs to employ as compared to the traditional one if you want to increase revenue, it is valuable to stick to your core business but yet find ways to diversify.
“We knew that we needed to diversify the organization because our business was changing,” Sanese says. “Manufacturing was being hurt in Ohio. I couldn’t keep feeding the manufacturing folks; their numbers were down. I knew I had these kitchens, so I had to find a way to keep our associates working and find other places where we could distribute fresh product.”
To expand your market, finding prospects that are extensions of what you already do can be the answer.
“We got into the school business, and then we got into the senior meal-feeding business,” Sanese says. “We know that’s a growing market because there are a lot of seniors. So that’s how we diversified the business because we had a fleet of refrigerated trucks, we had certified food safety people, and we know food. If we could stick to the core business of what our company is really known for, making fresh food on somebody’s site like a big in-house café operations, then we would be OK.
“It’s a new way to do business and you don’t lose the values of what your company was founded on; it’s just the improvements matching what the industry is being called to do now.”
How to reach: Sanese Services Inc., (614) 436-1234 or www.sanese.com
The Sanese file
Born: Columbus, Ohio
Education: Franklin University. I earned a degree in business. I put myself through school. It was one of the things my father made me do: ‘If you ever want to be an officer in this corporation, you are going to have to go to college, and by the way, I am not paying for it.’
What was your first job?
I had a lawn cutting business and I had all the neighborhood yards, and I did mulching and all that. By the time I was 16, I probably had $5,000 in the bank. That was back in the early ’70s. I bought a Pontiac Firebird with that money, and I drove myself to school.
What is the best business advice you ever received?
I was always taught to hire people that were smarter than you were and that could help you to complement the skills that you did not have. I probably haven’t done a good enough job of that, but I’m still trying. I’m still trying to do that. And ask for advice. Ask for help.
Beyond that, my dad and uncle would tell me some of the greatest things in the world These are some of the principles and fundamentals with which I was raised:
Look a man in the eye and tell him exactly what you’re going to do and live by your word no matter what. You don’t need a piece of paper to tie into it. Shake a man’s hand, that’s what you mean, period. You never you give up on being an ethical, principle-driven person. No matter what, you have to always do the right thing. No matter how tough it is, you have to always do the right thing. You have to work harder than everybody else does. Lead by example — you have to do it. And always protect the entity, because it will protect you. Protect it first. Take care of it first.
Whom do you admire in business?
I loved John McConnell of Worthington Industries. Of course, he’s passed but he would be my all-time choice. Doing the right thing was at the center of everything in his life. I just think the absolute world of the man.
What’s your definition of business success?
The people in your own organization reaching heights they never thought they could obtain. And then having a company resistant to losing business and gaining new business, modest growth every year. I always wanted to be the biggest — but I don’t care about that anymore. I just want to be the very best at what we do and protect that reputation.
Jay Honsaker was very proud when his custom injection molding company met ISO 9000 standards for quality — and that the ISO auditor called Design Molded Plastics a benchmark company.
“If our people weren’t performing, we wouldn’t receive praise like that from our auditor and from our customers — it just wouldn’t happen,” says Honsaker, president and co-owner.
But the picture is even brighter. In 2011, the company had its best sales year in its 27-year history, tallying more than $20 million.
“We are 99.98 percent for on-time delivery, which in a lot of cases is unheard of,” he says. “From a quality standpoint, we’re at 5.8 Sigma overall, which is phenomenal. That comes from a lot of dedication, and that is a culture.”
Smart Business spoke with Honsaker on how building a culture of excellence is the key to such outstanding results.
Q: It sounds like you have groomed some great employees there. How was that achieved?
A: You mentioned a keyword — employees. It’s all about the employees. We’ve got four walls here and equipment inside, which is a great thing, but your employees will make you or break you. When we hire, we have stringent requirements, and we realize right away if an individual is going to maintain our culture when they start with us.
Most of our people are not here to play. We are here to work hard for our customers. We don’t carry a coffee cup in one hand and a cigarette in the other. We pay for two eyes and two hands and that’s what we expect. It really comes down to the individuals … You could tell somebody until you are blue in the face how you are and what your expectations are, but until they live it, they don’t realize how serious you are.
Once they come on board, they realize during the first week that we are pretty serious about what we proclaimed in our interview process. Then they make a decision: Do they want to live within the constraints of the organization or don’t they?
But if they feel that there is no way they could adapt to our method of doing business, then typically they exit the company. I don’t think we have to terminate; I think they realize that it’s just not a good fit for them.
Q. What advice would you give to engage employees and create a culture of excellence?
A: First off, you’ve got to have that discipline inside. If you don’t personally have it, then it’s not going to work. You actually have to demonstrate how you are and how you want things to be, and that comes from inside. You have to be driven from within to do your absolute best. If you can’t demonstrate that, then you’re not going to have followers believing in you.
Q. What are other key steps to a company culture of excellence?
A: It’s a very high level of commitment. One of the biggest challenges is to hire people that you could trust, that you could count on, that share your commitment because ultimately, who pays the bills? Your customer does. So without customers you have nothing. You could have a beautiful facility, beautiful equipment, great people, but if you’re not satisfying your customer, they’re not going to be there and you’re not going to have an income to make payroll.
