Kristy J. OHara

Having a strong relationship with your accountant can help strengthen your business, so don’t be afraid to spend a little money to meet with them.

Sitting down and examining aspects of your business produces some large returns. Sometimes there are things that are happening that have gone on for many years and you can’t see it because it’s hard to be objective when you are close to the business.

Building a strong relationship with your accountant requires ongoing communication and interaction, and it needs to go beyond just a business meeting. An informal relationship and informal interaction enhances the ability to have an even better working relationship.

Your accountant has to have a thorough understanding of your company’s culture and long-term business strategy. Sharing as much as you can about these helps enhance their ability to serve you.

Another way to build your relationship with your accountant is to approach tax planning as a year-round process instead of a once-a-year necessity.

“Tax planning is important throughout the year, and too many times, we don’t get to tax planning until the end of the year or we don’t get any at all,” says Donny Woods, president of the National Society of Accountants.

If you aren’t planning all year long, don’t look to your accountant to pull off some kind of miracle. Most accountants prefer having monthly conversations with clients, but at the very least, tax planning should start in the fall. If you do this, you will maximize your ability to plan and take advantage of opportunities that can save you money.

Once you get past the first of the year, all you are really doing is keeping score, because any actions you had to take were during the previous year.

Meeting with your accountant throughout the year to share projections and goals can help the two of you game plan to maximize opportunities and minimize taxes.

In the end, minimizing taxes ultimately enhances your cash flow.

How to reach: National Society of Accountants, (800) 966-6679 or www.nsacct.org

As the world slowly moves out of the great recession, banks are starting to lend more, but they’re still cautious. The best way to ensure the financing your business needs is to work with your accountant to make your organization more attractive to lenders, which starts with good business planning.

“All organizations should have a business plan — their road map of what they’re going to be doing in the future, especially a new business or an immature business,” says Carol Scott, vice president of business, industry and government for the American Institute of Certified Public Accountants.

Having a plan is critical to convincing someone to loan you money, whether it’s a bank or a venture capitalist.

“If you’re looking for financing, you have to make the business case that, ‘I have a good plan for running this business, and I have a good plan for repaying you,’” Scott says.

Lenders don’t like surprises, so know your needs in advance. Don’t contact your lender a week before you need something, because it will be evident that you are not the greatest planner, making you less attractive to the bank.

You need to be upfront with your accountant and lender about both the good and bad in your business. Being honest about bad information can actually increase your credibility with the lender.

In addition to planning, demonstrating control is critical for impressing banks. The last thing a banker wants to see is that the president, COO or other top executive doesn’t have control and doesn’t have an understanding of the business. The minute there is a suspicion that there is a lack of full knowledge to exactly what’s taking place in the business, the banker will be much less likely to work a financing deal with your company.

One way to reassure a banker is to set up a Sarbanes-Oxley-type control for your organization, even if you’re private. For example, having segregation of duties decreases the likelihood of fraud in the business, and lenders notice those things. Your accountant can help you set up a control environment that is appropriate for your business and attractive to your banker.

Another way to increase your chances of getting funding approval is to have accurate, professional financial statements.

Bankers dislike internal financial statements that appear to be not professionally produced or appear to not be correct or are incomplete.

This is where a reputable accounting firm can help you look more attractive to lenders.

Dealing with the right accounting firm adds credibility to the financial statements and to ‘the ask’ — whatever it is you’re asking for. It’s incredibly important to engage a reputable, well-respected accounting firm because they can assist in getting better terms for your loan, and working with a respected firm adds credibility to your request.

Donny Woods, president of the National Society of Accountants, says, like with approaching lenders, to give your accountant a few weeks’ notice to prepare financial statements.

“You can’t just walk in and say, ‘We need these financial statements tomorrow,’” he says. “We have clients who will do that and think all we have to do is push a button and print report, and it’s just not quite that easy. … When you are doing financial statements, you don’t need to be rushed. You need to be able to have time to consult with the client to make sure that the information you are including is correct and there’s some analysis that has to be done, and it can be time consuming.”

Beyond these things, your history is important when it comes to getting financing, as well.

“They need to watch their cash flow and make sure they pay their bills on time,” Woods says. “They need to have a good payment track record. Those are the things that lending institutions are looking at.”

Scott says you also have to demonstrate the strength of your customers to lenders if you want to get financing.

“You have to have strong customers to have a strong business,” she says. “You could sell product all day long, but if your customers that are buying the product are not in a good position, you’re not going to collect your money.”

How to reach: American Institute of Certified Public Accountants, (888) 777-7077 or www.aicpa.org; National Society of Accountants, (800) 966-6679 or www.nsacct.org

A few years ago, when one of Rafi Holtzman’s employees called him from Europe and said she forgot her bright pink suit pants she needed for a trade show she was attending, he went to her house and, not wanting them to get crumpled in his suitcase, carried them by hand on the plane. He got odd looks, but it was just one way the CEO of Luidia Inc., a creator of interactive whiteboard technologies, showed his employee that he cared about her.

Holtzman also drinks his coffee with employees so he can talk to them, and he bought employees expensive ergonomic chairs so they would be comfortable. And when any of his nearly 100 employees have family emergencies, he says he’ll see them when it’s over instead of expecting them to work during the crisis.

“Even if you’re a cold-hearted capitalist, you still want to act like this because it buys you the thing that money can’t buy — it’s the personal responsibility, it’s the self-motivation — salaries will not do that for you,” he says. “Salaries are short-term sugar highs. If people understand you’re there for the long-run … it goes a long way.”

Smart Business spoke with Holtzman about how values affect a company.

What role do values play in an organization?

There are two kinds of motivation in human life — and it’s basically falling into two buckets. One of them is fear and the other one is love. Fear is a great motivator for a short-term burst — if you’re running away from a wild animal or doing a very fast project that you need to do right now and kill yourself to finish it. But if you really want to sustain growth, creativity, teamwork for the long run, then you have to be highly motivated to continue this for the long run, and the only way I know how to do that is personal involvement. I’m using the term love, but it’s a lot more than that. It’s a combination of respect and personal responsibility and taking things really personal.

It helps a lot if you believe in that. You can fake it and do pep talks. A lot of companies will say that people are their strongest assets. But from my experience, not a lot really do mean it on the basic level. If you can really believe in that, you’re a large part of the way there.

How does showing care to employees help the business itself?

You have to go really outside the box to get support that will last for years. Most organizations manage to keep the people they don’t want to keep — we like to keep the people we do want to keep.

Changing employees is bad for you. It’s also hideously expensive. A stabilized company is always good rather than changing employees all the time — this going up and down and the learning curve and the hiring process puts stress on everybody.

How do you hire well the first time so you have a stable company?

Don’t compromise. Wait a bit more and don’t compromise. As a matter of compensation, it’s not always the highest monetary compensation that brings you the best candidate. You really have to see if there’s a fit on the vision both in the day-to-day activity and in the long run. People who fit in with the company values and, at the end of the day, are proud of their work, get significant points over somebody who just thinks of work as work.

