Carolyn LaWell

Friday, 26 March 2010 20:00

Building a team

Praful Kulkarni struggles with the same challenge many leaders do: finding the right people and aligning them under one vision.

“That’s kind of an ongoing challenge for every leader, to make sure everybody is on board,” the president and CEO says.

Since founding gkkworks, originally his MBA thesis, Kulkarni has kept to a few steps in order to surround himself with the right team and ultimately grow the company.

When it comes to hiring the right people, first you have to determine, as the leader, your strengths and weaknesses. Then determine the talent you need and reach out to those in your industry for suggestions.

If you’re looking for people to subscribe to your vision, you need to communicate it to those whom you’re interviewing and employees who maybe aren’t getting it.

The process has helped Kulkarni grow gkkworks, an architect and construction firm, to 250 employees and $81 million in revenue in fiscal 2009.

Smart Business spoke with Kulkarni about how to surround yourself with the right employees.

Understand your abilities. Recognize your strengths and weaknesses as a leader.

One could kind of take a look at whatever stage they are, or the CEO is, and see what kind of experience base they’ve built. Where they’ve had successes and where they’ve had failures — stepping aside and not getting too much bravado and emotional tie up into what you’re doing. An objective evaluation of what has worked and what has not worked will typically tell you what your strengths and weaknesses are.

When I started the company, I had a good sense of how to create successes in business development, so I needed somebody who could do great project management in the work that we do in design, planning and construction management because that was not my strong suit.

I was reasonable at it, but you want to find people who excel in that.

If accounting and finance and management is something that you need, then you need to find people with that skill set. It also depends on the complexity of the company and what are the different pieces that you’re going to need and what piece you’re going to run as the primary charge.

Find the right people. You have to figure out what your specialty business is, and then you have to look at the talent that you need.

Obviously in a successful business, you’ve got to have the business development portion, then you actually have to produce the work, and then you have to manage it in terms of the finance and accounting side. That means you need people in all of these three areas that are competent to have a successful business model.

Depending on what the leader or the entrepreneur’s strength is, you need to complement for the other pieces to have it as a total business.

Then, it’s just a matter of finding the people in your sphere of influence or in the industry so that, first of all, the people that you bring on board then need to subscribe to your vision, … (and) at the same time, they need to be competent in their area of expertise.

Our experience is if people come through other employees, through our staff and or our clients or some consultants, typically that is a better way to go because then you have familiarity, and these people tend to understand our culture and these people can indicate if it’s a good fit for our company.

Outline your vision. You obviously have to share that vision with (interviewees) and elicit responses from them.

Have discussions in terms of what their philosophies are, and you can get a sense of people whether they’re just doing a lip service or they actually have some strong convictions in terms of where the business may go.

I think it’s very important to share the vision and the culture of the company and see how these people respond. Or ask about their vision and where they see themselves, and see if there is a match.

One of the questions I like to ask is, ‘Where do you see yourself five years from now?’ It’s that old technique of getting people to really start (talking.)

I need to listen to them, [and] then they need to listen to me. If I’m going to hire that individual I need to understand where that individual is coming from.

You obviously want to hire people who have leadership qualities, and you need to figure out by asking questions about their leadership capabilities and what that DNA is of that individual.

The (leadership) qualities you typically can tell with simple questions like, ‘What did you do in college?’ or, ‘What did you do in school?’ There’s certain things that you start to find out about them that will give you clues about what their skill sets may be because that starts pretty early in your student life.

Move employees if needed. You talk to them and you figure out what their desires are to be a part of this company and work with them.

To me, open communication is absolutely the way to go. People need to know exactly where you’re coming from, and you need to be able to understand people that you’re working with and what their goals and desires are in their personal and professional lives.

See if we can find the right position for them within the company or if there is a mismatch, then they need to part with the company.

One of the common mistakes leaders make is when somebody doesn’t want to work with you or move on to another opportunity or you are not satisfied with what they’re doing, the people are terminated.

Invariably the people who are working for you that need to be reassigned or let go, you’re going to run into these people again because they’re going to be around in your industry. That means you have to have the best of relationships even after these people are gone from your company. You need to handle each one of these particular situations on its own merit so that these people are not your enemies. Otherwise, they will come back to hurt you.

How to reach: gkkworks, (949) 250-1500 or www.gkkworks.com

Tuesday, 23 February 2010 19:00

Get out of your office

Believe Doug Schneider when he says he knows what trust looks like.

Prior to joining Genea Energy as CEO, Schneider was in charge of an acquisition strategy at Verio Inc., which required him to integrate more than 60 companies, many of which were competitors. Besides coordinating the business and operational issues, he helped employees of rival companies form working relationships.

When dealing with constant change, as many companies are, there is one ingredient that can’t be overlooked, says Schneider. That is trust.

“Building trust is very critical,” he says. “If you do not have trust with your executive team, with the management, with the employees throughout the company, it’s very hard to manage change. It’s also hard to communicate effectively if you don’t have a foundation of trust.”

Schneider now uses that lesson while leading his 62 employees at Genea, a provider of energy consumption optimization services for commercial office building owners.

Smart Business spoke with Schneider about how to build trust among your employee base.

Reach all employees. A lot of it is just being honest and open with people. I think that’s one of the most important things. Also, it’s really about communicating. These things are interrelated.

To the extent you need to drive that open communication at the executive level, you want to drive that down throughout the ranks of your employees. You do that by going out into the field with your employees.

Say you have field employees who are out serving clients. Periodically, I like to get out in the field with them so you can get an understanding from their perspective of what’s going on. You start to build that trust with employees at different levels within the organization.

If you can, do a combination of these one-on-one interactions, smaller group interactions and even large group interactions — every quarter, we try and do an all-associate town-hall meeting.

Communication is not a one-legged stool — it’s something that takes on a lot of different contexts and processes.