So it really comes down to the fact that they have to share the commitment to the customer. That has huge value, because face it, as a president of the company I don’t hear every phone call. I don’t see every e-mail. I don’t feel customers’ responses when they are talking to one of our managers. Or even customer service, that has great value so those people have to fully appreciate the fact that your customers are paying the bills. They are the leader. They tell you what they want when they want it, and your level of discipline has to be to meet their expectations. If you don’t have that, then it can’t be trained.
How to reach: Design Molded Plastics, (330) 963-4400 or www.designmolded.com
Victoria Schneider Temple knows quite a bit about adapting. The chairman and CEO of family-owned The Schneider Corp., was reading her grandmother’s minutes — and noticed how the engineering solutions company adapted to scrape through some economic downturns.
“Back in the early days, they sold fishing maps and chopped wood to keep the doors open,” she says. “Now we find other ways — technology and such — to adapt. Everything is changing so rapidly. … It basically all comes down to your ability to adapt and your willingness to accept change.”
Temple is proud to note that accepting change as a way to foster longevity is a strong point of the 50-year-old company that tallied $14.7 million in revenue last year.
Smart Business talked with Temple about how an ability to adapt is critical to company longevity.
Q. How can your outlook help a company get through financial challenges?
A. Even though we've had a contraction in our business, I have never seen it as negative. It's an opportunity for you to go back and ask questions about how you can do things better. I do think there are going to be companies that are not going to survive the trying economic times, there are some that will and then there are going to be companies that will survive, but they are going to have no clue why; they won't have adapted like they should have when the economy turned around.
Q. So the unfortunate ones may have not asked the right questions of themselves?
A. I think you have to be able to be honest with what works and what doesn't work. If you are a leader, you need to have periods of introspection about what works and what doesn't work personally and professionally. A leadership staff has to spend time introspecting and having hard conversations about what's working and what's not. I also think you have to have the courage to understand that if you have made a wrong decision, or you've made a bad choice, you just turn around and make a different choice. You can’t be afraid to make mistakes.
Q. How do you decide what does work and what doesn’t work?
A. You have to look at the finances of it. When you are putting any type of business together, whether you are investing in new technology or investing in a new person, you have to look at what you are trying to get out of that. You need to put together a business plan, you need to have milestones, you need to know if you are hitting those milestones. If you are not hitting those milestones, you need to know why and you need to make decisions — is this worth the risk of going forward if you are not meeting your milestones? Or is it just something that you just have to decide, ‘Hey — I made a mistake, and we need to go in a different direction.’
I think a lot of it is really just about putting a plan together and sticking to the plan, and if you aren't going to stick to the plan, you have to have very clear reasons why you're not. A lot of that is just holding your leadership accountable.
Q. What goes into determining milestones?
A: In a challenging environment like this, you need to look at things quarterly. So if you are going to invest in something, like a specific piece of equipment or if you make a new hire to sell a new service, at what stage is your break-even point? At what point is it acceptable? And how fast can you become profitable in a specific area?
So when you keep longevity in the back of your mind, you know that there are hard decisions that have to be made along the way. What makes it worthwhile is knowing that the longevity of the company and the survival of the company for employees is the most important thing.
How to reach: The Schneider Corp., (317) 826-7100 or www.schneidercorp.com
When Jamie Merisotis became president and CEO of the Lumina Foundation a few years ago, he realized that even one of the largest private not-for-profit foundations in America couldn’t rest on its past successes or its $1.2 billion endowment.
“The foundation was doing very good work in the area of higher education, but with the levels of assets that we had, we have to aim even higher than just doing good work and making a small contribution,” he says.
Setting a goal and mapping out the strategy needed to achieve it became his assignment. Merisotis had majored in political science in college. He had spent much of his adult life in Washington, D.C., where he worked in the policy context, so he felt he had the tools and experience to make it happen.
“I wanted to figure out if we could exercise our leadership, that is, be responsible in our leadership by actually aiming at much bigger societal needs and goals,” he says.
Merisotis knew his best shot was to take several measures that were very much like those any for-profit company would take. It was about being clear with your goals and very clear with the strategies you are going to pursue to help achieve them.
The Lumina Foundation’s goal was a noble one — get more people to go to college or obtain certification beyond high school.
“Four years later now, after we begun our mission, we feel like we have had some influence on that,” Merisotis says. “President Obama has set a goal for the country, and many states are attempting to dramatically improve their higher education systems. A lot of the specific strategies that we are pursuing in our work such as helping colleges and universities to become more productive, helping adults getting college degrees because the significant issue of adult retraining and worker retraining are very apparent in the sort of economic crisis that we have been facing.
“So in those kinds of things, we feel like we have made some progress. It’s certainly not all successes, but we feel like we’re on the right path to set the table to build a new higher education system.”
Here’s how Merisotis went about analyzing and setting his goals and developing the strategies to achieve them for the foundation, whose only source of revenue is investments — that hopefully will top its $55 million to $60 million annual operating budget.
Ask two basic questions
For any organization, it does not have to be a difficult task to set goals. To simplify the process, it is a matter of looking at the mission and answering two questions.
“One: What does the market need?” Merisotis asks. “Two: What are your competitors doing?”
To find out what the market needs, the approach not surprisingly is to undertake traditional market investigation.
“Do the market research,” he says. “You’ll get a sense of what is happening in other parts of the world and a feeling for where is this demand going to come from for your product.”