What questions do you ask to get a good match?

The top question I ask is, ‘Tell me about the project you are proud of.’ I remember one candidate going, ‘Look, I started this, I made the proposal to the department of defense, I developed the process, I went all the way from idea to actually selling it, and it was a great thing because the company sold a lot of them. What I got from this I got taking ownership from one end to another.’ He had pride of ownership that he did a good product — he was really high on my list.

The other question is, ‘What do you want to do when you grow up?’ You find out a lot about people when they answer this question — there’s only one good answer and that’s I don’t want to grow up. One of them said chocolate taster — that was a good answer.

How to reach: Luidia Inc., (650) 413-7500 or www.e-beam.com

Monday, 02 May 2011 11:23

How to improve your cash flow

When it comes to building a strong business, one of the biggest keys is to make sure you have a strong cash flow, and your accountant is one person who can help you with that.

“When you’re looking for cash flow management, you’re trying to control the things that take up your money, which would be accounts receivable, accounts payable and inventory,” says Carol Scott, vice president of business, industry and government for the American Institute of Certified Public Accountants.

It may seem like a basic business concept, but Donny Woods, president of the National Society of Accountants, says you’d be surprised how many people don’t take business basics seriously.

“A lot of folks spend money, but they don’t pay attention to their financial statements, or they don’t pay any attention to their cash flow analysis they should be getting on a daily basis,” he says. “They just spend money. Unfortunately, then when they get to the accounting, we find that they’re in real trouble.”

To avoid getting your business into a situation like that, start by creating a financial plan.

“Good planning is the best thing you can do for any cash management policy — knowing what your bills are, having a budget, having a forecast and planning things out to know where you are at any point in time is very important,” Scott says.

With your accounts receivable, it’s important to process invoices daily — the sooner you get the invoice in the mail, the quicker it’s in your clients’ hands and the faster you receive your money. Aggressively pursue past-due accounts, and if you don’t have a credit policy or collection policy in place, work with your accountant to create these.

“[The] squeaky wheel gets paid, so having a very aggressive pursuit at past-due accounts is important,” Scott says.

When it comes to your accounts payable, you want to hold on to your money as long as you can. Scott suggests negotiating favorable terms with your vendors.

“If you can negotiate terms like ‘30 days after receipt of goods,’ it’s more advantageous than ‘30 days from shipment day,’” she says. “Looking at what you can negotiate with your vendors is good.”

Another key to good cash flow management is monitoring your inventory levels. She says it’s important to find a balance so you’re in a just-in-time mode.

“You don’t want much of it, because it sits on your shelf and doesn’t earn you money, but you don’t want to have too little of it because you don’t want to lose sales,” Scott says.

When it comes to cash flow, you also have to keep great records.

“A lot of people write checks and give you nothing but the name of the payer or payee and the amount, and they don’t give you any information about that check,” Woods says. He says you can never give your accountant too much information.

“They should be keeping not only a good check register, but they should be keeping receipts, and a lot of clients don’t do that,” Woods says. “Particularly, smaller clients view the check as the ultimate record. That is not the ultimate record. The ultimate record is the receipt. That is the proof. That is the information about what took place in the transaction.”

Beyond just keeping track of your receipts, Woods says you have to makes notes about what those receipts are part of in the bigger picture.

“Those receipts are not self-explanatory,” he says. “If I get a utility receipt, I know what that is, but how about if I get a receipt from someone for supplies? Maybe all it says is supplies or it’s a service of some kind, and it’s not readily identifiable on the receipt what kind of service is.”

He says this is particularly problematic when it comes to companies using consultants, contractors or freelancers. Companies may submit receipts for these services, but he needs far more information, such as is that person incorporated or not? That determines whether or not he issues a 1099 form to them at the end of the year.

“Those are the kinds of things I have to educate the client about so that we can make sure that they comply with all the federal regulations and state regulations,” Woods says.

While creating a better cash flow comes down to a lot of internal practices, Scott says it’s also important to watch external factors and plan for how it could affect you internally.

“You have to do alternative scenario planning,” she says. “What happens if this happens? What happens if that happens? Staying on top of what’s going on in the economy in general is very important because there are unforeseen things that could happen.”

For example, right now energy is very expensive, and that will ultimately affect your cost of goods because your vendors will have higher shipping charges, so staying on top of the economic outlook is crucial. The AICPA provides a quarterly economic outlook survey that can help you with that.

As you look at all these different factors, it’s important to not try to figure it all out on your own. Instead, use your accountant as a resource to help you navigate these waters.

Ask your accountant about what best practices they see in various companies that they work with as far as days in receivable, collectability, inventory management, and those types of things.

It’s not necessarily a daily discussion you should be having, but the experts agree that it’s not a once-a-year conversation either. Depending on the size of your organization, it could range from monthly to quarterly to even semiannually. By having these conversations and seeking out expert help, you can improve your cash flow and, ultimately, your business’s overall strength.

Cash flow is the lifeblood of any company. The companies that do it great survive tough times. During a recession, good companies strengthen their balance sheet with cash reserves and managing debt levels.

How to reach: American Institute of Certified Public Accountants, (888) 777-7077 or www.aicpa.org; National Society of Accountants, (800) 966-6679 or www.nsacct.org

At Tony Conway’s special events business, A Legendary Event, when any employee answers the phone, he or she is automatically responsible for whatever is on the other end. There’s no passing it off to anyone else — the person has to take ownership of it. Taking this approach to customer service is just one way that the company successfully puts on more than 2,500 events each year, which have garnered the company $15 million in revenue and more than 300 awards.

Smart Business spoke with Conway, the company’s owner and president, about how to have strong customer service.

What’s the key to strong customer service?

For leaders, they first have to make sure they’re listening to their customers and that they’re listening to their team. That’s a real key. They have to hear what their team has to say about what they’re dealing with with the customers and what the customers are asking about.

I would say, as well, if you’re going to make the decision to be a leader in any business, make sure you understand every job that everyone in your company has — what they go through, how they do it — so you can have that dialogue with them. If you come in as a leader and you spend no time with your product or your business or with what your talent is providing, you as a leader aren’t going to be effective. You can’t talk about something being hot if you don’t know where the heat comes from. You can’t talk about things being beautiful or fresh if you don’t know how it gets there and how it’s ordered and what the cost is.

There are many leaders out there who say, ‘Well, that’s why I hire the people with the strengths.’ It’s still something that leaders have to be a part of. Someone with that strength will, somewhere along the line, need some help. They’ll need guidance. They’ll need direction. They’ll need an opinion, and if you don’t understand what it is they do, how can you give that opinion? If you’re at the forefront and have no idea what your team does on a daily basis to make that happen, you’re really an ineffective leader.

How do you learn all those facets of the job?

You have to schedule the time, and go and do the job that your team does. You can’t schedule it one time. You have to constantly schedule that. It has to be a part of your calendar.