Maintain clarity. You have to have a perspective as a CEO that you’re honest and open with people, and when there’s uncertainty, you try to bring clarity.

Even sometimes when you can’t bring clarity, you still tell people what you do know and what the situation is or what the issues are.

For a lot of companies, the past 12 months have been very trying times with what’s called ‘The Great Recession.’ We ourselves as a company, over 12 months ago, went through a reduction in force where we started to downsize part of the company. That starts to create uncertainty for people.

When you start to take an action like that as a company, and then it’s kind of combined with the macroeconomic environment, which itself has created a lot of uncertainty in this case, you have a lot of people saying, ‘Is my job (safe)? Am I next? What’s going on in the company? Is the company going to have further reductions?’

What we did in that case was explained to people why we did this, what the rationale is, how we kind of arrived at some of the decisions. Talked to them about the future health of the business, where things were going well in terms of sales and where things weren’t maybe going as well, and talk about milestones and metrics that we’re trying to drive to.

Sometimes the clarity means not letting rumors take on a life of their own, which means getting in front and getting comfortable talking with people about things that are creating some uncertainty. If you’re the CEO saying, ‘You know what? I understand there’s uncertainty about this.’

Hopefully, you can bring clarity and sometimes you can’t. Sometimes people just want to know that, ‘Hey, we’re working this issue through.’

Listen clearly. To be an effective communicator and start to be open, you have to listen to people first. Be authentic in how you listen to them before you maybe respond to them or disagree with them.

Part of it is building an environment where you actually encourage employees to challenge your thinking. When you do that and actually take in that new information and change decisions that have been made or go down a new path, I think that reinforces to people in the organization that you’re a company that does take feedback from employees to heart. That builds that openness and that trust.

A lot of it starts at the top. It is about how you carry yourself as an executive. I encourage my direct reports to challenge my thinking. Then, the idea is that they likely encourage the folks that report to them to challenge their thinking.

You have to practice what you preach. Go out and really seek that interaction with people in your organization. You can’t be an executive that gets comfortable sitting inside your four walls.

Gauge whether employees trust you. You start to know it when you get a sense that they are starting to challenge, in a constructive way, decisions that get made that they don’t think are the right decisions or their willingness to ask a tough question and not be worried about asking that tough question.

When you start to see two-way interaction, that is a sign that you actually are building up trust, and I also think that sometimes it’s one of those things where you just have a sense of it.

Let’s say there’s something important that the company needs to get done in a short period of time dealing with an unexpected customer issue or there’s some new sales opportunity that just came down but it’s going to require the involvement of a number of different folks from the organization.

When you start to see people rally together in almost a self-initiated team environment, I think that’s indicative that you’re building not just this trust inside the company, but that’s evolving to enthusiasm for people to really try to do what they can do for the greater good of the company.

How to reach: Genea Energy, (714) 694-0536 or www.geneaenergy.com

Tuesday, 26 January 2010 19:00

Finding consensus

The best business advice Michael E. Zatezalo ever received didn’t come from a lawyer colleague or a mentor in his field. It came from his father, a steel industry manager, who taught him no matter how many degrees you have or how smart you are, 75 percent of everything you do is the ability to get along with people.

Zatezalo references that message when trying to hone his listening skills or understand his 130 employees’ points of view.

To build employee consensus you have to be a good listener, says the managing director of law firm Kegler, Brown, Hill & Ritter Co. LPA. He uses consensus building while setting a company vision and, more specifically, communicating that vision to employees.

“That’s a challenge in law firms because law firms are basically horizontal organizations and people in law firms have a fair amount of autonomy,” Zatezalo says.

Smart Business spoke with Zatezalo about how to set a vision and push it through the organization.

Involve key people in developing a plan. In a law firm, you have to talk to your partners and lawyers, you have to study what’s going on in the marketplace, you have to analyze your strengths, weaknesses and your challenges, and out of that, [you] develop your vision and your plan.

We involve usually the executive committee — the executive committee really is the leadership group in our law firm — and we also from time to time have consultants that we use to help us facilitate our development of strategic direction.

What you normally do is you develop your vision over time. For example, every year, we have a firm retreat where all the attorneys participate. We usually have a facilitator or a consultant come in who speaks on various topics. But if you’re talking about developing a plan, normally what you do is you talk to the heads of all the practice areas, gather information (on market trends), and you sit down with the heads and say, ‘What are you going to need this year, where do you envision your practice going, are you adequately staffed, do you have enough support, do you need any new technology, those types of things?’

You basically talk to all of your different practice areas, and then based on information that you’re gathering on legal trends, say, ‘Are there areas we need to get into or industries that we should be focusing on?’ and you develop your plan from that.

Also I think one of the important things, try to match what you’re doing with what people love to do. So, for example, if you’re trying to develop an international practice, you have to have a lawyer who is really passionate about international practice or international law. You have to have someone that is really passionate about that area to really make it a success.

For example, we have an expanding India practice. The head of our international area basically said this is a good opportunity, and we started gathering information several years ago about what was going on there, and we also have an attorney here who is dual licensed in India and the U.S. We said this is a good opportunity to develop because we have the expertise, we have a person who is dual licensed in it, it’s an expanding market.

Push the vision through to employees. You have to do that by building consensus and convincing your partners that you’re trying to help them succeed by helping them succeed and the firm succeed.

It’s communication. But you also have to be a good listener. And I guess overall it’s basically trying to help someone succeed. If you can demonstrate that you’re trying to help someone succeed, you can get that consensus.

(You demonstrate that) by being a good listener, asking questions, coming up with ideas to improve an individual’s practice or practice area, giving them the resources to succeed, supporting their efforts.

I think it’s every day you have to remind everyone of what we’re trying to do.

I personally think that … you communicate by personal communication, one-on-one or personally talking to people, and also being consistent in your message. When you don’t change your story, you’re communicating with people.

You have to have one message and everybody in the firm understand their role. I believe in the team concept so that everybody is a link in the chain.