Commission some people to do the work along with your own research and work as a leadership team together. Prepare to spend a lot of time on the analytics.
“We had a whole staff involvement on the input side,” Merisotis says. “We made decisions about how to define the plan, set the goal and then we developed the plan.
“In our case, the goal was to set a figure for the nation as to the portion of Americans who should have high-quality college degrees, or even some form of training, some certificate, etc.,” he says. “We set the goal at 60 percent by the year 2025. We are currently at about 40 percent right now. The research showed the market needs a lot more people with college degrees, because that’s where the jobs are.”
Once you have established what the market needs, it’s time to study who your competitors are and what they are doing. You should be able to identify them easily and quantify their production efforts.
“We concluded that our competitors are other countries and many of our competitors around the world are actually doing better than we are in the United States,” Merisotis says. “We are about 15th in the world in the proportion of 25 to 34-year-olds who have college degrees. So we set the goal based on that, and then we started architecting what we needed to do to be able to reach that goal.”
Design your strategies
Clarity in your strategies to meet goals is essential to a successful outcome. It’s not an easy task, and it’s considerably more involved than setting a goal. You have to have vision and an understanding of your strengths in order to formulate effective strategies.
“If you’re a manufacturing firm, a financial services firm or you’re an entity that works in some other sphere, such as insurance or what have you, there are certain strategies that you have to select that you think are going to help you get to those goals,” Merisotis says.
“In other words, you can’t have a generic approach and say, ‘Well, we’ll throw a bunch of stuff against the wall and we’ll see what sticks.’ You have to architect your way through it with specific questions.”
The first question is, “What are we good at?” It’s sort of old-fashioned business advice — be very good at something so that you can excel, you can stand out in the field. But it forces you to think in a narrow manner.
“It’s extremely important that you not try to do everything, that you become very focused and specialized in terms of where your expertise is,” Merisotis says. “That’s not market niche; that’s about capacity, your ability to deliver and so on.”
The focus may be exceptional customer service, innovative products, an outstanding employee culture or flexibility in adapting to changing demands. Find your strength. Define it in the simplest manner.
The next question is, “Where can we get the highest return?”
To answer this question, you have to look at the numbers for the figures that stand out, but you also have to be willing to pass judgment on what is not really giving you the results you need.
“I think that the right return on the investment is really a question to ensure that you don’t keep investing in things that don’t have a payoff,” Merisotis says. “You may have a really good idea, and your really good idea may not pay off. You know throwing good money after bad is not a really good idea, and it’s hard to change directions; it’s hard to switch gears and move into something else.”
Some good ideas sound great on paper but turn out to be not marketable. And beware of legacy investments — just because you may have always done something a certain way doesn’t mean it can’t be changed or discontinued.
“Just because you have a good idea doesn’t mean it’s going to be successful,” he says. “It’s part of the reason why metrics are so important. You will have to be able to hold yourself to standards to say, are we doing what we said we wanted to do? And if we aren’t, we either have to do better at it, or we need to abandon it and try something else.”
The final question is, “Where can we add value?”
“Use the example of iPhones and iPads,” Merisotis says.
Apple figured out what it can be really good at in a specific market niche. The leaders reinvented this idea of personal communication devices by the fact that they developed an application-driven approach for the devices.
“It doesn’t mean that the iPhone is a great telephone. It doesn’t mean that the iPhone is necessarily good at certain subtasks, etc., but they figured out a specialization where they are really adding value. In the case of the iPhone, it’s adding value to the quality of life of the people who are using it. They are literally adding value from a personal perspective, from a business perspective, from a productivity perspective, etc.
“But it’s being clear about where you are going to add value,” he says. “Develop ways to measure progress: They can help you set your own direction on how much value you want to add. That’s another question — being realistic about how much value you think you really can add. If you are developing a new drug, what’s that drug going to solve in terms of the physical or other challenge that that person is facing? Being very specific about that I think is really important because you are adding value.”
To be clear about the values that you represent is just as important as the actual investment you make in marketing and communications.
“Part of communicating the message is the value that you project,” Merisotis says. “In other words, the image of the company can be as important as the marketing that you put into it. Go back to the Apple example. The image of Apple is really that ‘Think different’ philosophy of Steve Jobs. That image has helped to be as important of a communication tool as the cool TV ads.”
Get the pulse with specific metrics
Metrics are indicators. They are markers to help you figure out whether or not the execution of your strategies is actually working. They are the next matter to figure out once strategies have been decided.
“You have to develop your standards and your specific metric to ask, ‘Are the strategies working?’” he says. “What are our sales goals? What are our goals in terms of quality improvement? Whatever the unit of analysis is, the point is using metrics to drive the development and execution of the strategies is very, very important.”
As the phrase “less is more” originally applied to minimalist art and design, the phrase “simpler is better” goes hand-in-hand with metrics.
“Simple is always better,” Merisotis says. “The reality of that is what you want to do is to use the metrics as indicators and not as a way of defining the universe. In other words, see them as markers on the pathway to success, not as literally the only thing you’re trying to achieve.
“That totality has got to be those goals as they are being executed to the strategies. So the metrics should be limited, they should be focused and they should be revisited often.
