Laura Green

Don Knauss has built a career transforming new brands into household names, from debuting Simply Orange at the Minute Maid Co., Coca-Cola Zero as president of Coca-Cola North America or launching Green Works — one of the most successful new products in consumer packaged goods in the last decade — as chairman and CEO of The Clorox Co.

While the road hasn’t always been easy, Knauss says there’s one characteristic that will never change when it comes to what makes brands successful: People trust them. “At the end of the day, a brand is a promise of performance,” says Knauss, who joined Clorox in 2006. “It really is about creating trust with the consumer.”

Advances in technology have only magnified the role trust plays in consumer decision-making, Knauss says. Before people even set foot in a store to buy a product, they can research user reviews, look up product information and find out what other people think about the best practices of the brand as well as the company that makes it.

Coming on as the new CEO, Knauss quickly realized that Clorox, a company with products in more than 100 countries, needed to meet consumers’ need for trust and transparency if it was going to continue to get their vote as customers.

Here’s how Knauss created a corporate responsibility strategy at Clorox that’s not just good for consumers; it’s also good for business.

Make it a priority

One of the most important steps in the success of Clorox’s corporate responsibility initiatives dates back to 2006, when Knauss and his executive leadership team first formalized the company’s commitment to corporate responsibility (CR).

What began with a meeting about Clorox’s centennial business strategy — the company turns 100 in 2013 — quickly turned into a call to action as the group examined four “megatrends” going on in the business world, including health and wellness, sustainability, multicultural shifts and, of course, affordability. As Knauss and his team dove into the causes behind each trend, they kept coming back to the issue of corporate responsibility.

“Consumers were not only evaluating brands on strictly the performance of that brand, but they were also evaluating it on who was providing the brand to them,” Knauss says. “Was it a company they trusted? Was it a company that had the same core values that they espoused? And was it somebody that they wanted to do business with?”

Over the years, Clorox has grown from its trademark bleach and cleaning products to manufacturing and selling everything from salad dressing to water filters, cat litter and trash bags. And like many other brand-driven enterprises, it’s spent years focusing on its commitment to build trust with its customers.

But in that meeting, Knauss and his team realized that it was time to take the extra step. They needed to make the company’s commitment to corporate responsibility a formal strategy with clear metrics and goals.

“It was that insight to seeing the connection consumers were making between brands and companies that made us even drive it harder,” Knauss says.

“As an offshoot of health and wellness and sustainability, it really got us doubling down on our corporate responsibility of what do we want to stand for?”

They narrowed Clorox’s focus to five pillars of corporate responsibility: performance, planet, people, products and purpose. And they went about setting goals for each pillar. Some of these included making sustainability improvements to 25 percent of the product portfolio by 2013, reducing waste and moving to more sustainable product materials.

They also structured the goals in phases — annual goals as well as a three-year plan — allowing the leaders to adapt the strategy over time as consumer or economic trends play out. As you build a foundation for CR in your organization, the most important thing to consider is whether the goals you set are realistic, so that people internally and externally will take them seriously, Knauss says.

“If you set unrealistic goals, you can create some pretty bad behavior throughout the organization,” he says.

“So we thought it was a combination of getting the strategy right, getting the strategy focused on trends, sustainability being one of those trends, and then linking that to how do we do a better job from a corporate responsibility standpoint against the planet, against our people, against the purpose of the company.”

Build alignment

Creating a formal CR strategy gave Clorox the foundation it needed to drive the commitment throughout the organization. From there, Knauss says it was up to the company’s leadership to build alignment on the strategy, or “tone at the top.”

“It starts with the top,” he says. “So a CEO or COO really has to drive this thing if you’re going to get traction with the rest of the company, and then get traction with outside constituents.

“You have to keep people informed. So it’s not just me talking to the executive committee. It’s me sending out voice mails, emails, connecting with the rest of the organization on the kind of progress we’re making.”

As a leader, Knauss says he utilizes a piece of business advice he received from Don Keough, the former president of the Coca-Cola Co., when he’s trying to get buy-in from stakeholders.

“When I took over as president of Coca-Cola North America, I asked him, ‘Don, what kind of advice would you give me?’” Knauss says. “And he said, ‘Don’t act like a big shot.’

“One of the things I’ve learned is that as you move up in an organization, you’re given more power. The less you use that power, the more authority you’re given by people — in the sense that power is the ability to compel people to do things. Authority is really more about persuading people to do things.”

To get buy-in from shareholders about the CR strategy, Knauss simply reminded them how the integrity of the company that produces a brand translates into a consumer’s buying decisions, and therefore, profitability.

“Everyone understands the evolution of the consumer over time and how the consumer isn’t just evaluating the brand but the company that provides that brand — and is it somebody they really want to do business with,” Knauss says. “I think people intellectually get that. They get that intuitively. It’s just reminding them how important it is that our values and the focus on our corporate responsibility align with the values of our consumers.

“It was easy to make the leap from building trust with consumers — anchored in the performance of the brands — to building trust with investors by anchoring the trust in the performance of the stock and the company’s ability to deliver shareholder returns.”

Increase engagement

Having a strong CR strategy means nothing if you don’t accomplish any of the goals you set out to achieve. So to keep your organization accountable for progress, you need to find ways to keep them engaged in the goals and focused on their success.

One way to do this is by tying those goals to monetary incentives.

Because Knauss knew he would rely heavily on his executive committee to communicate and lead progress on CR initiatives, he decided to pay the company’s senior executives part of their annual compensation based on Clorox’s ability to deliver against its environment goals, such as for greenhouse gas emissions, wastewater reduction, energy use and solid waste.

“If you really want to get traction, you not only have to measure it, you have to pay people on it,” Knauss says. “So it’s first, getting the focus right, including defining the metrics that you want to measure progress with, second, getting alignment throughout the organization that these are the right pillars and the right metrics, and then lastly, the discipline — putting the routines in place to monitor the progress against those on a quarterly basis, at least.”

In addition, people throughout the organization need to understand how important CR programs are to the consumers you sell your brands to, Knauss says.

So to help people see this link between CR and company performance, the organization released its first official corporate responsibility report in 2010. It also highlighted its CR strategy throughout the 2011 annual report, titled “Think Outside the Bottle.” In both instances, Clorox emphasized how CR ties into the company’s vision and mission for employees and consumers.

Building this kind of high-level engagement with employees is important short-term because it drives progress on your goals and long-term because it also helps you attract and retain the best talent, Knauss says.