One of the things we’ve done is created what we call a Wow Committee, which meets and is made up of secretaries, administrative staff, directors … there’s a mix of us that meet every month. The purpose of the Wow Committee is how can we provide such outstanding client service our clients say ‘wow.’ We go through the client experience with our firm and analyze each step, basically say how can we improve that. I think that committee has helped us all communicate much better in terms of how to treat clients and how to treat one another.

Monitor whether or not employees understand the vision. You measure by: Are we increasing our fees in that area, are we increasing our clients, are we developing a reputation, are we becoming known as the go-to firm for that particular area, how many people have we hired, [and] are we getting a lot of inquiries from people who want to work for us because of that area?

Ultimately, the test of whether the message is getting out is whether they’ve been able to expand the business and generate enough work for their area, that’s the final test.

The question is a hard one in a law firm because we’re not a vertical company, so it’s not like we can do all of these quantitative tests. We’re not an IBM, you don’t have middle managers and then go on down. We’re kind of a horizontal business. For example, if you have a practice area that is growing and they add two more associates and you recruit two more lateral attorneys, then you know it’s working.

How to reach: Kegler, Brown, Hill & Ritter Co. LPA, (614) 462-5400 or www.keglerbrown.com

Tuesday, 26 January 2010 19:00

Finding flexibility

The Forest Corp. knows a little bit about adaptability.

Since the company’s inception 60 years ago, it has evolved from a lamp manufacturer to a leading producer of point-of-purchasing advertising materials.

The ability to add flexibility within your company all starts with your employee base, says Forest Bookman, president and CEO of the family-run business.

“The key to doing that is finding flexible people that have the right attitude and understand the importance of a positive culture in an organization,” says Bookman, who has 100 employees.

Smart Business spoke with Bookman about how to find the right people to fit your culture.

Q. How do you find people to meet your culture?

My recruiting process is I like to get many opinions of, certainly, my management and leadership team, and then, when necessary, I like to get opinions of potential front-line supervisors that may be supporting these people.

Everyone is asking probably the basic boilerplate questions, but then they are tailoring it to their specific interview style or their philosophy. But I would say the core value of the company mission and culture is covered universally.

Then (we do) kind of a debriefing or collaboration of what we hear and what we see in those individuals. But, in the end, there needs to be one decision-maker whether that be myself or whether that be the specific manager that that individual would be reporting to.

I don’t want to call it a consensus, but it is a sharing of a group opinion to arrive upon a decision. I feel that that uncovers a lot of differences and dynamics within each candidate.

Q. How do you determine in an interview whether a prospective employee will fit your company culture?

Trying to expose company culture in an interview is pretty difficult, but the one specific question I like to not only ask about but continue to probe is the individual’s strengths and weaknesses and supporting evidence of those strengths and weaknesses.

It’s always interesting to me when we’re all able to list our strengths, it’s our weaknesses that you’re able to uncover a lot of dynamics within an individual. Weaknesses are very important to all of us because we all have them, and we all need to make sure that our staff and our peers are complementary to those weaknesses, as well as strengths are complementary to others’ weaknesses. I think that’s where culture really starts to engage is having a diverse staff that is complementary to each other.

It starts with, ‘Can you tell me what your strengths and weaknesses are?’[and] depending upon the response, the questions are altered ever so slightly.

Q. What do you look for in their answer?

They better have one. It’s always almost comical to me when people avoid weaknesses because, like I said earlier, those are probably more important than strengths.

When someone avoids describing or developing their weaknesses that in and of itself can be a weakness because they need to understand themselves to understand how they’re going to perform on the job and be able to fit within the culture.

Q. How do you determine the interviewee can meet your need for flexibility?

As far as any specific questions, I’ll ask them past historical experiences about having to be flexible, about challenging times that they’ve had to overcome [and] how they were able to overcome those.

How they reacted to those situations is extremely important. Then, how they were able to come away from those experiences and learn from their reactions. The way they adapted to those situations is extremely important to me to gain a greater awareness of how they’ll respond to similar situations within our organization.

Q. How do you lay out your culture during the interview process?

There’s a point in the interview process where I’ll feel as though this individual is going to, this is a little strong of a word, but is worthy of me expanding or exposing our culture. I think there is quite a bit that the interviewee picks up on individually, but as far as verbally communicating the culture, I will open that up when I feel comfortable that not only this individual is going to go to step two or whatever step in the process we may be in.

It’s really important for the interviewee to understand that early on because that’s where they’ll start to feel comfortable and they’ll almost feel apart of the organization before they’re even asked to join the company.

I’ve heard a lot of cases that individuals like to steer new hires in the direction they want them to go. I’m more of an individual (who says), ‘OK, here’s what you’re going to be exposed to, this is the culture that you’re going to be a part of, now you figure out how to enhance or adapt or increase whatever your direction wants to be.’ And then we collaborate on that. Certainly, I would want to be in tune with that.

Not allowing a new hire to express or convey their vision would be pretty foolish on the part of a company’s culture. Not to say that it doesn’t need to be maintained or understood, but new people can be a fresh breath of air. They can also be a bad apple, but that’s all in management.

Culture is absolutely an important part of the interview process.

How to reach: Forest Corp., (330) 425-3805 or www.forestcorporation.com

Saturday, 26 December 2009 19:00

Adding value

Mark Rutter says that business comes down to a simple equation: If you help your clients be successful, you’ll be successful.

The president and CEO of GROUP360 Inc. led his company to post $40 million in revenue for fiscal 2009, an 18 percent increase from 2008. The marketing communications firm’s growth in recent years is linked to the fact it listened to customers’ needs and restructured into a single-source provider of creative services. The new value proposition has clients like Anheuser-Busch Inc. and Johnson & Johnson saving money and getting products to market faster.