“They really need to be reconsidered as you learn,” he says. “It’s a learning process as you go along as you learn what you are doing well and what you’re not doing well. If you’re not achieving what you thought you were going to achieve, it may be time to change the strategies and determine some new metrics.
At that point, you have two pathways: either to continue and decide that you need to do better or decide that maybe it’s not worth it – maybe that strategy is not worth pursuing. “Maybe it’s, ‘Let’s abandon that and pursue a different strategy or pursue a smaller number of strategies,’” Merisotis says. “To me, that is really a question of you can’t do everything if you are a player in a market niche.”
How to reach: Lumina Foundation, (317) 951-5300, or www.luminafoundation.org
President and CEO
The Merisotis file
Born: I was born in Manchester, Conn., which is just outside of Hartford, so I am a New England native. They call people from Connecticut ‘people from Connecticut.’ It’s a funny thing — coming to a place like Indiana, which I love living in, I sort of find the word ‘Hoosiers’ cute, but in a way that I value. It’s sort of a funny word but I get it. It’s not Indi-an-ers, it’s something better than that. I like it. It’s creative.
Education: I am a graduate of Bates College in Maine. I studied political science in college. I am a first generation college graduate; my family was of very limited means, a working-class family.
What was your first job?
I started delivering newspapers when I was 10 years old. I picked tobacco when I was 14. I was very industrious as a young kid. In high school I worked three jobs. After graduating from college, I moved to Washington, D.C., where I spent a lot of my adult life and worked in the policy context. I was essentially a researcher, an analyst of policy.
What was the best business advice that you ever received?
Make sure whatever you are doing ultimately contributes to something bigger than just that company or that enterprise. Don’t just work for the money, don’t just work for shareholder value, don’t just work for return for that entity — work for something bigger. If you work for something bigger, you will actually be motivated and you will do well by that company, but if it’s only about eternally driven motivation, you’re probably not going to be as successful. That was very good advice. It was from early in my career so it stuck with me for a long time.
Who in business do you most admire?
On a certain level, it is Warren Buffett, probably because he has cut his own path, and I admire the way that he’s done that, but I tend not to look at single people and say I wish I could be that person. I admire things about various people. To give you an example of somebody from our community, John Lechleiter, president and CEO of Eli Lilly and Co. is someone whom I really admire because he is a very successful scientist, someone who is a real expert in his field, and who became a great business leader. That’s really admirable. There are people like that who I admire for different reasons.
What is your definition of business success?
Achieving your goal. I think that’s it. Being very specific about what your goals are and then achieving them. That’s what every business should be about.
When Dr. Paul Klotman took over in 2010 as president and CEO of Baylor College of Medicine, the school had been losing up to $70 million a year — for the previous five to six years. The financial books were not a pretty sight.
A previous conflict had developed between Baylor and one of its hospital affiliates and a different pathway was chosen for the two. Unfortunately, it cost Baylor about $40 million a year.
“It was not huge in size as part of a $1.5 billion revenue stream, but it was a fair amount,” Klotman says. “We had a new financial challenge that presented itself, and because we were in the process of building some facilities right before the housing market burst, we had a significant problem with debt service and negative cash flows.”
But Klotman was ready to jump into the challenge for which he had been hired. He was no stranger to turnarounds. He had been involved in a major financial about-face at the Mount Sinai School of Medicine in New York as the chair of the Samuel Bronfman Department of Medicine. He moved the department to a top-tier academic program by expanding the faculty practice, increasing basic and clinical research revenue and focusing on the educational mission.
“I felt very comfortable in what had to be done,” Klotman says. “Taking the job was actually easy, because Baylor is such a fabulous organization and all the fundamentals were extremely solid. It was just an issue of dealing with the budgetary deficit and turning around the institution’s financial operational deficit.
“I had been at a Veterans Administration hospital, I was a federal employee at the National Institutes of Health for years as a scientist, I was at Duke University in the private sector, and I was at Mount Sinai in a very competitive clinical world, so it helped to have those experiences. I have to say as difficult as the situation was, there was very little that surprised me.”
Klotman set out on a path to initiate new processes to let the faculty do its own thing by following some traditional business principles — such as managing its budgets.
“It’s not rocket science, but it is surprising that it is not that common in academic organizations to worry about your margin, your expenses and making sure you’re maximizing your revenue,” he says.
“When I first came in, we focused on doing just that. We created zero-based budgeting that was all mission-based. In a very short time, within two years, we went from a $70 million deficit on an annual basis to where we are basically cash positive.”
It wasn’t just a matter of spreadsheets and figures. A change in culture from varying processes to one with solid business principles is an unsettling process, and is indeed sometimes not undertaken because it is so disquieting.
“I think one of the hardest parts is gaining leadership’s support of converting to the business sentiments,” Klotman says. “All of the leaders were supportive. All of them were willing to give it a shot. We would never have turned it around as quickly as we had if it weren’t for the leadership of the chairs, the senate directors and the faculty.”
Here are Klotman’s keys to stem the bleeding at Baylor and engage the leadership in new types of financial management.
Face the situation
One of the things that a crisis does is that it gets every employee’s attention. Once the stark news is delivered, the workforce should be able to know and understand the financial realities.
“The crisis allowed us to change the budget process at a time when it otherwise might not have been very accepted,” Klotman says.
Unfortunately, keeping the status quo is not an option. There is going to be change.