So if I decide I want to go in and work with the chefs because I want to know a new recipe, I need to schedule that with them. Get in, talk about first where is it ordered, how much it costs, what’s it being sold for, how do we prep it, how do we hold it, will those temperatures hold in a setting where we are. Same with the floral division — going in and saying, ‘Let’s talk about where in Colombia are these flowers coming from? What is the process for getting them here? If we run into a problem, what is our backup in how we will take care of the opportunity?’ [It’s the] simplest things with our team — making them stop and think through the logistics of what we do.

How do you effectively listen?

It’s listening and then repeating that question and stating, ‘If I’m hearing you correctly, what you would like to do is this and this and this. Am I correct? If I understand you correctly, you would like this to be a bright orange instead of a light orange, and I’d like to show you a couple photographs, so we’re making sure we’re on the same level.’

It’s not just listening but following up with that listening and then coming back to that client or employee and saying, ‘In this, did I answer your question, and did we achieve what you were trying to accomplish?’ so you’re really taking it full circle. If they say, ‘No,’ we haven’t solved that, so we go back through that process of coming to an agreement. You have to make sure that you’ve heard them correctly, so ask the question, shut up and let them talk.

We do 2,500 events a year. I can’t remember everything that a customer tells me, so we keep an incredible database. We repeat what we talked about. We send a note and say, ‘It was great meeting with you today, and it was great we talked about this and this and this.’ We’re building this trust and building that understanding.

How to reach: A Legendary Event, (404) 869-8858 or www.legendaryevents.com

When Chip Perry moved from Los Angeles to Atlanta in 1997 to start AutoTrader.com for Cox Enterprises, he was given a one-page business plan, significant financial backing and an empty office and told to go for it.

“It was the Wild West days of early startups,” says Perry, the company’s president and CEO. “It was before the meltdown of 2000, 2001. There was tremendous capital flowing in that formed a bubble that burst. There were many different ideas about how the Internet could participate in the automotive industry, and we were there with a clean sheet of paper.

“How would we build a service that consumers would want to use and dealers would want to use and create a source of competitive advantage that would sustain the company through the early years and help it have a foundation from which to scale?”

From the beginning, he didn’t want to have a company where people bought and sold cars online — he wanted it to be a marketplace to help people locate vehicles and provide more comprehensive information than newspaper ads provided — the transactions themselves would happen offline. But from that simple vision, he had to build a business that could scale.

“To scale a company, once you discover a successful model, it requires very careful year-over-year execution of a plan that needs to change every year,” Perry says. “One of the ways we were able to grow was we created a new plan every year. We called it the ‘Annual reinvention of AutoTrader.com.’”

Creating a new plan every year has taken AutoTrader.com from nothing when it started to more than $700 million in revenue today. While it’s not easy to come up with a new plan each year, it’s the key to ensuring you create a scalable business.

“Every year we reinvented ourselves by setting new objectives,” Perry says. … “Our vision to dramatically improve the way people buy and sell cars was consistent. Our vision to be the best car-shopping destination and the best advertising vehicle for marketers, that was constant, and the business model of enabling our sellers to advertise to consumers for this pay-for-placement style was constant. But many of the details around exactly how to execute that strategy changed every year.”

Solicit ideas

If you want to create a new plan every year, you have to start with getting plenty of new ideas. At AutoTrader.com, the ideas from Perry’s 2,000 employees don’t go into a suggestion box and die. They’re parked in what Perry calls the “innovation garage” as they wait to be reviewed.

Encouraging employees to submit ideas is one way that he gathers possibilities for his strategic plan.

“One of the hallmarks of successful companies is being open-minded and receptive to ideas for improvement from the employees, who are closer to the work than the executives are,” Perry says. “It’s kind of built into your DNA. Either you are or you aren’t receptive. You have to be curious and receptive and then be willing to work with it. Then you need to set up a pattern and a tempo of consistency on this topic. If you do it once, and it goes away — a flash in the pan idea — it becomes not effective. If you do it every year, you’ve been doing it for 10 years, people come to expect it, and it becomes part of the culture.”

The main way he does this is through a comprehensive annual survey of the employees. The survey addresses culture-related questions about their jobs and how they feel about the company, but they also have an opportunity to provide input.

“If you were the CEO of AutoTrader.com, what would you do to make the company stronger?” Perry says. “We ask that question every year.”

He typically gets about two 3-inch binders full of ideas — single-spaced and using both sides of the paper. But when those ideas come in, he also communicates back to them a clear message.

“We also provide employees with a response,” he says. “This is what you told us, this is what we heard, and this is what we’re going to do with your input. Every year, we tell them, ‘This is what you told us last year and this is what we’ve done about it.’ Then we ask on the survey, ‘Do you think we did a good job of acting on the things that you told us last year or not?’ People can become very cynical about surveys if you don’t take them seriously.”

In addition to listening to employees, Perry also goes to clients and consumers for input. Three to four times a year, he has dealer advisory meetings where he takes dealers off-site and shares with them where AutoTrader.com is at and what plans the company has for improving services. He asks what they think and listens to their feedback.

He does the same thing with consumers. They come into a lab they have in the building and use both AutoTrader.com and competing sites and they ask consumers what they like about each and what they don’t like about each. They also ask what unmet needs they have in the car-buying process.

Prioritize

As the market leader, Perry never has a shortage of opportunities or ideas to explore, but the next step to creating a new plan every year is to actually figure out what to incorporate and what not to. He uses an initial litmus to determine if an idea is even worth considering.

“Our true north — the beacon that guides us — is, ‘Does the idea help the consumers shop for cars easier?’” he says. “Does the information make it easier, more convenient for them to locate the car they want to buy and be smart about how they’re going to buy it, and if it helps consumers do that and if it helps a dealer or manufacturer be more efficient about how they explain their offering and influence car shoppers, we’re interested in it.”

If it fits that, then they have to dig a little deeper to see which ones can be most beneficial.

“It’s important to be as objective as you can and gather objective facts and information,” he says. “One of the things we try to do is whenever it’s possible, to go out and do some research about the potential impact of an idea, so we’ll go talk to consumers and dealers and manufacturers and ask them for their guidance on how valuable they think it is, so research is a very important part of it.”

Perry says sometimes it’s not easy to quantify the benefit associated with a new idea, but that’s where research comes into play. Ultimately, he wants to move on ideas that provide the biggest bang for the buck — affecting his consumer audience as well as his advertising clients.

“We try to make our best estimate or guess about the benefit to the consumer and dealer and try to quantify the amount of value that the idea provides to our customer and the amount of revenue the idea could produce,” Perry says. “We make our best guesses and then we prioritize accordingly. We also weigh in the cost and effort and complexity of implementing the idea — some are easy and some take months and months of work.”

Another way Perry prioritizes ideas is to rely on the people in his organization to help him.

“Gain multiple perspectives from inside the company from different sources,” he says. “Having a diversity of ideas and perspectives to debate the merits of different ideas is very important.”

When all the ideas come into the innovation garage, Perry doesn’t let them sit around for long periods of time.

“The suggestions get organized by department, and the department heads read them and use them to create his or her action plan for their department,” Perry says. “Then that action plan is communicated to the employees in that department.”