“Helping an organization or an individual achieve their goals is probably one of the most important things that anybody can do,” Rutter says. “You can’t do that unless of course you do understand what the clients’ needs are, and you can’t understand those clients’ needs unless you can build some relationships with people so they can openly and honestly tell you what they think their organizations need.”

Smart Business spoke with Rutter about how to build customer relationships.

Get to know your client. Without question, you can’t really understand what someone else needs or some other organization needs unless you know about them, you know about their history, you know about their problems, you know about their success, you know why they do what they do. In order to do that, you really have to get to know the individuals that run the organization.

You would do that through a variety of different relationship-building processes ranging from just communication, lunch, seeing them in their environment. You can even do that on a golf course. Any way that it would be useful to listen to them and see what their needs are would build that relationship.

I think the best way is face to face. It’s interesting that in our business we have a variety of ways to communicate for our clients, ranging from the advertising, design, photography, building point-of-scale displays or trade shows or events, all those are ways that we use to help our clients go to market and become more successful. But when it comes to building a relationship the ideal way — if you were a big company selling, let’s say, soap powder, you would still be talking to the user of that soap and making sure you understood their needs.

The same thing holds true with us talking to our clients. As long as we can talk to them directly and have two-way communication and make sure that we listened to what they say, that’s the best way to build that relationship.

Ask clients about their past and future to better understand their needs. You can just ask a question like, ‘Where do you think your organization is going? What are the obstacles that keep you from getting where you want to go? How will you know once you get there that you’ve arrived, and then what will you do?’ Those are all open questions.

First of all, you would just ask open questions that will elicit a response that will be having the client, in essence, tell us their story. If they can tell us their story … we learn all about them, and we also learn that their story is different from somebody else’s story.

There’s a desire in business to quantify people into groups and say the demographics of this group are this or that. I think that sometimes is misleading because people are really uniquely different and organizations are also very uniquely different.

So the better you know them and understand who they are and what they stand for and where they want to go, the better off you can serve them.

Put work into maintaining the relationship. That’s the hard part. We have to continually (review) that relationship by making sure we’re giving the client what they need and what they can see is of value to them.

We have a variety of different ways we work with clients. One of the ways we work with some of our major clients is called a steering committee, and we have people that interact with each other, both from the client as well as from our company, on a regular basis. It’s a very good form for resolving issues or for discussing future opportunities, as well. But because it’s interactive, it’s a whole lot more effective than us just (assuming) we know what the client needs.

The steering committee really is a pretty old model of people just collaborating together, and rather it (comin) just one way, it puts people together for a common goal of making sure that their clients’ needs are met. They can be run in a lot of different ways, but basically, they meet on a regular basis, they have an agenda and then they have an open forum part, which (is) very good for issue resolutions.

In a steering committee model, there’s more than one company representative there and more from just one category, not just from the account service but also from, for example, client solutions or creative or whatever category best fits the client’s needs. So when you have them all together it’s an easier model to talk about things that go well beyond the day’s business activity. And also it’s an opportunity for future growth for both because there you can talk about things that they might like to do down the road that no one had thought of.

Any relationship goes back to understanding what someone wants, what they wanted to begin with and what the evolution of that relationship changes that in terms of their needs. Once you’ve satisfied some of the basic needs, they expect other things to happen, as well, and so our ability to continually evolve and increase our level of service to them is very important.

If we were going to measure our success in a way that was meaningful to the client, it would be, did the client actually sell more of their products, and if they did, were we responsible or partially responsible for that activity? So those are the things we’ll continue to look at to help our clients grow.

If you’re going to have a long-term relationship, then you have to continually add value to that relationship.

How to reach: GROUP360 Inc., (314) 260-6360 or www.group360.com

 

Saturday, 26 December 2009 19:00

Delivering on time

Meeting customer demands is a constant thought rolling through Dan Oliver’s mind.

The president and part-owner of Global Body & Equipment Co., a metal and plastic parts manufacturer, knows if his 45 employees have a customer communication breakdown it can be detrimental for the company and even his customers.

“It may be my customer’s customer is the guy that’s really being demanding,” Oliver says. “But if my customer can’t meet his customer’s demand, then we both lose.”

Good customer service involves solid communication, honesty and allowing employees to make decisions.

Smart Business spoke with Oliver about how to maintain customer satisfaction.

Q. What are the keys to understanding and meeting customer needs?

We go there. We go to the customer’s place. We try to understand their process. We see how they’re assembling the stuff, how they build it, how is it going to be used, mostly just trying to spend time with the customer to understand the real need.

I’m an old-fashioned guy. I go to my customers and (have) one-on-one-type interaction. That’s the only way I can really understand their business. You can’t do it electronically.

Whether it’s you go to visit them or have them come here so they understand what we do and how we do it. But just try to develop a partnership.

We really view our customers as a partnership because we become the manufacturing arm for that company in many cases.

Q. How often should you communicate with customers?

That depends on the size of the customer and the needs of the customer.

A lot of our interaction is driven by the fact that lead times today are so short people aren’t carrying inventory, especially in the last 18 months. With uncertainties, people aren’t holding a lot of inventory, so when they need something, they need it in a hurry. So we try to meet those demands, and in many cases, instead of three weeks lead time, they need it in 10 days.

(It’s asking,) ‘How can we do that? Or can I get you half of them? What do you really need to get out of trouble?’ In order to help them and meet those needs, you’ve just really got to communicate a lot with them.

Q. How do you remain honest with customers about what you can and can’t provide?

I try to be as upfront as I can and tell them, ‘These are the issues. Here’s what I’m trying to deal with; this is what I can do. What does that do to you?’ In some cases, we may have to work overtime, or we may have to bring in some people on the weekend or do something really costly to meet their needs, and I have to understand, OK, is it really necessary to do that or not?

We try to work through whatever the issue is. That goes back to the partnership thing. If you develop the relationship enough that they view you as a partner, then they’re more apt to say, ‘OK here’s my real problem; this is the issue.’ Tell me what the issue is and we’ll do what we can to deal with it.