“When the boat has to go in one direction you’ve got to have everyone rowing in the same direction,” he says.
Some organizations may call in a consulting firm to dissect the financial and management processes and it can be beneficial. In other cases, the analysis by an outside group is just that – an outsider’s look at internal problems.
“Before I arrived, a consulting firm had been there, and I would say the faculty and leadership were probably not as responsive to the consultancy, because the consultants didn’t have any of the same experiences,” Klotman says. “You could see the cultural rift. When I first arrived and saw the interaction with the consulting group, which actually did a fine job in getting us in the right direction, you could see the disconnect between faculty and leadership and the consulting group, because they did not speak the same language.”
The most important action to take as the first step in the cultural makeover is to be transparent in all the processes.
“Show the data,” Klotman says. “If you show them the information, there are not a lot of arguments that you can have about your situation. If you’re not transparent about it, it’s very easy to blame everybody else. But if you just are transparent with the data, it’s simple to establish accountability.”
But transparency is something that is very hard to get if your data is disorganized. If it lacks uniformity and completeness, it is crucial to get the data in order.
“Getting transparency may be complicated, because there may be a lot of dollar movement from one bucket to another bucket,” he says. “Part of it is where you assign expenses to the right unit — making sure that you are allocating expenses correctly, and that you are attributing revenues to the right sources. Otherwise you can’t make good decisions.
“Part of our first year was cleaning up that kind of data — and we still have issues with it today.”
The better and more accurate the data is, the better you will be able to manage your financial situation. It may take a year to get the data to the point so that you can provide accurate information about your mission – so accurate utilization of data is needed about billing and collections, efficiency processes, revenue, expenses, space density, etc.
“There are hundreds of metrics that you can do,” Klotman says. “Once we collated all the data, we were able to create a report that all the leaders get. Have your financial people help them interpret that, then get together quarterly and review it together. It’s something we call Numbers Day.”
Holding a Numbers Day is an effective way to review your mission-based budget. Any department or division of a business should earn its operational budget based on its performance the year before.
“Everybody gets to see all the data, including where everyone sits financially so it’s completely transparent,” Klotman says. “If there are disagreements about the data, discuss it. It’s an iterative process so they can ask questions about it; you can make sure that it’s accurate.
“But the main thing is that it provides the leaders with management tools so they can then break it down by department or mission base, look at their own business unit and see how they can improve it.”
This is an obvious key factor in driving improvements. If you measure processes and performances and show your managers, they will have the tool to improve matters.
“If you do it in a way that everyone sees the data, then it is hard to really argue with,” Klotman says. “That’s why it’s an iterative process. You need to have that public forum where people can discuss it.
“It also helps to unify everyone with the understanding, ‘Well, these are the things that are important to executive leadership because they are measuring them.’”
Most of the leaders should be happy to have the data. Initially there may be some arguing about its validity. Ultimately, it provides them with management tools — and it also helps C-level executives understand who can manage, because some of them use the data very well and improve their operations and others just won’t get it.
“You can see that in the long run you may have a certain number of leaders that probably have to be replaced,” Klotman says. “The point is that you are giving them tools to use. There should be no one who really objects to the data.”
Communicate and get feedback
You’ve heard it over and over. Communication is critical for success in any organization and even more so in large ones. The most effective approach lies in the old adages that one size does not fit all and the more, the better.
“You will need to focus on your internal communications to reach more people,” Klotman said. “We had certain levels of publications before, but we created a whole new set of ways to communicate internally from hard copy to Web-based publications.”
He also used town hall meetings where he regularly met with groups and held small staff meetings.
Despite all those things, you still may have issues with communication because each form of communication only hits a certain population.
“We will have a town hall meeting where we are thrilled because 200 people show up,” he says. “Well, we have 7,500 employees. So we have to find multiple ways to constantly say the same thing and get the message out. Of all the things that you will face, I think communication remains one of the biggest challenges.”
In addition to finding other communication routes, you can create feedback committees to represent departments or specialties.
“You can do this through input committees; we have those that represent clinicians, researchers and even students,” Klotman says. “We combine in a council so we can get feedback from the various constituencies and that helps inform us of the kinds of communications that we have to give back to them.
“One of the great things that our director of communications has been able to get members to do is to come with both positive and negative statements about the institution so it never turns into just a complaining session.”
This is extremely helpful in figuring out the things your organization does well in addition to the things you do poorly.
“You’ll get both the benefit of knowing you should continue to do certain things because they are working, and you’ll learn what things aren’t working well so you can begin to focus on them,” Klotman says.
“But you can’t fix things unless you get feedback about the problems, and if you look at the most highly functioning organizations, they almost always have a very robust feedback system where line employees, people on the ground and the rest, can send feedback to you about problems.
“We’ve received individual complaints from staff across our organization where I would say that 95 percent of the time we immediately fixed the problem,” he says. “We’ve had things like the glare in a window where all we had to do was install a shade.
“These are the things that if you create a culture where people feel that they can give you feedback, then you can actually improve things much more dramatically than if everyone was waiting around for a CEO to fix a broken lock.
“You want people to actually give you legitimate feedback about things that are broken and the processes that don’t work, as long as they understand there are some things that you can fix and some things you really can’t.”
Your employees should understand there is no risk in reporting a problem, that there’s no punishment for saying something is broken.