“That’s what it’s all about, is the best talent,” he says. “So when you look at what we’re trying to do from a business standpoint and not what we’re trying to do from a corporate responsibility standpoint, all of that together really drives a high level of engagement with our employees. At the end of the day, that’s how you win.”

Overshare

The No. 1 way to stay accountable to your CR progress is probably the most obvious. Because CR also reflects corporate values, you need to also link the goals and programs back to the wants and needs of consumers.

With the increasing availability of information, many companies have, at times,  suffered financially because of their lack of transparency in corporate practices — think Wal-Mart, British Petroleum and Nike.

Demonstrating transparency with consumers is increasingly important for companies who want to prove that their commitment to the customer is genuine.

“It’s so fundamentally different in terms of the consumer’s access to information — the ability to really say, ‘Look, I want to do business with people whose values align with my own,’” Knauss says.

“You’re really putting your brands at risk if those brands and the company don’t connect and communicate this sense of value.”

Instead of going on the defense, Clorox has used the transparency of digital and social media as a way to increase the amount of information it shares with its consumers.

For example, when Knauss and his team saw that consumers across segments were showing more concern about what kind of ingredients were in products, and especially cleaning products, they implemented an initiative to disclose all of the preservatives, dyes and fragrance ingredients in the company’s U.S. and Canadian cleaning, disinfecting and laundry products.

Although the company was the first in its industry to do so, it eventually became a leader in ingredient disclosure as other businesses followed suit.

“A consumer can go on our website, pull up any one of our brands, and it will give full disclosure of whatever ingredients are in there,” Knauss says. “So it’s an example of the transparency that we’re not only trying to bring to the financial side … but to the consumer side of the company by letting consumers know exactly what they’re buying.”

Another example is the website for its brand Green Works, which offers users tips on how to create a greener lifestyle and features a sustainability blog called “Green Mommy in a Plastic World,” with posts such as “Seven things to do with your kids’ artwork.”

Because the ability to connect and get feedback is now so immediate, most companies can only benefit from policies such as increased transparency, communication and disclosure, Knauss says.

“There are just so many different ways of connecting, so you’ve got to be where the consumer is,” Knauss says. “So I think everybody intuitively gets that. But we’ve certainly seen a big payout.”

In addition, many initiatives that have helped Clorox reduce its environmental footprint, such as using greener packaging, have also reduced cost. Today, all of its segments have bounced back from recession lows, bringing the company to $5.2 billion sales last year. And the fact that 90 percent of Clorox brands are No. 1 or No. 2 in the spaces that they compete in is just further proof that corporate responsibility and profitability can — and do — go hand in hand.

“If you don’t have a solid strategy around corporate responsibility and articulate that strategy to people in a compelling way, you’re missing half of the demand creation equation,” Knauss says. <<

 

How to reach: The Clorox Co., (510) 271-7000 or www.thecloroxcompany.com

Takeaways

  • Create a formal commitment.
  • Get key groups on board.
  • Find ways to raise engagement.

 

The Knauss File

Don Knauss

Chairman and CEO

The Clorox Co.

Born: Highland, Ind.

Education:  Indiana University

First job: Officer in the United States Marine Corps

What is one part of your daily routine that you wouldn’t change?

Senior corporate jobs are very demanding, not only mentally but physically, particularly given the extensive travel needed. I work out six to seven days a week. That physical exercise is a great release, and a high level of fitness is critical to being able to execute my job with excellence. I highly recommend a vigorous exercise program for everyone, but especially for those in high-pressure jobs.

If you could have dinner with one person you’ve never met, who would it be and why?

Margaret Thatcher. She was an incredibly effective prime minister during a very tumultuous time. I would like to understand her approach to leadership — the traits she valued the most in people for them to be truly effective and drive real progress whatever their role in life.

What is your favorite part of your job?

The aspect of my job I most enjoy is helping to define and sustain the values of our culture. The CEO must set a ‘tone at the top’ to win in the marketplace and, importantly, to win in the right way. It is extremely important to define the traits you expect from your leadership team and your entire company. I believe a values-based culture anchored in integrity, optimism, compassion, humility and curiosity will attract and keep the best people engaged.

 

As a 36-year veteran of the auto industry, Warren Zinn has spent most of his life working around cars. From the time he learned to talk, he could rattle off the different brands: Mercedes, Jaguar and Lamborghini. And at age 21, he turned that passion into a lifelong career.

But Zinn also knows that passion isn’t everything. As the president and CEO of Warren Henry Automotive Group, he readily admits that his nine dealerships and more than 300 employees would not be in business today if the company hadn’t taken some tough steps to adapt to consumer needs.

“We like to think we’re in the front of the pack, but every day, we have to do more to stay in front of the pack,” he says. “We’re really only as strong as our dumbest competitor.”

In late 2007, Zinn began to see signs that the business was falling behind. People weren’t focused on results, and while there were a lot of reasons, the one that stood out to Zinn was the company’s loose structure and lack of process. Without these things, it was becoming harder for employees to deliver the kind of service consistency and responsiveness that customers now expected.

“It was the manner in which things were becoming so automated, computerized, the process that needed to take place because the way the business was changing,” Zinn says. “It was all becoming very electronic. So it was just a big change for us — the Internet, the world was changing.”

It was then that Zinn decided his company needed to change, too.

Identify obstacles

Zinn knew that it would take a big transformation to bring structure to the company’s operations. The problem was that the prevailing mentality at the auto dealerships was hardly one that embraced change. At the time, the company’s average employee tenure was about 16 years, and many of the more experienced employees were used to certain ways of doing things.

While having long-term people was great to build customer service relationships, it presented a challenge when it came to change management.

“Part of our success, which was also part of the problem, was familiar faces,” Zinn says.

Before making any changes, Zinn really needed to convince long-term employees to accept a new way of doing things.

“We needed to follow a process, and everybody had to be going in the same direction to get there,” Zinn says. “Nobody could take a shortcut to get to where we needed to go.”

So he and the company’s upper management held meetings with employees to discuss the process implementation, the reasons for doing it and how it would affect different areas of the business. The goal was to share the new direction but also help people overcome their reluctance to change.

After holding those meetings, Zinn and his leadership team were disappointed to find that only about one-third of the people seemed interested in the new direction.

“Very few people honestly were excited about it,” Zinn says.

“We had a lot of people here in different positions for a long stretch of time that had shown good initiative, knew what their job was and did it well. But at some point in time, when you are no longer able to have the people who have the same type of initiative — you really can’t teach initiative.”

As a leader, you need to communicate your reasons for taking your company in a certain direction. But once you do, you also must make it clear that the company is moving forward with people who embrace this direction.