Q. How do you monitor customer satisfaction?

That’s a difficult one to do. To me, I make sure that I’m visiting or communicating with the top-level people of the other company. That’s more of the discussion I have with the other presidents: How are we doing from their perspective?

I do it more on a one-on-one. I have a few number of customers so I can do that.

A lot of times I am very specific about what the issue was, and have we solved that to your satisfaction, did we change whatever to make the issue improve.

Q. Do you have any final advice on maintaining customer satisfaction?

To me one of the things is hire good people and trust them that they’ll make good decisions. I’m a smart enough guy to know that I have to have people making decisions every day to run this business successfully. I try to instill that into our people and it goes to customer service.

If my inside sales guy senses that we’ve got a customer that has a problem, he’s going to go out to the production guys and he’s going to try to get them to change. In most cases, they work those things out without me ever getting involved. And I don’t need to get involved if I have good people.

I’ve always said there’s nine ways to skin a cat, well I say that because I tell my people, ‘This is the goal, this is what we’re trying to accomplish here, and you guys are the best at doing that.’ I try to empower those people to make decisions. You do that by trusting them.

The other thing is you have to have an environment where they feel safe enough to do that. If everybody is trying to [cover themselves] all the time, that’s a waste. I discourage that when someone is trying to cover their hind end because a mistake was made or a decision went bad, because I know the worst decision is no decision. Make the decision, and if it’s wrong we’ll fix it. I don’t cut somebody’s head off because they made a bad decision.

Over time people become comfortable at making decisions, which allows you then to react to the short lead times and the customers’ needs because they can make those decisions that need to happen very quickly, and they don’t have to wait for the boss’s boss to get involved, they can do it. That’s how we can respond to our customers quickly.

Friday, 25 September 2009 20:00

Space exploration

Savvy CEOs are taking advantage of the slumping commercial real estate market by evaluating whether their space meets their needs while the cost to buy or lease is low.

Commercial real estate prices fell again in the second quarter, showing an 18 percent national decrease compared to the previous quarter, according to Massachusetts Institute of Technology Center for Real Estate’s index. The drop placed the price index 39.2 percent below its 2007 second quarter peak.

Clearly, the market is experiencing volatility, but opportunities are presenting themselves.

“Tenants and buyers are in a great position, and it will probably be this way for another 12 to 18 months at a minimum,” says Andrew Ewald, member of the Tenant Advisory Group, Grubb & Ellis/BRE Commercial.

Whether you’re searching for a new property or hoping to reconfigure space for efficiency’s sake, cost savings can be yours. The first course of action is to connect with an experienced commercial real estate broker to weigh your options because there are plenty of them.

Debate to buy versus lease

The decision to buy or lease property has less to do with the current state of the market and more to do with each company’s individual circumstances.

Think about your industry, your strategic plan, your company culture and what those will look like five or 10 years from now, then add the amount of capital you have for discretionary spending. Most companies lease to stay adaptable.

One of the bigger challenges facing the market today is that the capital markets are at a standstill, leaving few lending opportunities. The loan-to-value ratio has changed dramatically. Once, you were putting 10 percent to 30 percent down for a loan; today it might be as much as 50 percent.

“It’s a great time to buy as values are significantly less today compared to two to three years ago, but I think it’s going to be an even better time to buy in the future,” says Travis Carter, senior associate, Irving Hughes Inc. “I think the market values are going to continue to be going down, and I think we’re going to see more distressed assets coming available in the market in the next 24 months, which is going to drag the overall values down.”

It’s important to work with your broker to analyze your options and ensure the best deal, especially because prices and volatility vary by market and even within markets. Renting sublease space may even be the way to go because it’s cheap, but be sure to investigate the leaser’s financial standing before signing anything.

No matter what your decision, you’ll more than likely see savings because sales prices have fallen and landlords are becoming more and more creative with incentives to retain and attract tenants.

Renegotiate your lease

If your lease has been tucked away, dust it off and read the fine print. Renegotiating your lease can lead to immediate savings and even allow you to get better use out of your space. Again, the returns may vary based on your landlord’s willingness to bargain, but your market insight can be used as leverage.

Before you go to your landlord, there are a few questions to ask yourself. First, how much time do you have left on your lease? A prime time to renegotiate is when there is two or three years left on your lease.

Second, how much time do you commit? If you discuss the popular blend and extend deal, where you sign a lease extension in exchange for reduced rent, you have to think about whether the space will continue to meet your needs for that length of time.

Third, can you give back or add space? If you’re cash-strapped or your company has reconfigured its employee base, maybe you can work the renegotiation in a way that better uses your space, such as adding or subtracting square footage.

Fourth, use your broker to research your landlord’s financial position, such as insight on how large the mortgage is and whether your landlord has good credit.

“I think you have to just do your due diligence,” Carter says. “Just understand maybe what their debt is on the building, how many properties do they own in the area and how are those properties holding up in this market.”

Fifth, research your options in the marketplace. Even if staying makes the most sense, at least you can present your landlord with the possibilities that wait should you leave. Some tenants are offering free rent, moving allowances and increased tenant improvement dollars.

“There’s really limited tenant activity, there’s an abundance of options, so you want to create a competitive environment where landlords are fighting for you tenancy even if you think a potential renewal makes sense and your existing space works well,” Ewald says. “You want that competitive environment — and your broker to create that competitive environment — so you’re in a win-win position to negotiate with all parties and to negotiate a better economic real estate transaction.”

Consider more than just costs

Before you sign next to the X, take into consideration more than just the monthly dollar amount you’ll be paying. The general checklist for picking property once emphasized location, employee driving time and amenities. Those concerns remain important, but the current state of the economy has also brought to light the need for efficiency, flexibility and sound deals.