“My favorite example is the aircraft carriers of the world that function with 19-year-olds in the most dangerous, high-risk places where they have almost no accidents,” Klotman says. “We are in health care and education, and every day, we screw up about 100 things, so we ought to be able to do something better. Part of the difference is the culture in the aircraft carrier: everybody reports a problem.”
Give merit rewards
While a new management system and better ways to communicate will go far in helping an organization begin to turn around, a rewards system will help it even further. With the new data available, metrics can be established to ensure that goals are being met.
“You take your leaders and based on their ability to manage their margin and the mission values that you have, allow them to pick a few metrics that they think are important in their own particular area so they can earn bonuses based on that,” Klotman says.
You can implement this as far down the labor ladder as you want, the lower, the better.
“Once again, this is to get them in line with upper management,” he says. “That way it’s a self-correcting ship. Middle management is really important in great companies, and you need middle management to be active managers to make sure they are going in the direction that you want.”
Give your employees 10 things that you want to have happen, and say, “You pick your four, and we will measure you on those.”
“There is one collective goal: The organization as a whole has to be on a positive margin for you to bonus the leaders,” Klotman says. “People earn their budgets and they earn their salaries. If you’re on margin, and if the departments are on margin, then there will be bonuses available based on producing results that are a combination of ones the CEO picked and ones they have picked.
“As I mentioned before, one of the keys is having things that you can measure. Make sure that you create metrics that can show whether you are getting better or you aren’t.”
How to reach: Baylor College of Medicine, (713) 798-4951 or www.bcm.edu
Paul Klotman, M.D.
President and CEO
Baylor College of Medicine
The Klotman file
Born: I was born and raised in Cleveland, Ohio. My father’s from Cleveland. My mother was born and raised in Galveston, Texas. I went to Western Reserve Academy in Hudson, Ohio.
Education: University of Michigan. I studied zoology and entomology. I went to medical school at Indiana University. You may wonder, I followed my parents — and got in-state tuition wherever I went. I also trained at Duke University Medical Center.
What was your first job?
I was folding pants as a 16-year-old in downtown Detroit. It was a very popular African-American suit store. I also was a day camp counselor there during the 1960s’ race riots. I was right there, and it was actually a wonderful experience. They never touched my car — I was providing a service to the community.
Who do you admire most in the business world?
There are a couple of people that I think are really interesting. One is Tom Kaplan, who I met in New York and who founded Panthera Corp. He’s probably the biggest leader in the gold movement. I’ve gotten to know him personally, and he is just a really remarkable person. The other person that I admire greatly is Norbert Bischofberger, who is the number two person at Gilead Sciences Inc. Of all the people I’ve met, he’s one of the few people who just cares about understanding everything he can to make a difference to help people.
What was the best business advice you’ve ever received?
I know it seems silly but the importance of cash. The CFO at my old organization was really, really talented, and had a huge role in turning around the old hospital focusing on the details of your cash position.
What is your definition of business success?
I view my role in every place I’ve been as a steward of the program, and I think your success is if you leave the place better than when you came. That’s not a measure of personal success; it’s not a measure for a for-profit company but for a not-for-profit organization. I think there is a level of stewardship that is greater than in other areas, and I think that your responsibility is to improve the institution.
When he launched the electronic recycling business e-Cycle, Christopher Irion was confronted with how to continue triple-digit growth while building a best-in-class culture for the company. Seven years later, that’s still his major challenge.
“I feel blessed that we can grow over 100 percent per year, but as opportunistic as growth is, it's also a big challenge for us.”
Irion realized that the solution was to find the right infrastructure.
“One part is getting a management structure in place to support growth,” says Irion, CEO. “As an example, when we had one account manager who reported up to me, it worked fine. But now we have 85 employees, so we have more supervisors. So putting the right management structure in place to allow for growth was key.”
Smart Business talked with Irion about finding the passion and the right people to overcome growing pains.
Q. What are some of the steps in managing growth? How far do you look ahead?
A. From a managing standpoint, you need to look six to 12 months out in addressing growth issues. So knowing that you may have triple digit-growth again next year, you know that based upon that, you are going to be getting — in our instance — more than 20,000 to 30,000 phones on a daily basis. You need to start putting the infrastructure, the people, the processes in place today in order to not get bogged down knowing what is coming ahead.
Q. So you add more supervisors and processes to deal with growth, but how do you find employees who can deal with it too?
A. You have to constantly recruit. In the interviewing process, the way you look at it is you are not interviewing a prospective employee. It's a 50-50 equation. They are interviewing you as much as you are interviewing them. So when you sit down and recruit employees, you are not looking at it like it is just a decision to bring them onboard. You communicate this as you tell them that to be a good cultural fit, you want them to ask you just as many interviewing questions about what you do and why they should come work for you as you ask of them why you would want to bring them onboard.
So with that, you determine that for any employee-employer relationship to work out well, expectations need to be set and prospective employees need to understand what your goals are and what your culture is, and this is the type of place that is a mutual fit for both parties.
Q. Is there an essential attribute that a company founder needs to have when building a company?
A. When you are first starting a company, you're not sure if it's even going to get off the ground, or you may be working until 2 a.m. every night, because there's only one or two of you who are even at the company. And you're wondering a year down the road whether you can make payroll or not, or how you're even going to find your first client.