So Zinn was also very upfront with employees about the fact that the company would only be moving forward with people who could get on board with the new processes.

“I had always known we needed to do this, but I really had to put my foot down and get it done,” he says.

“I had to convince people, in the best way that I could, that this is the way the company is going to go, and you’ve got to come along with us. And if you can’t make the process work — if it just doesn’t work for you — we’re going to have to part company, and that while it’s been a great relationship and we’ve worked together for a long time, this is the way that we have to go about doing things.”

Bring in new blood

After parting ways with a number of employees, the company was left to fill the empty positions before moving forward with the process implementation. But Zinn was hesitant to hire more experienced, automotive professionals, having seen the reluctance of his own long-term employees to accept a new way of doing things.

“I knew that if I hired somebody with experience, I could get the same individual that tells me everything I want to hear, but when it’s all said and done it’s, ‘Look, I’ve been doing this for 15 years. I know what I’m doing,’” Zinn says. “And that was dangerous."

Instead, he decided to take the talent search outside the automotive industry.

“We found that in order for us to do what we needed to do and to initiate the change that we needed to put in place here, it was easiest for us and most effective for us with people who came from outside the industry, rather than people who come from the industry.”

So Zinn and his team began recruiting individuals with no automotive experience at all. Largely relying on referrals, they sought out people who were articulate and expressed themselves well — real estate agents, stockbrokers, lawyers and marketers — to be trained in a variety of industry positions.

Zinn says he looked for the kind of people who inspired confidence, people who “if they looked at you and said, ‘I can take care of this,’ you would believe them.”

As the new team members came on board, he explained to them what the company was trying to accomplish with its process-driven operations, how it would go about doing it and how it would help and support them as they entered into the unfamiliar business.

What he found is that that the inexperienced people were not only much more eager to embrace the changes than long-term employees, but they also had a better attitude in making the new processes successful.

“It’s very, very easy to get people who haven’t done this before to learn what we expect,” he says.

“It’s easy for them to absorb. It’s easy for them to do, and they embrace it. Then they become very effective in what they do.”

Create a ‘focus’ group

Because the company historically lacked structure in its operations, Zinn and his leadership team felt they needed to make the new processes simple if employees were going to execute them consistently and willingly. They decided that it would be best to implement them one department at a time, beginning with parts and services.

The parts and services department focuses on two areas in particular: greeting and inspecting. So after putting together the “best and simplest” guidelines for the new processes, Zinn and the department leadership spent time explaining the benefits to employees. They described how new processes would make customer interactions more efficient, for example, saving time by creating electronic reports on vehicles being serviced or allowing customers to make appointments electronically, so people wouldn’t have to constantly man the phones.

“I looked at what appeared to be the easiest to do, the easiest to be understood, the way that if someone who had been doing this for a long time — if they wanted to — could change to be able to do it,” he says.

Zinn especially wanted long-term employees to understand how consistent, automated processes would make the business more efficient in its customer service.

“It gives more structure,” Zinn says. “Everybody should be in the same place as to how we go about greeting a customer, how we go about selling cars, how we go about servicing cars.”

Recognizing that training would also be important in achieving process consistency, Zinn also gave employees the opportunity to shadow other experienced colleagues.

By shadowing team members in three different areas, they could master the different processes, one at a time, and then review them once more with the help of an experienced supervisor before trying them on their own. The company continues to use this “1-2-3” training process.

“So all that really changed is that there’s a manner and order in which we go about getting our job done,” he says. “We have a consistency in which, if you go to different people, they may have a little bit of a different style, but the steps and the processes it takes to get there are the same.”

Once the company implemented the changes in the parts and service business, Zinn moved on to new and used car sales department. By focusing on one department at a time, he and his top leaders were able to be much more hands-on as they went through the implementation. It also allowed them to take a lessons-learned approach as they faced similar issues or employee concerns on a larger scale.

“The key is to take care of [the problem] while making sure that it doesn’t happen again,” he says. “That’s what process is all about.

Stick with it

As luck would have it, soon after the new processes were in place, the economic recession sent the auto industry into a tailspin, and few businesses were immune. Despite the financial challenges, Zinn and his top leaders have continued to work hard, keeping employees focused on executing the new processes.

“Those were some very, very difficult times — some of the most difficult times in this industry ever,” Zinn says.

“You just have to keep your head down and make certain that it happens — because it works. I’d say if we didn’t embrace this, I don’t know if we’d still be in business today. I don’t think so. We couldn’t continue to do things without having established firm processes in place.”

One built-in benefit of the process automation was that it gave the company the ability to measure and monitor business metrics in areas such as sales, customer satisfaction and customer retention.

Zinn says that giving everyone in the company access to these results, including individuals, department heads and upper management, has helped motivate employees by holding them accountable to continuous improvement.

“We hold ourselves and each other responsible,” he says.

“If we get a great report, I shoot off an email to the individual, the department head or the whole department and tell them what a great job that they’re doing or tell them that we need to pick it up.”

Today, the company is much more efficient and spends significantly less time “putting out fires” thanks to the new processes, Zinn says. At the same time, he believes that it’s the focus on results, “not reasons,” that will keep the company innovative and competitive in the future.

In fact, if you ask Zinn what is the biggest difference between his company today and five years ago, he won’t hesitate to tell you that it’s accountability.

“We have to feel like we’re looking for constant improvement,” he says. “We have to feel like we’re all on the same team. This is the direction that we’re going to go, and you follow the captain or you don’t.”

And that’s one thing you can’t teach. <<

 

How to reach: Warren Henry Automotive Group, (888) 856-3113 or www.warrenhenryauto.com

Takeaways

  • Get the right people on board.
  • Hire people who can support change.
  • Keep the focus on improvement.

 

The Zinn File

Warren Henry Zinn

President and CEO

Warren Henry Automotive Group

Born: New York City, but moved to Florida when 6 months old

Education: Northwood University in Michigan

Role model for success: I admire Alan Mulally, CEO of Ford Motor Co. Mulally saw what was coming, put a plan together and stuck with. He saved the company without taking help from the government unlike other U.S. auto manufacturers, and he has been extremely successful since.

One part of his daily routine that he wouldn’t change: I wouldn’t change my communications with my department heads. To be a successful CEO, you must stay right in the thick of it — be involved with your staff, always have an open mind, and listen to what everyone has to say.

Why do people like working for you?

I’m available to people. I sit in my office with my door open. I move around from dealership to dealership on different days, and of course, I make people feel like they are part of something very important. They’re not on the outside. They’re on the inside.

What do you like most about your industry?