At the department level, ideas are reviewed and absorbed in about a week after all the information is gathered. A comprehensive report goes out to all the employees about the compiled results.

“Within a month, we’re back to our employees saying, ‘This is what we heard, this is what we’re doing, and you’ll be hearing more at the department-level soon,’” Perry says.

Then the department heads determine how the suggestions provided can roll into their goals that will help the company achieve its goals.

Taking all the input from the research, he then works with his team to rank order what opportunities to pursue.

“We’ve let our common sense guide us in how to create processes in the company that generate ideas, research them as objectively as possible, debate them from multiple perspectives, try to quantify benefits and then ultimately make a judgment call about where is the most bang for the buck,” Perry says.

Test pilot

Once ideas have been vetted and align with the company’s goals, then the last phase before implementing them into your strategy is to test them.

“A willingness to take risks and experiment is very important, because the good ideas stop coming if people think there’s no chance it will ever get implemented because they’re viewed as too risky,” Perry says. “You have to be willing to experiment, make mistakes and iterate toward a better solution in order to promote an innovative environment where people feel safe to make suggestions that are outside the box, and then the company has to be willing to methodically test and evaluate them.”

The key is to start small.

“The good approach is to try and test an idea in a portion of your business,” Perry says. … “Test in a portion of your total-served market and then observe success and problems and try to iterate and evolve toward a better solution before you roll it out.”

At AutoTrader.com, when it wants to try out a new idea, it is tested in one or two markets. For example, one offering AutoTrader.com has been working on is a tool that offers a seller an instant offer on their car. Sellers describe it, and then dealers can make offers to them, which are contingent on the car matching the description provided. If a seller sees an offer he or she likes, he or she can go to that dealer, have the inspection, and then get a check on the spot. Dealers like it because it brings in prospective buyers. Sellers like it because they can get an offer fast.

“You do your best job you can in launching something new like this, but by definition, it’s not perfect,” Perry says.

You have to look at what works and what doesn’t work and how you can improve the program to make it better.

“If it works, we figure out what does it take to scale this idea up and make it easy for consumers to use and adapt nationwide,” he says. “If it involves little training, we can roll it out very quickly. Consumers adopt things that are good for them very fast.”

In this particular case, it started in two cities in late 2009, and now it’s in 200 markets across the country, and there are now upward of 80,000 instant offers each month through the site.

“It was so popular that we pulled forward and accelerated the launch plan,” he says. “There’s an example of one that takes off. Then there’s other things that take longer or stumble.”

For example, AutoTrader.com has many customers with low credit ratings, but the company wants to be able to serve those people, so it has been working to help them find dealers that really serve that segment of the market. It’s a tool that Perry has had trouble finding the sweet spot that meets both the dealers’ needs as well as the customers’. But because it’s a great need in the market, the company will continue to refine it and make that process better.

Sometimes ideas just aren’t feasible at all. This was the case with auction-style listings AutoTrader.com did with eBay back around 2000. While it might be interesting to bid on a car online, what Perry and his team realized was that when you couldn’t see the car in person and inspect it and test drive it, consumers generally weren’t willing to pay more than wholesale.

“Most dealers are not interested in selling cars to the public for wholesale prices — they sell retail, that’s how they make money,” Perry says. “So if consumers only want to pay wholesale, why should (dealers) participate?”

When an idea works, it gets implemented into the plan, and the greatest thrill Perry has is being able to celebrate it and thank the person who suggested it.

“We present ourselves as an open-minded, flexible company that can change over time,” he says. “We can’t implement every idea tomorrow, but I can’t tell you how many hundreds of ideas our customers have given us, and it’s a lot of fun when you get a chance to call them up and say, ‘Remember that idea you gave us three or four months ago? It just went live on a national basis.’ That’s very exciting.”

How to reach: AutoTrader.com, (866) 288-6872 or www.autotrader.com

The Perry File

Education: Civil engineering degree, University of Virginia; MBA Harvard Business School

First Car: Perry paid $350 in 1975 for a turquoise green, 1965 Plymouth Valiant with a three-speed shift on the steering column.

Number of car purchases Perry has made through AutoTrader.com: Four

Prior experience: Before joining AutoTrader.com, Perry was vice president of corporate development for the Times Mirror Co. and vice president of new business development for the Los Angeles Times. While there, he launched TimesLink, one of the first major online newspaper services, which later became known as LATimes.com. Earlier in his career, Perry worked as a management consultant at McKinsey & Co.

Saturday, 30 April 2011 20:01

Movers & Shakers

Applied Industrial Technologies promoted Dave Smith to director of corporate purchasing. In this role, he will oversee the product purchasing needs for all of the company’s distribution centers as well as activities related to transportation and procurement systems. Smith joined Applied in 1995 and for the past six years served as corporate purchasing and transportation manager. Prior to that, he was transportation services manager for the company.

Kevin Lauterjung has been promoted to executive vice president of managed care at Medical Mutual of Ohio. Lauterjung previously served as vice president of health care finance and network management, a position he held for the past six years. Previously, he was market leader of individual products in Medical Mutual’s sales division, joining the company in 1998 in provider contracting.

Medical Mutual also hired Douglas Bennett is as the director of community relations and outreach. Most recently, Bennett was the director of Leadership 18, an organization consisting of 23 CEOs of the largest health and human service organizations in the United States.

Maloney + Novotny LLC promoted Sherri R. Bates to principal in the firm’s Cleveland office. She joined Maloney + Novotny in 2007 and has been instrumental in developing the firm’s insurance practice. She is an insurance management professional with more than 20 years finance and marketing experience in health, life and property/casualty insurance lines. She also has extensive experience serving the nonprofit sector. Her experience with nonprofit clients centers on her expertise with private colleges and universities and private schools.

Thrasher, Dinsmore & Dolan celebrates its 80th anniversary this year. In addition, it has hired Ezio A. Li and T.J. Weyl, Jr. as principals.

stati

Please send your executive-level promotions to movers@sbnonline.com.

When Rebecca O. Bagley took over as president and CEO of NorTech, her biggest challenge was learning not only the dynamics of the company but also of the community. This was critical because NorTech is a nonprofit, technology-based economic development organization that serves 21 counties in Northeast Ohio. To overcome this challenge, communication was absolutely critical as she got to know her staff as well as the various constituents in the community that her organization served and worked with. Smart Business spoke with Bagley about how she communicated with her employees and key stakeholders.

What were the keys to effectively communicating when you started?

Being very clear with whether you’re learning and asking questions or you’ve decided on a direction and you’re getting people on board or understanding that direction. It’s important to be clear and concise in your communication and be honest about what you’re thinking at that time. That typically endears people to the organization and gets people on board with what you’re doing.

How do you make sure you’re clear in your communication?

It’s a combination of time and effort spent with the team and what words mean to different people and then going out and bouncing that off of a couple of people who are less familiar with the (organization) or the work.