It's that passion and that love you have for what you do that is going to get you through the founding of the company. When you are sitting in front of your first prospective client, they are going to see that passion in your heart and in your eyes, and you're probably going to win them over, because if you are as passionate about what you're trying to accomplish, then that passion is not only going to spill over to your clients, but it is going to help you recruit people to join your company and share with that passion you are trying to accomplish.
When you hire someone, the training is all around who you are, what you do and what your belief system is — what are your core values of the company. First and foremost — and every company says this but I don't essentially think it's true all the time — always do what's in your client’s best interests and build that within your culture.
How to reach: e-Cycle, (877) 215-5255 or www.e-cycle.com
Ron Calhoun was planning to discuss plans for his company’s 100th birthday back in 2006 when the discussion with the board of directors took on a more serious note. After the birthday plans were nailed down, it was time to talk about the future ownership of the wholesale distributor of residential building supplies and HVAC equipment.
The second generations of three families owned the company that was founded in 1907, but no third generation descendants had an active role in the business.
“We were looking to dilute the stock down to the third generation,” says Calhoun, president and COO of Palmer-Donavin Manufacturing Co.
That was not the best scenario for continuation of the company — it made it too likely that the company would dissolve.
Palmer-Donavin was doing well enough. Revenue for 2011 was $163 million, down a bit from a high of $174 million previously, and better than 2010’s $147 million. About 230 are employed company-wide.
Calhoun got to thinking and remarked on how much his predecessor, Bob Woodward Sr., put an employee focus on the company during his 60 years with the company.
“The culture of our company is very much an employee-oriented culture that he developed through his policies and compassion for the business and people,” he says.
“We talked about where a company goes. Do you go to a private equity firm? Do you go to a strategic buyer, and then what happens to the company, what happens to the management and the people?
“I think from our ownership and board perspective, they wanted to maintain the integrity of the company and the people, and felt an obligation to management and the people to see that the company could go forward.”
The proposal that was the best fit was an employee stock ownership plan. It would be a way to give back to the people who helped build the company. After talking to a number of people in the industry who had taken their companies in an ESOP direction, it was time to decide.
The leadership settled on the ESOP as a succession plan for Palmer-Donavin. The company was sold in 2007 to the ESOP and went from being 100 percent shareholder-owned to 100 percent ESOP-owned private company.
“It’s been interesting along the way, and because of our past, I think we transitioned into it very well, and we got everyone’s goals aligned,” Calhoun says. “We have been very successful since.”
But just because the papers had been signed doesn’t mean the work is over. Here’s how Calhoun faced the challenges ahead of him.
Make the ESOP fit
From the perspective of a company’s vendors and customers, the transition to an ESOP is virtually invisible. But from the board of directors and managerial areas, it is quite a bit different.
ESOPs are rarely used to rescue a company in financial trouble but are most often used to provide a market for the shares of departing owners of companies, to reward and motivate employees or to take advantage of loan incentives to acquire new assets in pretax dollars. ESOPs, in nearly every case, are a contribution to the employee, not an employee purchase.
In preparation for the transition, company owners usually will need to hire an attorney and an investment banker to appraise the company, set a value on its shares, put together a share allocation schedule and arrange financing if needed.
Once the Palmer-Donavin board of directors voted to go the ESOP route, one of the next steps was to hire a trustee who would represent the employee-owners when voting.
“She represents the ESOP employee owners,” Calhoun says. “She votes their stock and is completely independent of the board, so she provides a true independence in the association of the employee owners of the company.”
When selecting a trustee, it is a matter of hiring a pro. Through the process of interviewing, you should be able to find a professional trustee to meet your needs. Then take him or her through a meet-and-greet process.
“You should go around with your trustee and your chairman of the board to employee meetings to tell them about the changes that are coming — and that the decision was made to sell the company,” Calhoun says.
An administrative committee should be formed that is responsible for the management of the ESOP and the shares. They will work closely with the trustee and keep the trustee informed of business concerns. They work together as far as share redemptions and things of that nature and any reporting that is necessary.
Most important of all, the trustee votes for the shareholders and attends the annual meeting of the board of trustees. This is one of the major points employees will need to know.
“The trustee votes on matters on behalf of the employees; for instance, the trustee would vote for the election of directors representing the employees,” Calhoun says. “The trustee votes if there is a decision to sell a majority of the assets of the company or a major event.”
The Department of Labor and the Internal Revenue Service require an annual valuation of the shares and the trustee hires a third-party evaluation team to perform this duty.
The most common method to allocate the shares to employees is in proportion to their compensation, although different formulas may be used, such as years of service or a combination of the two.
Another question to be answered is when the employee becomes vested in his or her shares.
“What we did — that the trustee and our attorney said we should not do but we felt that going through this transition we should — is that we gave pre-ESOP vesting to all employees so the vesting period on the ESOP is six years,” Calhoun says. “They recommended that we take that and have every employee start over at the time we implemented the ESOP, and we just didn’t feel good about that, and we allowed them their previous time with company to vest. So if they were with us six or more years, their ESOP shares vested at 100 percent when they received them.”
The company leadership wanted to continue the tradition of being an employee-friendly organization.