It’s something that I’ve always liked. I like seeing the new cars that continually come out. I like seeing people get excited when they get a car, happy about having their car, happy about the experience that they’ve had with their car. And I’m happiest when they come back and they get another car.

 

Going into 2008, Chip Conley was concerned about the future, and not just for the obvious reasons. Yes, there was the looming possibility of another economic downturn. And with his company launching 15 hotels in a 21-month period, he wondered like many business leaders what impact a recession would have on his organization and its 3,000-plus employees. The difference was Conley’s personal life was also in turmoil.

“We were growing as fast as we ever had at a difficult time,” says Conley, the founder of the San Francisco-based hotel group, Joie de Vivre Hotels. “I also had a family member who was going to San Quentin prison wrongfully. … I had a long-term relationship end. I had five friends commit suicide during that time.”

Soon, the CEO faced the repercussions trying to juggle so many emotions.

“I had my own flat-line experience,” he says.

After finishing up a speech in St. Louis, Conley fell unconscious. In the five to 10 minutes that it took the paramedics to arrive, his heart stopped.

While Conley fully recovered from the heart attack, his experience sent him through a search for meaning, a way to make sense of all the things happening in his life.

“CEOs — you sort of think that they’re above all the emotions and the difficulties and no one should be pitying any CEOs,” Conley says. “You know — ‘Don’t cry for me, Argentina.’ But the bottom line is that I was really confused by all of the emotions I was feeling — a lot of things were falling apart in my life at once.”

As the leader of a $250 million business, Conley knew that he couldn’t be the only one facing this challenge. To empower himself as well as other leaders he did extensive research on the psychology behind emotions and how this translates in business, writing “Emotional Equations: Simple Truths for Creating Happiness+Success.” The book focuses on how business leaders and individuals can become more emotionally fluent, and subsequently, improve their organizations. To date, his transformational leadership practices have been featured in publications from Time to Fortune and The Wall Street Journal.

“In business, what we want to do is influence things,” Conley says. “We want to have an impact. And usually it’s very external: how can I have an impact or influence the world? What I’m saying is if you can influence and impact your emotions, you can actually be more impactful as a leader in the world.”

Become a CEO (Chief Emotions Officer)

Conley’s research on emotions led him to the work of author Daniel Goleman and an interesting finding that the author made in his book “Emotional Intelligence” 16 years ago: that two-thirds of the success of business leaders comes from their EQ — emotional intelligence quotient — while just one-third is due to IQ level or experience. This statistic struck a powerful chord with Conley.

What it means for a CEO is that the best leaders have more influence and control over their emotions. The most effective CEOs are “chief emotions officers.”

“First of all, the more that you’re emotionally fluent and emotionally intelligent about what’s going on inside of you, the more effectively you’ll be as a leader and the happier you’ll be,” Conley says.

The first step in becoming a chief emotions officer isn’t an easy one for all, however. It begins with becoming more attuned to what’s going on inside of you by taking your ego out of the equation.

Conley notices that many young leaders tend to use talking to motivate people. They have a tendency to think that if they give a good speech or make a proclamation that that the emotion will get people excited. While this works sometimes, he’s learned over the years that trying to motivate people without good information can also backfire.

Frequently when people want to get things done, their ambition in tandem with success can lead employees to interpret it as narcissism, Conley says.

“What happens sometimes is a leader of an organization wants to get people fired up and people think that he or she is really out of touch with what they are seeing,” he says. “So it’s a fine line, because you do want to be a visionary as a leader and help people see things that aren’t as obvious, but you also have to keep your feet on the ground.”

Practicing empathetic leadership starts with becoming a better listener.

Conley uses the example of commercial airlines. When jet fuel prices went up and they started adding new charges for items such as amenities, luggage and so on. The exception was Southwest Airlines, which considered the impact on employees when it decided to maintain many of its pre-recession policies.

“The airlines teed off us — the customers — for charging for bags and for food and no longer handing out peanuts, except on Southwest,” Conley says. “So they upset us, but more importantly, they also upset the flight attendants. Because they were going to start charging us for bags, we brought all of our bags on the plane. You turn flight attendants into baggage handlers and the level of the satisfaction of the flight attendants went way down. And guess what? Customer satisfaction plummeted, except at places like Southwest.”

Understanding people’s feelings takes a two-way conversation. So instead of giving a speech about how it’s going to be, Conley now asks his people how they want it to be. As CEO, he frequently had dinners with different groups of employees, taught classes for team members and maintained an open door policy to encourage people to share their emotions and ensure they felt heard.

“When you can understand the subtleties and the nuances of what this person in front of you is looking for in their life, it allows you to deliver on those needs a lot better,” Conley says.

Identify the variables

The challenge in learning to control emotions for most people is becoming more responsive to them. Because people tend to react quickly when something happens to us, they often don’t take time to think about the root cause of emotions or worse, push them off, Conley says.

Due to the stresses of day-to-day business dealings, it might take CEOs days or weeks to realize that something has been eating at them because they were too busy to deal with it at the time.

“Sometimes efficiency takes us away from our emotions and we just ignore them, and then they come out in other ways,” Conley says. “We wonder, ‘Why am I so angry about this?’ and you don’t realize that yesterday this person sort of blew you off when you were supposed to have a meeting with them. And you just had other things to do so you didn’t focus on it.

“So something happens and we react. The lifespan of an emotion physically in your body is usually 90 seconds long, but we actually hold on to it a lot longer than that. It gets stale, but it’s still that emotion that you’re holding onto. Learning how to be more responsive and less reactive is a good thing.”

In a business culture, emotions are contagious, from smiling to yawning and frustration, to fear and anxiety. So not addressing the fear or anxiety of one person — or yourself — can quickly turn into the emotional neglect of many, causing creativity and innovation to suffer.

When Conley researched “Emotional Equations,” he found that although emotions seem fleeting and uncontrollable, they are actually quite predictable. Once you identify the emotion that you or your people are feeling, you need to examine ingredients that created it. Most can be broken down into simple math.

In a study done several years ago, participants were given two choices: get an electric shock now or get an electric shock randomly in the next 24 hours, but it would be half as painful. The vast majority of people in the study chose the option to get the shock immediately.

Why? They had more control over the situation by knowing when the shock would happen, lowering their anxiety.

“Anxiety has two different ingredients: uncertainty and powerlessness, or what you don’t know and what you can’t control,” Conley says. “Once you start to realize this you can actually influence the ingredients and then may influence the emotion.”

Other examples include (Disappointment = Expectations - Reality) and (Workaholism = What Are You Running From?/What Are You Living For?)