Working with a broker will allow you to receive the best bang for your buck, meaning fair market value, tax breaks, relocation incentives, landlord concessions and operational costs, while making sure it’s a strong deal.

“Outside of the economics of the deal, tenants should take into consideration who the landlord is, what their credit is, what flexibility the tenant has in the event the building goes back to the bank, what rights do they have to offset some of the concessions that the landlord has offered,” Carter says.

The real estate crisis has left landlords hurting. Work with your broker to determine whether your landlord is currently facing or could face financial distress and how that affects the tenant improvements or possible free rent he or she promised.

Nonetheless, you should take the time to work agreements into your lease that protect your rights as a tenant if your landlord forecloses on the property and the lender takes over. Time and savings might also be found in the long run with contraction, addition and termination agreements for flexibility.

Flexibility is key for surviving this economy — and that includes your real estate. Your broker will have a space planner who can help you efficiently design the space you’re in or determine which space best suits your company. Companies are saving money by going to open floor plans, narrowing cubical sizes and hoteling, which supports employees working outside the office and sharing desk space.

Whether you’re planning to buy, lease, move or stay, make sure you give yourself ample time — at least a year but probably longer depending on size — to ensure you’ve settled on the best choice for your company.

“If you start the process early, (your options are) twofold,” Ewald says. “One, to determine efficiencies and really the business plan for the company, but secondly, it’s to engage the market and allow you rself time to leverage and negotiate.”

Special Report

San Diego

Friday, 25 September 2009 20:00

Space exploration

Savvy CEOs are taking advantage of the slumping commercial real estate market by evaluating whether their space meets their needs while the cost to buy or lease is low.

Commercial real estate prices fell again in the second quarter, showing an 18 percent national decrease compared to the previous quarter, according to Massachusetts Institute of Technology Center for Real Estate’s index. The drop placed the price index 39.2 percent below its 2007 second-quarter peak.

Clearly, the market is experiencing volatility, but opportunities are presenting themselves.

“With a stalled or slowing economy, demand is way off, and that has increased vacancies and caused a lot of challenges for business owners,” says Samuel F. Smith II, principal and CEO, Resource Commercial Real Estate LLC. “However, that’s created some real opportunities on the flipside for tenants to get a great deal and prime space at big savings that they couldn’t get before this recession.”

Whether you’re searching for a new property or hoping to reconfigure space for efficiency’s sake, cost savings can be yours. The first course of action is to connect with an experienced commercial real estate broker to weigh your options, because there are plenty of them.

Debate to buy versus lease

The decision to buy or lease property has less to do with the current state of the market and more to do with each company’s individual circumstances.

Think about your industry, your strategic plan, your company culture and what those will look like five or 10 years from now; then add the amount of capital you have for discretionary spending. Most companies lease to stay adaptable.

“My recommendation today is the same as it would be two years ago,” says Brian Zurawski, COO, Summit Realty Group. “You look at both buy and lease options and analyze what’s the best bottom-line solution for the customer, and that’s not only going to be dependent on real estate costs.”

One of the bigger challenges facing the market today is that the capital markets are at a standstill, leaving few lending opportunities. The loan-to-value ratio has changed dramatically. Once, you were putting 10 percent to 30 percent down for a loan; today it might be as much as 50 percent.

“Despite all the even trillions being spent to get our economy back on track, it has not yet been resolved in the commercial real estate and the credit markets; there is still a challenge to get credit these days,” Smith says.

It’s important to work with your broker to analyze your options and ensure the best deal, especially because prices and volatility vary by market and even within markets. Renting sublease space may even be the way to go because it’s cheap, but be sure to investigate the leaser’s financial standing before signing anything.

No matter what your decision, you’ll more than likely see savings because sales prices have fallen and landlords are becoming more and more creative with incentives to retain and attract tenants.

Renegotiate your lease

If your lease has been tucked away, dust it off and read the fine print. Renegotiating your lease can lead to immediate savings and even allow you to get better use out of your space. Again, the returns may vary based on your landlord’s willingness to bargain, but your market insight can be used as leverage.

Before you go to your landlord, there are a few questions to ask yourself. First, how much time do you have left on your lease?

“Probably the ideal would be in the one- to two-year range,” Zurawski says. “If you get out beyond that, that’s when you get landlords saying that they’re willing to just let the lease lie and take the position that three years down the road the economy is going to be better and things will be back on track.”

Second, how much time do you commit? If you discuss the popular blend and extend deal, where you sign a lease extension in exchange for reduced rent, you have to think about whether the space will continue to meet your needs for that length of time.

Third, can you give back or add space? If you’re cash-strapped or your company has reconfigured its employee base, maybe you can work the renegotiation in a way that better uses your space, such as adding or subtracting square footage.

Fourth, use your broker to research your landlord’s financial position, such as insight on how large the mortgage is and whether your landlord has good credit. The information can be insight on how your landlord is weathering the economy.

Fifth, research your options in the marketplace. Even if staying makes the most sense, at least you can present your landlord with the possibilities that wait should you leave. Some landlords are offering free rent, moving allowances and increased improvement dollars to attract new tenants.

“Knowledge of the circumstances of that owner and your other options out in the market, that’s your leverage,” Zurawski says.

Consider more than just costs

Before you sign next to the X, take into consideration more than just the monthly dollar amount you’ll be paying. The general checklist for picking property once emphasized location, employee driving time and amenities. Those concerns remain important, but the current state of the economy has also brought to light the need for efficiency, flexibility and sound deals.

Working with a broker will allow you to receive the best bang for your buck, meaning fair market value, tax breaks, relocation incentives, landlord concessions and operational costs, while making sure it’s a strong deal.

“As far as what’s different today versus a couple years ago, I think it’s increasingly important to analyze the financial strength of both the lender and landlord involved,” Zurawski says.

The real estate crisis has left landlords hurting. Work with your broker to determine whether your landlord is currently facing or could face financial distress and how that affects the tenant improvements or possible free rent he or she promised.