“The culture of our company has been an employee-oriented one,” he says. “Bob Woodard had what we called an appreciation plan. If the company was profitable, all of a sudden all of the employees would get an extra week’s pay or a bonus would show up in their paycheck, and they didn’t know when it was coming. It was just kind of random.
“Now with the ESOP contribution, shares get distributed every year. It is really kind of based on the same thing — shared distribution is based on each individual’s income level but done on a regular basis.”
Educate the employees
One of the largest benefits of an ESOP is the ownership culture and the pride that the employees take in being employee-owners. While some employees will feel the honor right away or early in the transition process, others may be doubtful of the benefits and will need time and attention to work it all out.
“The challenge for the company is how you educate the employees to understand what the ESOP is,” Calhoun says. “It is a very difficult concept for everyone to grasp, so we spent a lot of time on it.”
One useful tool is a communications committee that will take on the assignment to tell employees on a regular basis what is happening with the company and the ESOP.
“We publish what we call The Owners’ Manual every quarter,” Calhoun says. “It talks about the different aspects of the business and different educational pieces that we put in there to help the employees understand better what’s going on with the company, what’s going on with their investment in the ESOP and the business strategy.”
The first message to be communicated is that the biggest advantage of an ESOP is that it will offer employees the chance to create the ownership culture of everyone in the organization.
A communication tool that Calhoun found helpful was to set up a company intranet site to encourage questions from employees about the ESOP. These are posted on the site with a response, usually from the human resources department or someone else in the organization that has more expertise in an area.
“I think there were a lot of people who were very nervous about it, that were skeptical. But I think hopefully those concerns have been satisfied over time,” Calhoun says.
“It’s a learning process. As far as each year when we have to go through like the redemption of stocks for people leaving, those types of things get a little cumbersome and you want to make sure that you do that through the right process. It’s very regulated.”
When employees leave the company, they receive their stock, which the company has to buy back from them at its fair market value.
Efforts to spread the word about the ESOP should be frequent and creative.
“You can do different things such as lunch with the CFO, to small individual meetings, to having an ESOP committee, which is made up of employees from all the different areas and sections of the business,” Calhoun says. “They meet at least on a quarterly basis. They are charged with doing some things to bring an awareness, and ownership awareness among the employees. They have come up with some different types of games and things that can be used at company picnics or all-employee meetings that help communicate the message.”
Increase your company value
For a company going through a recession, having an ESOP adds a whole new dimension and a new tool to operate the business.
“Our business went down from a high of $174 million before the downturn to $147 million, and during that time we had 320 employees; we are down today to 233,” Calhoun says. “Many of those changes were just through attrition, but we did have everyone look at their departments and evaluate what are the tasks that we need to do, and what can we do to improve ourselves and where we have redundancies to try to cut out that duplication.
“I think through managing through that type of a downturn in our business — everybody focused extremely well in that and agreed to take on more than their share to keep the ship going forward. It was a pretty seamless transition through that, and we were able to maintain our profitability through those times.”
In the long term, ESOPs provide a convenient way to which bonuses can be tied. A rewards-for-profit plan focused on return on assets encourages employees to meet goals and rewards them when the goal is achieved.
“A rewards-for-profit plan replaces the typical profit-sharing plan,” Calhoun says. “Initially, employees had been able to see the company value grow because of debt repayments. Now it’s just like when you own a house, you build up equity by paying off the mortgage. Well, our mortgage is paid off, so we now have to increase the value of the house. We’ve got to see how we can grow our top line revenue and our bottom line profits in a sustainable way that will increase our value.”
How it works is an ROA or a profit objective is set by the board, based on abilities. It runs on a continuous 12-month basis and is paid quarterly to the employees.
“Then based on a formula, whether you are at 100 percent of the goal or 125 percent of the goal, the employee gets one week’s pay. If you are at 90 percent, it’s 90 percent of one week’s pay. If you are at 150 percent, it’s 150 percent of one week’s pay. It’s been very effective.”
How to reach: Palmer-Donavin Manufacturing Co., (614) 486-9657 or www.palmerdonavin.com
president and COO
Palmer-Donavin Manufacturing Co.
The Calhoun file
Born: West Lafayette, Ohio, just east of Coshocton
Education: Ohio University. I got a bachelor’s degree in business administration from the College of Business.
What was your first job?
For my very first job out of college, I was a bartender at Maumee River Yacht Club. I was able to network that into a sales representative position for the National Gypsum Co., selling drywall in the Columbus market.
What was the most important business advice you ever received?
My mentor and former company president Bob Woodward kept saying it’s the people who make the company and the company is nothing without the people. I think that’s so true. Also, without integrity and honesty, you have nothing. You have to have integrity and character in everything you do.
Who do you admire in business?
Outside of Bob Woodward, I think one person I admire most is probably John McConnell of Worthington Industries. Actually, my father retired from Worthington Industries. He had always been an hourly factory worker all his life and went through working on union organizations and went through strikes and closing of facilities. He got a job later in life with Worthington and retired there. He always respected Mr. McConnell. The policies and programs the company had for all their employees created quite a loyalty among the employees and allowed my father to retire. He is 85 today and is and doing well — I think it’s the culture that is built within an organization. I recently was fortunate enough to talk to one of the board members and get some insight as to how they did some things.
What is your definition of business success?
Business success is creating a vision that people can trust and fulfilling that vision where everyone prospers.