By dissecting emotions into variables, leaders can influence the variables to better control the emotions themselves. Take anxiety, for example.

If employees in a company harbor anxiety, they will eventually become distracted and less productive. So when leaders find out that people are anxious about their jobs and finances, they should look for ways to deplete some of the powerlessness and uncertainty they may be feeling.

“If we know that uncertainty and powerless is what creates anxiety, and we know that anxiety makes people less creative, less innovative, less engaged, less productive, then when we have bad news, we better figure out how to package it quickly and get it out to people,” Conley says.

“When people are just stewing about what they think will happen, it becomes a big distraction from what they really should be doing in their work.”

While reassurance with words is always helpful, you also need to take action. Set tangible goals. Provide comprehensive feedback. Get employees more engaged in innovation.

The same goes for anxiety of a CEO. By creating more certainty in your life and taking power over the areas that you can control, you reduce the anxiety that can paralyze you and your organization.

“Even in a time when people are worried about things like layoffs, they can feel like ‘Ah, I have some power or some influence in terms of my effectiveness if I do the following three things,’” Conley says.

Make it a commitment

CEOs who use empathy in their decision-making processes can create cultures with happier employees, who in turn, provide better service.

“What we saw is the more employees felt engaged, the happier they were and the more likely they were to give a great experience to our customers,” Conley says. “So our employee satisfaction went up and then our customer satisfaction went up as well.

“When you get more engaged employees in a service environment, you’re able to put an environment together that allows the customers to get solutions faster. And the employees are going to feel not just engaged but they feel like their fingerprints are all over the business.”

Seeing the power of emotional equations, Conley began teaching them to leaders at Joie de Vivre to help them better identify with their emotions and empathize with the emotions of others. And so far, the impact on organizationwide morale has been overwhelmingly positive.

“Initially people thought, ‘Oh God. Here’s Chip with his New Age stuff again,’” he says. “But honestly, the last few years have been an emotionally trying time for people in the business world. So the fact that I was being vulnerable and authentic about my own fears and frustrations and concerns about life meant that people felt like, ‘OK, I can breathe. I don’t have to be Superman.’”

Giving more voice to emotions doesn’t mean productivity has to suffer either. In fact, it should be the opposite. When people have the safety to express their emotions, they’ll be more empowered to make decisions because the fear of making a mistake or anxiety about their job security won’t be distracting them.

“If you have a problem in a hotel or any kind of business, you want the person right in front of you to solve it,” Conley says. “You don’t want to have them say, ‘OK, well, I’ll talk to my manager.”

While he’s transitioned from the role of CEO, Conley continues to promote the equations at Joie de Vivre as a strategic adviser. Today he focuses on creating one emotion in particular: joy (Joy=Love-Fear), which is also the company’s mission statement.

“Our company name is Joie de Vivre, which means joy of life,” Conley says. “The fact that we have an underlying message and many of us wear these wristbands that say “create joy” is a reminder that that’s what we’re in business to do.”

How to reach: Joie de Vivre Hotels, (800) 738-7477 or www.jdvhotels.com

The Conley File

Chip Conley

Founder, former CEO and strategic adviser

Joie de Vivre Hotels

Born: Long Beach

Education: BA and MBA from Stanford University

What was your first job?

The fries and shake station at McDonald’s

What is one part of your daily routine that you wouldn’t change?

Compensation is a right and recognition is a gift so I try to provide two honest and detailed forms of personal recognition to people I work with daily. If I slack off one day, then I add those to the next day.

What would your friends be surprised to find out about you?

I’m not sure that many people know that I have a 35-year-old stepson, a six-week old baby and three grandchildren, with the oldest being 17 and 3 inches taller than me. As much as Joie de Vivre and our various hotels were sort of like my children and family, I feel fortunate to have these kids and grandkids in my life as they remind me of what’s truly important at the end of the day.

If you could have dinner with one person you’ve never met, who would it be and why?

Herb Kelleher, the former CEO of Southwest Airlines who was in that position for 37 years. He created a compelling culture that walked its talk around the customer coming second and the employee coming first. The airline industry is brutal — cyclical, high fixed costs, lots of unions, big risks — so I’d want to learn more about how he dealt with the emotional roller coaster that came with being CEO for three dozen years. He outdid me by a dozen years since I was CEO of JdV for two dozen years.

Tony DiBenedetto will never forget “the watercooler incident.”

“We were in our very first office building, and at that time everybody was bringing in their own bottled water,” says DiBenedetto, who is the co-founder, chairman and CEO of the national IT services provider. “We wound up having this meeting to talk about what we were going to do about the water.”

He and the other two principals sat down to deliberate the issue: Would they use bottled water or filtered? What about enlisting a water service? The meeting ended two hours later.

“At the end of that meeting, I looked at my two partners and said, ‘Guys — we’re never doing this again,” DiBenedetto says. “This is insane.’”

Seeing the inefficiency around decision-making, the partners agreed that something needed to change. With Tribridge still in its infancy, they understood that the way they handled decisions in the beginning years would set the precedent for the company’s future.

“What it led to was an acknowledgement that we all three did not need to be included in decisions,” DiBenedetto says. “In partnerships, a lot of times everybody feels the need to vote on every single issue and talk about every issue, and it doesn’t allow you to grow very fast.”

Assign roles

What the watercooler incident demonstrated is the age old problem of “too many cooks in the kitchen” combined with the mistake of bringing in the wrong cooks. When there are too many people involved in a decision, it’s hard for people to accomplish anything quickly or efficiently.

And if people are also participating in decisions that don’t concern them, they won’t have time to handle the issues that do.

What DiBenedetto and his partners realized early on was that most people at Tribridge, themselves included, didn’t really know what decisions were and weren’t their responsibility. They needed to divide the decision-making so that each person and department had clear areas of decision-making authority.

Today, each of the company’s partners has specific items that fall under his decision-making jurisdiction. For example, anything involving strategy lands within DiBenedetto’s arena, and sometimes, all three of the partners.

“I feel like my role here is to drive strategy, so if we’re going to stray from the strategy that is a decision I would want to be involved in,” DiBenedetto says.

Not all decisions in the company should be pushed down the ranks either. When it comes to large financial transactions, debt, M&A or strategy, you definitely want your top leaders to take the lead. As CEO, DiBenedetto still offers his input if there is a major decision that people want feedback on or when it’s a hire or fire decision where his expertise may help.

At the customer level, however, he’s rarely involved in decision-making. When the company opened its first office in Dallas, for example, DiBenedetto told Managing Director Bobby Priestley that he was charged with making all the decisions concerning Dallas — and not just some of them, but all of them.