Nonetheless, you should take the time to work agreements into your lease that protect your rights as a tenant if your landlord forecloses on the property and the lender takes over. Time and savings might also be found in the long run with contraction, addition and termination agreements for flexibility.

Flexibility is key for surviving this economy — and that includes your real estate. Your broker will have a space planner who can help you efficiently design the space you’re in or determine which space best suits your company. Companies are saving money by going to open floor plans, narrowing cubical sizes and hoteling, which supports employees working outside the office and sharing desk space.

Whether you’re planning to buy, lease, move or stay, make sure you give yourself ample time — at least a year but probably longer depending on size — to ensure you’ve settled on the best choice for your company.

“The best opportunity is (for companies) to look at their options in the market,” says Smith, who recently saw companies save anywhere from 5 percent to 40 percent on transactions.

Special Report

Indianapolis

Friday, 25 September 2009 20:00

Space exploration

Savvy CEOs are taking advantage of the slumping commercial real estate market by evaluating whether their space meets their needs while the cost to buy or lease is low.

Commercial real estate prices fell again in the second quarter, showing an 18 percent national decrease compared to the previous quarter, according to Massachusetts Institute of Technology Center for Real Estate’s index. The drop placed the price index 39.2 percent below its 2007 second-quarter peak.

Clearly, the market is experiencing volatility, but opportunities are present.

“There’s no question this is a great time to be a tenant and a buyer in this market,” says Dan Maslauski, managing director, Jones Lang LaSalle. “We expect that to continue probably through mid next year at the earliest if not through the end of 2010.”

Whether you’re searching for a new property or hoping to reconfigure space for efficiency’s sake, cost savings can be yours. The first course of action is to connect with an experienced commercial real estate broker to weigh your options because there are plenty of them.

Debate to buy versus lease

The decision to buy or lease property has less to do with the current state of the market and more to do with each company’s individual circumstances.

Think about your industry, your strategic plan, your company culture and what those will look like five or 10 years from now; then add the amount of capital you have for discretionary spending. Most companies lease to stay adaptable.

“In general, I think it has been that it’s better for tenants to lease rather than own because it provides you flexibility and it also frees up capital for you to invest in your core business,” Maslauski says.

One of the bigger challenges facing the market today is that the capital markets are at a standstill, leaving few lending opportunities. The loan-to-value ratio has changed dramatically. Once, you were putting 10 percent to 30 percent down for a loan; today, it might be as much as 50 percent.

“For users, many of which are capital constrained, probably leasing looks pretty good right now,” says Shawn P. Mobley, executive vice president and managing director, Grubb & Ellis Co. “If you have adequate or excess capital, potentially it’s not a bad time to buy because there are some cheap opportunities out there.”

It’s important to work with your broker to analyze your options and ensure the best deal, especially because prices and volatility vary by market and even within markets. Renting sublease space may even be the way to go because it’s cheap, but be sure to investigate the leaser’s financial standing before signing anything.

No matter what your decision, you’ll more than likely see savings because sales prices have fallen and landlords are becoming more and more creative with incentives to retain and attract tenants.

Renegotiate your lease

If your lease has been tucked away, dust it off and read the fine print. Renegotiating your lease can lead to immediate savings and even allow you to get better use out of your space. Again, the returns may vary based on your landlord’s willingness to bargain, but your market insight can be used as leverage.

Before you go to your landlord, there are a few questions to ask yourself. First, how much time do you have left on your lease?

“I’d say if you’re inside of five (years), you should think about it; if you’re inside of three, it’s absolutely worthy of investigation,” Mobley says about renegotiating.

Second, how much time do you commit? If you discuss the popular blend-and-extend deal, where you sign a lease extension in exchange for reduced rent, you have to think about whether the space will continue to meet your needs for that length of time.

Third, can you give back or add space? If you’re cash-strapped or your company has reconfigured its employee base, maybe you can work the renegotiation in a way that better uses your space, such as adding or subtracting square footage.

Fourth, use your broker to research your landlord’s financial position, such as insight on how large the mortgage is and whether your landlord has good credit.

“Understand your landlord; understand the debt structure of the property and what it can do, as it can really reveal some interesting negotiating opportunities for tenants out there,” Maslauski says. “Landlords are doing some things that we are shocked that we are seeing them do, because they don’t want to hand back the property to the lender.”

Some of those concessions are free rent, moving allowances and increased tenant improvement dollars.

Fifth, research your options in the marketplace. Even if staying makes the most sense, at least you can present your landlord with the possibilities that wait should you leave.

“Really it comes down to competition and opportunity,” Mobley says. “They have to believe you’re willing to move, and they have to believe there are options in the marketplace that will allow you to do basically a cost-free move.”

Consider more than just costs

Before you sign next to the X, take into consideration more than just the monthly dollar amount you’ll be paying. The general checklist for picking property once emphasized location, employee driving time and amenities. Those concerns remain important, but the current state of the economy has also brought to light the need for efficiency, flexibility and sound deals.

Working with a broker will allow you to receive the best bang for your buck, meaning fair market value, tax breaks, relocation incentives, landlord concessions and operational costs, while making sure it’s a strong deal.

The real estate crisis has left landlords hurting. Work with your broker to determine whether your landlord is currently facing or could face financial distress and how that affects the tenant improvements or possible free rent he or she promised.

“Because of the distressed nature of many landlords these days, you really need to make sure that your tenant remedy clauses are ironclad,” Maslauski says.

Nonetheless, you should take the time to work agreements into your lease that protect your rights as a tenant if your landlord forecloses on the property and the lender takes over. Time and savings might also be found in the long run with contraction, addition and termination agreements for flexibility.

Flexibility is key for surviving this economy — and that includes your real estate. Your broker will have a space planner who can help you efficiently design the space you’re in or determine which space best suits your company. Companies are saving money by going to open floor plans, narrowing cubical sizes and hoteling, which supports employees working outside the office and sharing desk space.