The biggest thing that I see as an opportunity for lots of people to increase the effectiveness of communication is remember who you’re talking to. It sounds very simple, but talking as a CEO of a larger organization, I don’t typically bring in my PowerPoint presentation. I’ll think of a couple of things I want to talk with them about. Yet if you’re talking to someone who wants to understand more of the detail, make sure you’re giving them that level of detail.

It’s crafting the message for the person who’s listening to it and putting yourself in their shoes in preparation for that and making sure you’re spending a few minutes before the meeting about what the best way to approach it is and not just doing your normal pitch.

You’re not changing the core, but it’s important to be able to do that.

How do you make sure that what you perceive matches up with what they actually hear?

It sounds cliché, but listening is a huge part of that and asking questions — you don’t say, ‘What did you hear me say?’ but you can craft questions as the dialogue goes that can help you understand whether they’re getting it or not. Reading people’s facial expressions and body language makes a big effort — it’s emotional intelligence and making sure you’re picking up on the cues and paying attention to whether people are understanding you. When they start bringing a different topic, it shows that they’re not quite understanding what you’re talking about and that’s why they’re taking it in a different language.

How do you listen effectively?

Most of it is just honestly a commitment to pay attention to what you’re doing at the time and compartmentalizing — this half-hour is for this person. When you scheduled it, you thought it was important enough to schedule, so focus on it. It is important to this person. That level of focus and attention in a hectic environment helps to make the person feel heard. And you learn things because you’re paying attention to the person in front of you. Whether it’s at a networking event or a meeting in the office, focus on the person you’re talking to — and then move on to the next thing. It takes practice though.

[It’s hard] especially depending on what you’ve got going on. You have to leave for your flight in a half hour, so do you want to be listening, or are you thinking of if you have everything in your bag? It’s a challenge sometimes.

How to reach: NorTech, (216) 363-6883 or www.nortech.org

As A.J. Hyland sits comfortably on one of the two modern leather couches in his second-floor office at Hyland Software, it could be easy for him to look through his office’s glass walls across the maze of cubes and simply smile in contentment.

After all, the software company, which develops the enterprise content management solution called OnBase, grew 77 percent between 2006 and 2009, reaching $133 million in revenue and landing it a spot on the Inc. 5000 list last year for the fifth time. The company has made six acquisitions, won numerous awards and has more than 9,700 customers, and of that, 97 percent renew maintenance on the software each year. On top of that, it now has more than 1,100 employees and constantly has no shortage of applicants because it has gained a reputation of having a Silicon Valley culture despite its suburban Cleveland location.

Yes, Hyland could simply smile in contentment, but all of that is just the beginning for him.

“I get more excited each year because we’re getting more and more strong, but we have so much potential to grow,” the president and CEO says. “For me, it’s about building a strong foundation but never being content. That’s why we’re talking about evolving this year with all the employees. We’ve got to move forward. It doesn’t have to be this massive rip-up change — we’re doing so many things well, but let’s continue to tweak things and get better and better and better and grow and that’s key.”

Evolution is vital because the competition has taken notice of the organization and all of its successes.

“We can’t just sit here — we have to move forward,” he says. “There are way too many people coming after us in this marketplace. There aren’t a lot of barriers to entry in this space. People can develop products and services to compete with us, and a lot of people are trying to copy what we do, so as they get close to us, how do we leapfrog ahead again? A lot of that has to do with evolution.”

To continue growing and getting better, Hyland is proactive about growing the company by making sure he hires great people, focuses on customer service and effectively communicates.

He says, “If you want to grow, you have to believe that you’re going to do it and make it a self-fulfilling prophecy.”

Hire great people

As Hyland Software has grown, unlike many companies, it hasn’t waited until there is enough work to justify hiring new employees. The company has been proactive and hires employees well ahead of when they’ll actually be needed.

“We hired ahead of where we needed to hire to have people there so that when we got to a point, we were able to service the clients we had,” Hyland says. “It’s not like we held, off, held off, held off, and as soon as something hit, we hired a bunch. We hired a bunch and pushed the growth and kept on bringing people in. …You have to add good people all the time.”

Many may scoff at spending money on such expensive resources as employees before the business is there, but Hyland says that with great risk comes great reward and it’s just one part of pushing yourself to grow.

But it’s not just hire a bunch of people without any thought behind it. Hyland has a specific approach to the practice.

“It comes down to planning and figuring out what areas are going to be hotter than others,” he says.

He looks at the business and says that if it grows by X percentage on the sales side, that shows him how many people he needs to hire on the technical services or support side. He also brings into account data about how many people leave the company each year, as well.

“It’s really about looking at your business and analyzing the historical data and having some lens into where it’s going in the future,” Hyland says.

The key is that you have to be grounded in data and also be willing to use it.

“Spend some time sifting through the data,” he says. “A lot of people have the data but they don’t spend time cutting it up or slicing it from different angles. Every month we look at all of our sales, services data and figure out what’s happening. Are we seeing a couple trends over a couple months? What does that mean from an employee perspective?”

But it’s not just hard data that you have to incorporate into your hiring plans. Listen to what your customers are telling you, as well.

“You get comments from customers — ‘Hey, it’s tough to get a hold of you guys these days,’ or, ‘Your backlog for services is stretched out too long,’” Hyland says. “That immediately throws us a flag, and we say, ‘OK, we’re low in certain areas, and we want to make sure we have enough people to handle those volumes.”

As you assemble the data and the feedback, you’ll likely want to ask your department heads and managers what they think they’ll need in terms of human resources, as well, but Hyland says you also have to make sure to ask questions when you have those conversations.

“When you’re dealing with departments, people are going to ask for the moon,” he says. “If you ask what they need, they’re going to ask for a lot, and it’s good to have some checks and balances on that and check people and say, ‘Why would you need five people there?’ or, ‘Why would we need four people there?’ and make people come up with legitimate reasons.”

Once he knows how many people he needs to hire, then it’s time to focus on the hiring process itself.

“Setting expectations in the interview process is good,” he says. “[It’s] coming up with creative ways of drawing out personalities in an interview process.”

At Hyland Software, it’s a multistep process that doesn’t rely on one manager to make a decision. Applicants go through multiple interviews with both human resource staff members as well as managers they’ll be working with directly.

“Having the multi-interview process is helpful, but [it’s also] having them talk about experiences where they had to deal with adversity and see how they’re going to function in this environment to see if they’re self-starters,” Hyland says. “If you can come up with questions and approaches and draw that out, that’s going to be part of your success in bringing in the right people.”

He says it’s also helpful to be honest about their work environment and really share what it will be like.

“Have an overall tone of your department that’s communicated to the applicants so they can self-weed-out,” Hyland says. “‘OK, this is how it works here, and maybe it’s not perfect, but this is how we function, and if this is something that’s going to make you uncomfortable, maybe it won’t work.’ Setting proper expectations in both directions is very important.”

It’s also important to involve successful employees in the process. He says that if you have a couple successful individuals in a particular area that you’re hiring for, identify what traits they have that have made them succeed. Train those people to be a part of the interview process so you have more people involved, and look for those traits when interviewing.