“People closest to the decision make better decisions,” he says. “We have consultants in the field and 3,500 customers. They’re out there making decisions for a customer. They are in the best position to make the decision. They understand the customer’s needs. They understand what the firm can do.

“So to have them elevate that through a series of management layers is ridiculous.”

Rarely if ever has DiBenedetto seen a good decision that satisfied a customer but impacted the company negatively. That’s because the customer feedback loop can typically tell you whether or not employees are on the right track with their decision-making.

“We’ve got a nice built-in check and balance there — where if decisions are good for the customer, they’re good for Tribridge,” DiBenedetto says.

“In my 14 years at Tribridge, I’ve never felt like, ‘Oh my gosh, this person is such a rogue decision-maker, and I have to reel them in.’ I’ve never felt that at all — zero.”

Say what you need to say

When you have a lot of people making decisions every day, effective internal communication becomes much more critical. If communication breaks down, and decision-making becomes siloed, your company invites conflict within departments and across them.

“We probably have 100,000 decisions made a day, and the way our business works, we have 450 people making those decisions every day,” DiBenedetto says.

“A lot of times we make decisions but we don’t tell somebody either why we made it or even that we made a decision. So you might do something for a customer and not tell them, or you might do something internally and not tell somebody. Being able to communicate the decision is another lesson learned.”

One way to keep everyone apprised of important organizational changes or information while preserving decision-making autonomy is to have set meetings to share updates, talk strategy and discuss progress on goals.

At Tribridge, the company currently holds a monthly meeting for its national leadership team in Tampa as well as an all-company meeting each February, where more than 400 employees meet in-person at a chosen location. In addition, it conducts an all-employee phone call once a month.

Regular meetings are a great opportunity for people to bring topics to the table, submit questions and voice any issues or concerns that could require outside attention. But a two-hour meeting about bottled water? Absolutely not, DiBenedetto says.

In the case of the watercooler incident, it wasn’t the meeting itself that caused inefficiency. Rather, inefficiency occurred because the people in the meeting didn’t need to be there. So instead of vilifying meetings, which can contribute to productive, creative and helpful communication, the company does the opposite — it encourages them.

“One of the culture points for us is the very open communication process,” DiBenedetto says. “Most people here are very comfortable raising topics. So anybody can call a meeting. Titles are not involved. We don’t put titles on our business cards. It’s an open culture where people can call a meeting if they need to.”

However, another rule at Tribridge is that if anyone ever feels like they are in a meeting that they don’t need to be in, they are completely free to excuse themselves.

“They can say, ‘Hey listen, I’m not going to contribute to this meeting, so I don’t need to be here,’” DiBenedetto says. “It’s not looked upon as a bad thing. The culture of the company is not just to meet for meeting’s sake.”

The bottom line is that you don’t want to shackle people with endless meetings or ask them to check in constantly about their progress. This defeats the purpose of pushing out decisions in the first place. Once you give people power over decisions, you also need to give them the freedom to succeed or fail.

“I can’t come back later and constantly start micromanaging,” he says. “So part of it is a leadership point that you’ve got to allow the decision and the success or failure to happen. If it doesn’t happen, then nobody learns from it.”

So after any big decision is made at Tribridge, whatever group that is involved in that area of the business, whether it is a client, a region or the entire company, is also involved in a debriefing process. This step reinforces that every decision, good or bad, is a learning experience for your business and your employees and the key to continuous improvement.

If the decision was good, ask why was it good? How could an OK decision have been better? And what went wrong with the bad ones?

“You have to be able to keep learning from it,” DiBenedetto says. “It’s a skill set. So you get better at making decisions the more decisions you make. The fact that we have these hundreds of thousands decisions being made every day means our people are better decision-makers than if they worked somewhere else.”

Empower the right people

In the tech business, where you’ve got to be rapidly changing and adapting your business all the time, you can’t afford to have a culture that puts individuals on pedestals, DiBenedetto says. When you trust people to make important decisions that impact your customers, you need to feel confident they’re focused on helping the customers, not themselves.

That’s why DiBenedetto prioritizes a person’s cultural fit over his or her resume when he hires someone for a position of authority at Tribridge. Specifically, he looks for whether the person has the trait of “entrepreneurism.”

“The first thing we tell people who come to work here is that when we say ‘think like an entrepreneur,’ there are two elements of that,” DiBenedetto says. “One, keep improving Tribridge; two, really on an everyday basis when you’re working for a customer, pretend that you’re one of their shareholders. When you’re thinking like a shareholder for them, you’re making the best decision in their interest.”

Hiring for entrepreneurism doesn’t mean you only want people who plan to start their own companies or create new products. Instead, it defines a person’s willingness to take risks, make changes confidently, and guide the decisions based on how he or she thinks the customer’s business is going to go, DiBenedetto says.

“Culturally, it’s looking for people who have an entrepreneur’s mindset, who are comfortable making decisions in risky situations,” DiBenedetto says. “The easy decisions aren’t the ones that you are worried about. It’s the tough decisions where you want somebody who has more of an entrepreneur’s mindset making them.”

To get a feel for this trait when hiring, the company’s recruiters first ask job candidates to provide broad situational examples, such as a time when they used teamwork or faced a tough challenge. Then they use “critical behavioral interviewing” techniques to analyze the candidate’s behavior in those different situations. What they did when they made a mistake or when they had to give negative feedback?

“We’re looking at how they handled it, not the answer to the question,” DiBenedetto says.

“You’re not asking them about being honest. You’re asking them about teamwork or something else; and they start telling you the story. And you keep drilling down until you get to a situation where you have witnessed through their story what their behavior was. So it’s a crafty way of doing it.”

In behavioral interviewing, recruiters also look at the way people phrase statements and the subtleties of what they say. This can help you identify red flags in a person’s cultural fit. Big egos, for instance, don’t bode well when you’re making decisions for a team.

“Sometimes you’ll ask somebody, ‘Tell me what someone else on the team does,’ and they’ll answer the question by telling you what they did,” DiBenedetto says.

People who are new to an organization with decentralized decision-making may not feel confident making lots of big decisions right away. But by hiring people that fit well with the culture, demonstrate entrepreneurism, and are team players, DiBenedetto finds that most people can succeed in this kind of empowering environment.

“When you surround employees with people who help them all the time, that aren’t in it for themselves, that plan a team environment, and they are empowered to make decisions, they tend to like it,” he says.

“It translates into better decision-making, faster decision-making and therefore things happen quicker here. There’s a sense of urgency to get things done as a result of that, and that leads to growth.”