Whether you’re planning to buy, lease, move or stay, make sure you give yourself ample time — at least a year but probably longer depending on size — to ensure you’ve settled on the best choice for your company.

“If you’re doing it with a year left, you’re doing it too late,” Mobley says.

Wednesday, 26 August 2009 20:00

Risky business

This economy probably has your company facing heightened risks — risks that you might not be prepared for and that could ultimately cripple your business.

The global economy is the No. 1 risk businesses say they face today, according to the Aon 2009 Global Risk Management Survey. But the survey points out that less than 66 percent of respondents have formally reviewed their major risks or have plans in place to deal with them, including the economic downturn.

Now is a crucial time to have a detailed risk management program in place. After all, budgets are tight, you’re looking for savings and managing risk can directly influence your bottom line.

“The idea of risk management is to reduce and hopefully eliminate both the frequency and severity of losses,” says Lauren Bryant, senior vice president, M.E. Wilson Co. Inc. “Ultimately losses do affect that bottom line.”

Hiring an in-house executive to focus on risk may financially be out of the question. But a good insurance broker can help you put the puzzle pieces in place, starting with the questions that will lead to true solutions.

Identify potential exposure

Like anything in business, a true commitment to risk management starts with the company’s leadership. Set aside time for your organization’s key players to sit and outline the different risks you might face, such as financial, property and casualty, and legal.

There are a number of assessments you can do — such as risk mapping or enterprise risk management — depending on the amount of detail and commitment you want your program to include. Regardless of what direction you are going, you should include your insurance broker in the conversation. Odds are his or her experience, benchmarking data and outside eye will lead to valuable questions. A good broker has dedicated risk management and claims services and will go through a checklist that will bring your risks to light.

Once your risks have been identified, your broker can help you develop a strategy to quantify your risks and determine whether you should mitigate or transfer the risk.

“The goal is to analyze what is there, what does that client need, and have dialogue with the client so the client can decide how much risk they can take themselves,” says Alan Read, executive vice president, Stahl & Associates Insurance Inc. “It’s a lot more than just going out there and gathering information and coming in with a quote.”

The process is fairly systematic, but it’s also continuous. A true risk management plan involves constant monitoring. It’s worth the effort to work with your broker to match a timeline of monthly musts with your plan. Especially in volatile times like today, your company could face different risks than it did six months ago.

“By buying the proper insurance products, they’re protecting themselves against lawsuits and protecting themselves against uninsured events,” says Doug Moore, vice president/agency manager of operations and bond manager, BB&T — Iler Wall & Shonter. “So it’s really a risk management issue to have the proper policies in place.”

Review risks

Your risk analysis is a great guideline for your specific needs, but there are a few areas of coverage the economy has made more relevant. And today’s evolving risks can be enhanced by geography and industry.

“I think to a certain degree some of (today’s) risks are very similar and are currently existing but are more pronounced with the present state of the economy,” Bryant says.

Business interruption and trade credit insurance are two areas to review. If a client can’t pay or your operations are halted, how will those scenarios affect your balance sheet if you’re already strapped for cash?

Insurance executives are warning that desperate times produce desperate people. If you’ve decreased your work force or plan to, keep in mind workers’ compensation and employee discrimination claims tend to rise in a down economy, as do employee crime and cyber theft. Now might be a good time to evaluate directors and officers coverage, employment practices liability insurance, crime insurance, cyber insurance and workers’ compensation coverage.

“With staff cuts and employee layoffs, (companies are) facing employment practice liability suits for wrongful termination,” Moore says. “On workers’ compensation insurance, they’re facing workers that are claiming injury so they won’t get laid off — that kind of stuff to try to get some benefits out of it.”

Find cost-saving solutions

Insurance is one line item that hasn’t been immune to budget cuts. But before you start scaling back coverage, keep this in mind: We’re still in a soft commercial insurance market — meaning insurance is a cheap form of risk capital.

A 2009 benchmark survey by the Risk and Insurance Management Society Inc. shows a lower average in premiums contributed to a 9.4 percent drop in the average total cost of risk per $1,000 of revenue.

If you’re worried about the size of your insurance allotment, call your broker now, review your contracts and review your risks. You don’t have to wait until your renewal in order to find savings or renegotiate your contract. Just remember, before you can responsibly lower costs, you need the details of what you are and aren’t covered under.

“Most companies are analyzing not only the types of coverage that they’re carrying but also the limits that they carry,” Bryant says. “We have done a lot of that over the last year, just analyzing where there might be an opportunity to cut in coverage.

“But a lot of times, they need those coverages both from the standpoint of their exposure and from the standpoint that they might have contracts in place that require they maintain certain limits of coverage.”

Immediate savings can be found by passing risk to others, such as tenants or vendors. You also can play around with increasing deductibles to lower premiums or scaling back nonmandatory insurance. If the latter two are options, first weigh whether you can financially assume the risk or if the cost of managing the risk is cheaper.

One of the only ways to decrease the costs you can control is by reviewing your claims. You should have regular claims review meetings with your broker to see where prevention methods can be put into place.

“There are risk-management tools available from the insurance companies that will provide loss-control services to help maybe change the way some things are done, and the end result is that there’s less claim activity and so there’s less cost,” Read says. “Many times those things can be done at no cost to the employer.”

Some brokers say clients recently have seen cost savings of 20 percent.

Part of the answer is building a long-term relationship with your broker and even carrier. Share with them details of your operations. Invite them to tour your facility. The more your broker understands your business, the better he or she will be able to provide holistic advice. And a lasting relationship with an insurance carrier can mean more flexibility and negotiation.

“It goes back to the importance, as I said in the beginning, having that ongoing dialogue with that risk manager who is going to understand everything that business does,” Read says. “He will help guide the business through those decisions of what to insure and what not to insure.”