Lastly, Hyland says it’s a common mistake to get excited about all the wonderful things you see on somebody’s resume and ignore the red flags that come up in your interview process.

“More often than not, if the HR [representative] isn’t feeling good about somebody in terms of their attitude or approach but their manager felt good about them, they’re not going to be successful here,” Hyland says. “It’s just the data shows that. There are always exceptions, but if you’re ranking fair to poor (and) a manager wants to trump that and say, ‘I want them anyway,’ we have some good data that shows that doesn’t always work out.”

Focus on customer service

When Hyland hands you his business card, you’re actually receiving access — not simply a card. On that little card is not the general company phone number or an assistant’s extension but rather his direct office line as well as his cell phone number.

“Make sure there are no gatekeepers to the senior leadership — period,” Hyland says. “Don’t have a bunch of hoops to go through before you actually talk to the owners or the senior management in any department. That would be No. 1, so customers have to know that they’ve got a final backstop with the leadership of an organization.”

This is just the start of how Hyland Software focuses on customer service, the second critical factor to growing the organization.

“Senior leadership has to lead by example because if they’re not doing it, no one’s going to do it,” he says. “If they’re not customer-oriented, they’re not taking calls, they’re not getting in front of the fire and getting out on the front lines with customers who need help or need resolution on stuff and they’re trying to shirk all those responsibilities, it will not trickle down at all.”

Hyland says that customer service starts with making yourself available to your customers.

“Customer service has a lot to do with accessibility,” he says. “[It’s] making sure that you’re projecting to your customer base that we want to hear from you — it’s not you bought our product and good luck.”

That’s why Hyland and the other senior executives at the company make their phone numbers available for all of their customers, and that’s what he expects of all of his employees, as well.

“If you’re not willing to get on the phone and help customers with problems, you’re not going to last here,” he says. There’s no way for you to exist in this organization if you’re going to take this standoffish us versus them. To us, it’s about partnership. It’s about locking arms and dealing with issues. It’s about saying sorry when you make a mistake and moving on to a solution fast.”

To get everyone to adapt this mentality, Hyland says you have to focus on training your people in customer service.

“Don’t skimp on training for people, particularly when they start with a company,” he says. “Don’t just say, ‘Good luck.’ You have to give them context on where you are in the industry and what your corporate value system is and how you approach customers in general and what we care about as an organization and what our goals are this year and what are we focusing on. People armed with those parameters are better able to serve customers.”

You also have to continue talking to them about why customer service is so important long after they start.

“It means being proactive,” he says. “It means training your people and giving your people the power to make decisions that are pro-customer and they understand that this is who signs the paycheck and building that mentality over time.”

That understanding of who signs his employees’ paychecks is critical, and to reinforce it, he talks about new customers at every Monday-morning meeting with the company, where he reads the name of each new customer that has come on board in the previous week.

“It may sound corny — I could just say the number — ‘Hey, we got seven new customers last week,’ but I think it’s important for people to hear who these companies are that are signing our paychecks and for them to see the names written in front of them,’” Hyland says.

He also wants employees to get to know customers and understand them so customers come into Hyland and present their solution to employees, and it’s also recorded so people can watch it later. They talk about the decisions they make, why they buy Hyland’s product, what have been some of the positives they’ve gotten from it, what some of the pitfalls have been, what they would like to see in the product and what they would like to see from the company. It’s not mandatory for employees to attend or watch it later, but many of them do because they realize it’s important to hear from customers.

Another way Hyland focuses on its customers is by creating user communities where customers can come in and learn from each other.

“Sometimes people feel that’s dangerous and all the bad stories are going to get out, and yes, you’ll have some individuals that will take advantage of that, but more often than not, people are good, and they’re just trying to find answers and share best practices,” he says.

Between these avenues as well as simply working with customers every day, Hyland can see when trends are starting to develop that need addressed, but the word trend is important.

“You learn through experience and mistakes that getting crazy off a one-off experience doesn’t really help,” he says. “There’s usually two sides to every story. It’s really if you’re getting a consistent wave.”

He says there are certainly situations that you need to correct right away, but more often than not, if you’re seeing many customers telling you the same thing, that shows you it needs to be addressed.

“Feedback is coming from different avenues, and you’re getting a sense that this is a problem and we need to address it” he says. “I think knee-jerking to one particular issue, I’ll leave that to the government. I don’t think that’s really smart. You can certainly address the issue, but is it a trend if it happens once? No. That’s a mistake that a lot of people make, and they’ll get all fired up and start blaming and moving a bunch of things around, and you need multiple data points before you shift focus. … If you have multiple avenues of feedback from partners, from customers, from user groups, then you know you have something to address.”

Communicate

As Hyland Software redid its large HR system, it was a huge project that touched everybody as they tried to consolidate other systems into it. It also forced managers to be more accountable on certain things, so there was a lot going on with it. Even though Hyland had talked about why they were doing the project multiple times, people were still getting upset.

“As you get further along in the project, people get angry about certain things and you have to reset everybody,” he says.

That’s where communication comes in, which is another critical element to the company’s growth. Hyland says he was naïve when he was younger in that he thought he could just go out and say what the company was doing and where it was going, and everyone would get it.

“You wonder why people wander off in a different direction — ‘Wait a minute! They’re not following me?’” he says. “It’s just getting the discipline down of talking about things fairly consistently and then creating avenue and mechanisms at the global level and departmental level that reinforce that vision or the values or whatever it is you’re trying to get across.”

So he’s become more disciplined in his communication approach. To start, he’s created a small group of several vice presidents and meets with them about once a quarter to ask them how he’s doing with his communication. He’ll ask where they think the company is on a certain issue, what they think he just communicated about it or what their team thinks about it. He’ll ask what is fuzzy about what he said or what didn’t link right with people.

“It’s been eye-opening for me,” he says. “I won’t let them talk and hear each other so they can’t mold their answers. I actually make them write them before we talk about them so I get the raw feedback before we get mob mentality.”

Doing this helps him see that he hasn’t projected the real reasons he’s doing something or what the purpose behind something was. Hyland says that when you get a group of intelligent people who know you and the business really well, they can really help shed light into your communication efforts.

“Creating that and being humble enough to take that is the key advice to just create a group of individuals who do that,” he says.

He’s also done this with employees and asked them a couple strategic questions to see if they really understand where the company is heading. Sometimes he sees that newer employees don’t get it but older employees do, and sometimes he sees that everyone gets it.

“If you’re willing to open yourself up to the feedback, people will talk,” he says. “It may take them a little time, but they will talk and they will say, ‘This doesn’t make sense.’ The advice I would give to any leader is open yourself up. Put the target on your shirt and just take it. It’s going to forge you as a better leader, period. If you think you know everything or you’re God’s gift to whatever, that’s great, but you’re not going to evolve as an individual, and you’re not going to be a stronger leader three years from now.”

In the case of the HR system, it was clear from the feedback that employees didn’t understand the point. Hyland recognized that it was creating different work for everyone, and change doesn’t make people happy, so he spent five minutes at the Monday-morning meeting talking about it. He explained why it was important, why they needed to do it from an employee-development and career-development perspective, how they didn’t have a consolidated system, why it was strategically important as a business, and how people are crucial and doing this keeps turnover rates low.