While DiBenedetto had some initial reservations about using a decentralized decision-making structure, today he can’t imagine doing things differently at Tribridge. From 2006 to 2009, the company grew its revenues 272 percent, generating $65 million in 2011.

“We’ve grown dramatically over a 10-year period,” DiBenedetto says. “We’ve had 9/11, multiple wars — we’ve had a tech bust, a real estate bust, a credit crunch. Yet our company continues to grow organically pretty quickly, and it’s because we have decentralized decision-making.”

How to reach: Tribridge, (877) 744-1360 or www.tribridge.com

  1. Give people clear responsibilities.
  2. Make meetings more efficient.
  3. Hire people who can make decisions.

The DiBenedetto File

Tony DiBenedetto

Co-founder, chairman and CEO

Tribridge

Born: Brooklyn, NY

Education: Florida State University

What was your first job?

A paper route

What is one part of your daily routine that you wouldn’t change?

Waking up my daughter

What would your friends be surprised to find out about you?

I write a lot, especially poetry.

What’s the biggest challenge in the future growth of Tribridge?

The strategy for us to get to the next level has been built around something we call ‘Concerto,’ which conceptually is the brand that we’ve coined for the business we’ve moved to the cloud. If you think about Tribridge, we do services for customers and we use a lot of different technology. We’ve built a private cloud and we’re offering this technology that’s some Tribridge intellectual property as well as Microsoft’s applications. We’ve integrated that and offered it to our customers. … The next five years if I look at tremendous growth — that is it. With that come some opportunities and challenges. One is where are the next 500 consultants going to come from? We’ve got to find the next 500 team members.

What trait does a leader need to be successful in today’s business environment?

With the really turbulent economic times we’ve had the last 10 years, we’re lacking the thinking big — blind confidence. We’re lacking the ability for our leaders to think bigger. Because it’s humbling to know that things are unpredictable, we all get stifled in our decision-making. Thinking bigger is something I see as an attribute that allows people to fight through the stifling news that you get from watching or reading the news. We’ve got to ignore that, keep thinking big, expect more. Expecting more is really about how can I make this better? How can I keep getting better? So if I’m thinking big and expecting more at the same time, that’s just driving success.

On Monday morning, the watercooler talk among VF Corp. employees looks more like a Yelp review than the typical weekend replay. Employees chime in about The North Face jackets they wore skiing, the Lucy yoga pants they tested out and the Jansport backpacks they took hiking.

Steve Rendle, vice president of VF Corp. and the group president of its Outdoor and Action Sports Americas division, says this comes with the territory of being part of the world’s largest apparel manufacturer — with $7 billion in revenue and a portfolio of global consumer products brands.

“We choose not to sit in our ivory tower and predict what the consumer wants,” Rendle says. “We’re fortunate that our employees to a great degree are our consumers.”

A 25-year veteran in the outdoor industry, Rendle was president of The North Face for seven years before heading up VF’s Outdoor and Action Sports Americas unit last year. Based in San Francisco, he manages a portfolio of eight, activity-driven brands, including three worth more than $1 billion each — The North Face, Timberland and Vans.

Rendle is tasked with leading the brand strategies that will resonate with VF’s customers over the world. When it comes to front-end operations, he says there are very specific skills sets that help the company cultivate connections between its brands and consumers. The most significant is how the company develops its brand strategies: by making them a lifestyle. The company calls this “the art and science of apparel.”

“It’s that deep immersion into that consumer and understanding the consumer’s needs and expectations of our business that helps us really fine tune how we apply our business initiatives to grow our businesses,” Rendle says.

Here’s how Rendle uses these strategies to develop VF’s fastest-growing division of brands.

Dive deeper

The first step in developing a brand lifestyle is figuring out who the brand’s potential customers are in the marketplace.

“It’s taking an approach of first understanding who the consumers are,” Rendle says. “The ‘who’ aspect is a very important part, and we invest a tremendous amount of money corporately and from our brands to understand our consumers through global segmentation studies.”

While research from focus groups and surveys is beneficial from a targeted point of view, understanding a customer’s lifestyle takes a deeper level of interaction, beyond a phone call or email. You can look at annual research or employee feedback to get ideas about what customers are going to want, but to understand who they are requires a deeper level of knowledge only possible through one-on-one interaction.

“First and foremost, we’re an organization built of passionate consumers,” Rendle says. “But that’s not enough. We want to go into the marketplace. We want to think about our brands globally and do a lot of qualitative and quantitative research to engage with these consumers and understand how they think of our brands. What do they expect from our brands? And more importantly, how would they like us to communicate with them?”

Branded events are one way that Rendle and his team get answers to these questions. Sponsoring fun, action-oriented events that engage consumers allows the company to interact with people in environments that reflect their interests and lifestyles, giving the company a better idea of “who” they are.

“We’re able to engage and understand how they’re thinking about us, how they’re thinking about this particular event and learning about their product needs,” Rendle says.

In addition to the millions of followers that Vans and The North Face have in the digital realm, both brands also generate a tremendous following by putting on popular outdoor events. Rendle frequently travels with the product and sales teams to see how the brands are represented in retail, but also attends the key brand events to learn how they are connecting with consumers.

The North Face hosts its “Endurance Challenge,” a series of endurance races across the globe that attract 1,000 to 3,000 runners per event. These races are a great opportunity to meet runners who fit the brand’s performance market as well as hold mini “expos” for families so that they can interact with the brand, Rendle says.

Similarly, Vans uses its national Vans Warped Tour, a day-long outdoor music and action sports event to connect with some of its key consumer groups, from skateboarders, to musicians and BMXers. With a history as the original skate shoe manufacturer, Vans now focuses on the broader market of men’s and women’s footwear and apparel. So as the partial owner and operator of the summer concert series — the longest running in the U.S. — it draws more than 600,000 people each year and offers a direct line to its youth audience.

“It’s a very impressive music-driven event, but it’s also an event where we’re able to touch the consumers and listen and learn as they interact with the music culture how they’re thinking about the brand, the brand’s products and how the brand is communicating from a marketing standpoint,” Rendle says. “Events are a powerful tool to not only tell the stories of our brands but to interact with those consumers.”

Ask the experts

It’s important to understand not just who your customer is but also what he or she expects from you. Because there is whole host of running footwear and running apparel competitors for The North Face, for example, the brand can’t gain market share just by resonating today’s consumer trends today. It also must stay abreast of the running lifestyle and how it’s changing. To do that, the company uses brand ambassadors.

Each of VF’s Outdoor and Action Sports Americas brands, specifically The North Face and Vans, partners with teams of professional athletes to participate with the brands at a high level, engaging with different products and contributing ideas. The North Face has more than 70 such athletes active around the world.