“Immediately, people said there was a massive upswing in involvement and energy behind it, and it just took five minutes for the leader to say, ‘OK, everybody, I know there’s pain, but get through it – there’s a light at the end of the tunnel. We’re not just doing this to put you through pain, but there’s actually something valuable here that we want to get to,’” he says. “Sometimes we need a little reminder.”

He says you don’t want to do this every single time you communicate to people, though, but rather when you get feedback that the simpler message isn’t getting through.

“If you do this every week, you drive people nuts — ‘Oh here he goes again,’” Hyland says. “But once every six or eight weeks — ‘OK, he’s actually thinking about things.’”

HOW TO REACH: Hyland Software, (440) 788-5000 or www.hyland.com

If someone told you that you could drop your operating costs by 40 percent, would you listen? If that same person said you could you save between $70 and $150 per user per year in energy savings alone if you tried something new, would you try it?

A lot of companies are listening, and those same businesses are trying something new — cloud computing and software as a service (SaaS) — and reaping the many benefits, which start with the aforementioned cost savings.

“From a cost perspective, it’s low-risk,” says Adam Caplan, founder and CEO of Chicago-based Model Metrics, a cloud-computing services firm. “You don’t have to pay monstrous upfront payments. It’s success-base as you go — you pay per user for cloud applications.”

With a model like that, it’s easy to save money, which is one of the biggest appeals of cloud technologies.

“There’s a tremendous amount of money to be saved because if you look at IT budgets, nearly 80 percent of that budget, in many cases, is spent just to keep the lights on, which means the other 20 percent is the only money that’s actually able to be used to implement new technologies into the model,” says Jeff McNaught, chief marketing officer at Wyse Technology.

McNaught’s company builds a device that replaces the PC and connects you to the cloud. The device doesn’t make a lot of noise, but more importantly, it doesn’t cost a lot of money.

“When you look at cloud computing, operating expenses can drop by about 40 percent a year, and that’s real money,” he says. “These devices use one-tenth of the energy of the PCs. Now you’re really talking about saving real money.”

How cloud works

So the idea of saving that much money has caught your attention, and now you may be asking, “What exactly is this whole cloud computing thing anyway?”

Caplan says the biggest idea to grasp is that cloud technology allows you to approach business differently.

“The biggest change is for the first time, businesses can roll out applications and know that they’ll be extremely successful with these applications,” he says. “If you look in the past, the chance of success was so low. Companies spent a lot of money, they spent a lot of time, and now they’re going to be successful.”

The reason for that is the way this technology changes what you’re currently doing.

Dave Hitz is the co-founder and executive vice president of NetApp, a company that sells enormous amounts of storage to people that need it. For example, Yahoo stores all of its e-mail accounts on his equipment, and the special effects for “Avatar” were stored on his equipment, as well. He sees two different definitions of cloud computing.

“Definition No. 1 of cloud computing is you no longer buy a computer,” Hitz says. “You access computing service over the Internet to somebody else’s data centers, and they spend the capital and they hire the people to build them and they do everything, and all you do is pay a monthly bill and access the service over the Internet. Style No. 2 of cloud computing is a completely technical definition (that) has to do with if you’re going to build a data center, what does the architecture look like? And if the architecture has a lot of shared infrastructure, then people tend to call that kind of environment a cloud computing environment.”

His first definition is another benefit to cloud because it eliminates many IT headaches because, being honest, how often do you have an overly positive IT experience?

“I imagine people would say they’re experience with IT has been less than optimum,” says John Dillon, CEO of Engine Yard Inc., a company that delivers an environment for software developers to write programs that run inside the cloud. “The reason is you spend so much money building all this infrastructure, that going the last mile, which is where you write the application that interfaces with the human, the user, doesn’t get the attention, doesn’t get the money and doesn’t get the investment.”

The idea of the cloud is essentially that you plug into the wall, and you get a whole data center.

“It’s IT as a service, just as you get electricity or water,” Dillon says. “In business, you, in most cases, don’t have your own power plant, you didn’t dig your own well, you didn’t build your own building, you don’t have your own fire department or police department. So why on earth do we basically give power to a group to build something that has been built before in-house, and then hope it works?”

Dillon also points out that in the United States, capital expenditures are a huge expense. In fact, about 50 percent of capital expenditures in America are information technology.

“Unbelievable,” Dillon says. “How many people are getting the ROI on this? What’s happening with the cloud is some big companies are saying, ‘Look, I’ll build the data center.’ It’s changing who buys, why it’s bought, and it changes the capacity and the economic decision-making process around IT.”

When you look at how much money most organizations spend on their IT systems, these cost savings are a big driver, but another benefit is cloud makes your IT department more effective in the company.

“The real power that CIOs are finding is that they go from worrying about managing data centers and managing servers and the non-strategic things their teams are focused on, and they love this stuff because after this, they’re focused on strategic initiatives that drive revenue growth,” Caplan says. “They’re actually contributing in a real way to revenue growth and cost reductions and not just focusing on the servers are out.”

A lot of times, your CIO may wonder if this means you’ll need to reduce the IT department staff size, but Caplan says that’s rarely the case.

“Usually, you have the old line, ‘I’m very scared of change,’” Caplan says. “And all my people in IT, their job is to make sure the servers don’t go down, to make sure the e-mail works. Their job is to reset passwords and worry about the lights. There’s sometimes fears if you don’t have to worry about that stuff anymore — that stuff just works, and you don’t have to worry about it — what will happen to my team? Will my team shrink? Almost every time, the answer is no. The team just morphs into a far more strategic team. They can get more active in the business on cool applications that drive the business forward.”

Another benefit is that now have everything that is on your PC in one location that can be accessed from anywhere — not just from the PC itself — and that comes with benefits in and of itself.

“When you take your software and your applications and your data and you move it to the cloud, something’s happened,” McNaught says. “First off, the cloud is the data center of your company and you can always get to it. You’re connected to the Internet, so you can get there from home, from the conference center, from the airport. And guess what? Because it’s not on a PC with a hard drive failing and memory getting filled up, it’s protected. It’s backed up. It’s secure. So the cloud provides this real opportunity to take the things that make up our work life, and within five years our home life, as well, and move them to this one place where we can always find our stuff.”

The evolution of cloud

Experts agree that cloud computing is pretty amazing, but it’s not a new concept.

“Looking at best practices, this stuff isn’t new anymore,” Caplan says. “We’re in year eight now. Salesforce has been around since 1999. Amazon Web Services, Google — whether you’re using their technology, none of them are brand new, so there are a lot of best practices to learn from.”

So if this isn’t new, it’s interesting to look at how cloud has developed and how it’s changing business. Dillon is amazed by cloud computing, and it’s hard to disagree with him.

“This cloud thing is the biggest thing that’s happened in technology since the IBM computer, and that’s pretty big, and at least as big as the Internet in terms of economic disruption, because it changes how and where we do our computing,” Dillon says.

He says to go back a few years and remember how every small and midsized business had a room with computers in it and maybe a server or two.

“As businesspeople, you probably didn’t understand what they were for, but you knew they were important and you wrote checks,” he says. “It was hard to be good at that, because you had a business to run, and presumably you were an expert at that business, and you used technology to be good at that business or best at that business, so it was a necessary evil.”

Over the last 10 to 15 years, a variety of things happened that became game changers. First, we got the Internet.

“Everybody is connected — not just a few people are connected — and we’re connected not just inside our companies but outside our companies,” Dillon says.

Second, access became ubiquitous with the advent of cell phones, BlackBerrys, iPhones and laptops.

Then access got cheap — almost free. It doesn’t cost you anything to go to Google and look up any information that you want.

“You think about that perfect storm that happened — we’re having an explosion,” Dillon says.

McNaught would add another element to that perfect storm — the PC itself. He asks how many people really love their PC with its bulk, weight and the fact that if you drop it, it’s useless. He says the data indicates that PC market share, which is about 94 percent now, will drop over the next decade to about 10 percent.

“It’s not because less PCs will be sold — maybe a few less, but it will lose its role as the core device we use to access our stuff,” he says “You’ll see this huge proliferation has already started with tablets and mobile devices and mobile phones and the mobile Internet exploding now. The question becomes, how do I access my stuff? How do I access it securely? And how do I access it at the lowest cost?”

These are questions that most people would agree are incredibly important. In fact, these questions are reasons why cloud hasn’t been successful in the past.

“This had been tried before and it’s failed, because there were two things we couldn’t get right as an industry,” McNaught says. “Early on, we couldn’t make all the software that was important to your business work reliably. We walked into the hospital and the hospital says, ‘We have 400 applications, we can only make 350 work on the cloud. Where are the other 50 we need to execute?’”

The other factor was user experience.

“If you get, from the cloud, an experience that is the slightest bit less robust than the experience you get at home or the office today, what are you going to do?” McNaught says. “You’re going to go beat the living daylights out of the IT guy who suggested the cloud.”

But now, the technologies have changed, and these two pieces have largely been addressed. On top of that, security is stronger than with a PC, and that’s why companies large and small are now using the cloud.

“There’s an adage in the IT industry that when you introduce a technology that reduces costs, you’re giving up benefits, and if you introduce a technology that gives you big benefits, it costs you a fortune,” McNaught says. “The thing about cloud computing is that it fires on both cylinders — it reduces costs dramatically and delivers incremental benefits that you don’t get with the current model.”

How cloud can affect you

You may read this and think how great it all sounds and see how important cloud is to the future of business. But if you’re not ready to jump on the bandwagon, Caplan would caution you to rethink your position.

“With other companies rapidly implementing these, if you’re not doing it, it’s turning from a competitive advantage to, for those laggards to moving into the cloud, definitely a competitive disadvantage,” he says. “Just to keep up is critical.”

You may wonder why this particular technology is so critical to business. Hitz says this is similar to other major technology game-changers in the past.

“I’ve had the opportunity to ask a lot of CIOs, ‘How is cloud computing affecting your business? How much cloud computing are you using?’” he says. “The most common answer I get is, ‘It doesn’t affect our business at all yet, and we’re not using it at all yet.’ I will tell you that almost all those CIOs are wrong. They’re already using it but not thinking right.”

He say that CIOs need to think differently and compares it to the early days of the transition from the mainframe to the PC. In those days, if you asked a CIO if they had a PC strategy, many said, “Oh no, that’s not part of what we’re doing,” but half the employees had PCs.

“When data started leaking out the door because somebody lost their PC, who do you think the CEO went to beat up?” Hitz says. “The CIO, and the CIO said, ‘Well, PCs aren’t really IT.’ Those are the CIOs that are gone. I predict the exact same thing is going to happen to the CIOs who think that cloud computing isn’t happening in their business. … There’s an enormous amount of work that CIOs need to start thinking about — how do I get my arms around all the cloud contracts that are being found in little places scattered around.

“It’s affecting a lot more than people are realizing, because they’re not defining it broadly enough. If they look at that broader definition, the stuff they’re already sort of doing or in denial about, that stuff is a pretty good road map to where the future is headed, just more.”

Not only is it affecting how your business will run, but it’s also going to change how new companies enter the market. Brian Jacobs is founder and general partner of Emergence Capital Partners, a Silicon Valley-based venture capital firm.

“Silicon Valley is very much a startup culture — there’s always something starting up here, and it’s important to note that cloud computing also changes the economics of a startup,” Jacobs says. “A startup today doesn’t need as much capital to get going because of cloud computing. A developer, who could be an independent contractor, an engineer who’s working at a day job and at night has a new product he wants to develop — he can log in to a platform as a service like Engine Yard, and they can start developing their product without a single dollar of investment. They can work for free developing the product until they’re at the point they can introduce it to the market.”

Aside from all the ways that cloud computing will change business, it’s also changing how employees approach their jobs. While people can work from home in their pajamas, it’s often difficult, and in many cases, employees don’t have access to everything that they could if they were on their PC actually in the office.

“Cloud computing lets you access your work environment, and you’re on your couch — maybe in your pajamas — and you’re doing real e-mail and doing real work, and yeah, maybe your boss is getting a little more work out of you, but you’re doing it, quite honestly, voluntarily because you get to work in your environment, you’re not in the office, you’re not sitting in front of the computer in the office and you probably have better TV shows on,” McNaught says. “The technology that cloud computing provides is about saving cost and delivering additional benefits.”

To give you a real example, Hilton Hotels decided to close their physical reservation centers and send all of their reservationists home with these devices that connected them securely to the Hilton system.

“What Hilton found was they could close all those buildings and save those costs of real estate, and they saved all the energy costs of running the PCs in the buildings, and they found the employees were happier, because they were working from home — maybe in their pajamas but nobody could tell. They were working over secure devices, so Hilton didn’t lose any data, and they were working over a device that didn’t have the complexity of the PC, so they weren’t calling the IT staff out to their homes to fix this,” McNaught says. “Cloud computing allowed Hilton to save money in so many ways that satisfaction increased, and they found that people working at home would take a lower pay. They saved on all sorts of fronts. Cloud computing has a transformative effect on all kinds of business.”

On top of that, Caplan says that cloud has the ability to raise employee morale even if you’re not sending them home to work.

“Put aside the adoption and cost benefits, and I think what you’ll find is your team just loves these applications because they’re used to dealing with consumer-based applications,” Caplan says. “They all know how to use Google, Facebook, Amazon. You’re basically equipping them with applications that are just as easy to use as those, and I think you get a ton of employee loyalty and you make your employees so much more efficient that from a recruiting perspective and a retention perspective and from efficiency, there’s just huge value.”

How to reach: Model Metrics, www.modelmetrics.com; NetApp, www.netapp.com; Engine Yard Inc., www.engineyard.com; Wyse Technology, www.wyse.com; Emergence Capital Partners, www.emergencecap.com