These brand ambassadors help provide insight into what the brand’s customers want and will want in the future.

“The North Face is the best example, where we have the mantra of ‘athlete-tested, expedition proven’ as that primary input into our product engine,” Rendle says. “We can make sure that we’re building the most authentic and technically relevant products possible that enable our consumers to enjoy their outdoor experience to the greatest degree.”

Tapping brand ambassadors is also useful for brand innovation and product development. Your “experts” in a brand lifestyle can help you identify pain points or product ideas that you may not spot or study based on customer or employee feedback alone.

A prime example is when The North Face runner Kami Semick participated in a high altitude race in the French Alps. After nearly contracting hypothermia from the cold, wet environment, she helped the brand identify a key need for lighter-weight apparel to protect athletes from adverse moisture and weather. Semick worked with the product teams to design a new technology for the brand’s fabrics that eliminates the distraction of moisture when during athletic performance. This year, the company is releasing about 100 new products featuring the FlashDry technology.

“North Face is the brand that provides the ultimate outdoor protection,” Rendle says. “So we bring that thinking and that knowledge base into running apparel.”

Concentrate your efforts

With global brands, you need to do lot of work to identify who your potential customers are. But equally important is figuring out your brand identity. To put it into perspective, brands such as The North Face are trying to capture market share in a $320 billion global market in the outdoor and action sports business, Rendle says.

Figuring out how to position these brands in the marketplace requires Rendle and his team to spend a lot of time looking at the macro-market to size up opportunities.

“That’s building the business strategies using the consumer insights and the market intelligence to help us craft very clearly focused strategies that we execute on five-year basis,” he says. “It’s always the rolling five-year plan and looking very specifically at where those opportunities are to drive our growth.”

Looking at the larger, macro market data, VF applies filters to examine the size of different opportunities:

What is the business doing specifically from a retail standpoint? What are the best ways of communicating to the consumer within those specific segments? Who are the competitors?

In this process, it’s necessary to look at brand competitors from a very critical point of view as far as what are they good at, Rendle says.

“We’re trying to understand what makes them unique — what are their points of difference and what things are more parody,” he says. “Then we look for those white spaces where we know that our brand naturally plays or places that we should be focusing to look for incremental growth.”

The points of difference are unique to your brand, whereas your points of parity are things you need to do just to stay in business — fit of garment, for example.

“It’s not really something that we would own, versus a specific focus or an innovative platform might be a unique point of difference and gives us an emotional connection to the consumer,” Rendle says.

An example is the women’s yoga brand, Lucy. While Lucy was the first brand in the women’s training space, it lost its way before VF acquired it in 2008, giving the Canadian brand Lulu a lead in sales and brand recognition.

“When we look at the difference between those two consumers — the Lulu consumer and the Lucy consumer — we see some very distinct differences in how she thinks, how she acts, how she wants to interact with her brand and honestly how she looks at those activities,” Rendle says.

The company also uses its brands’ leveragable platforms, or things that each brand does well, to position fellow brands stronger in the marketplace. The key is to utilize each brand’s strengths, without losing sight of how each brand consumer — and consumer lifestyle — is different.

“We focus on understanding the brand’s purpose and really understanding what we stand for and what our unique value to our consumer is,” Rendle says.

“It’s making sure I help those brands remain autonomous because it is those specific brand identities and cultures that make these brands successful. At the same time, it’s helping them leverage the VF platforms to scale and access capabilities at a much more effective price.”

After applying these kinds of lenses to see what a brand does well, you can learn how to build “permission” with customers to bring new lines to market where you don’t have established expertise, Rendle says.

The ability to introduce new products to consumers is a critical step in making a brand’s products part of a “lifestyle” the can continue to grow and evolve. Currently, The North Face is trying to do this with the footwear segment — using running apparel to break into running shoes.

“For us to sell footwear it needs to be uniquely different and bring some specific value that other brands are not,” Rendle says. “Where we know we have permission to compete first is in the trail, so really playing off of that outdoor heritage and enabling consumers to run off the road and onto the trail.”

The way the company creates its brand strategies is also changing the way Rendle and his employees think about the business, Rendle says. By creating brand lifestyles that resonate with consumers, the Outdoor and Action Sports Americas division has grown from less than 10 percent of VF’s total sales in 2000 to close to 50 percent.

“It’s helped us understand that this deep connection into the consumer’s lifestyle gives us a unique point of difference, and a unique way of competing against the many number of other choices that consumers have to make in their apparel purchases,” he says.

How to reach: VF Corp., (336) 424-6000 or www.vfc.com

Takeaways:

1. Use events to connect with customers.

2. Create brand ambassadors.

3. Find your points of difference and parity.

The Rendle File

Steve Rendle

vice president and group president, Outdoor and Action Sports Americas

VF Corp.

Born: Spokane, Wash.

Education: Bachelor of science, the University of Washington

What do you like most about your job?

I get to get up every day and come to work and participate in businesses and touch activities that I really love. I grew up skiing. I grew up climbing. I’m a very active outdoor user. I’ve dabbled in surf. I’m not a skater but I absolutely enjoy those people as much as I do those that I’ve grown up with. I get to live and play in a marketplace that I’m just deeply passionate about. To also build that passion of building success, in this case successful businesses that add shareholder value — I may very well have one of the best jobs in our company.

On his transition from president of The North Face to division group president: First you have to immerse yourself in the businesses. I’m fortunate enough that I’ve worked with each of these brand leaders as a peer for many years. But I needed to take a step back, remember that my job is not to only think only of The North Face, but to think about eight specific brands, their contributions to our portfolio and the larger VF. It is just to take a step back and forget about what I loved so much, and begin to understand that I have eight things that I get to love.

How do you regroup after a tough day?

My best tool for sorting out a difficult day is to get outside for some sort of physical activity. My favorite choice is to jump on my road bike and roll out for a long ride. No distractions. Just time to focus on the activity and subconsciously sort out my thoughts.

As former firefighters, brothers Robin and Chris Sorensen know that quality and quantity are both important when it comes to a sandwich. So when they co-founded Firehouse Subs in 1994, their vision involved providing better service and a better restaurant experience for their customers. It also involved more meat.

“We made a list of things we thought we had to do to be different and be competitive, and it came down to the concept, and it came down to the experience at the floor level and service levels,” Robin says. “And then it came down to the food.”

Over the years, Firehouse built a reputation for its appetite worthy portions of premium meats and cheeses. With the advantage of being one of the least expensive brands in the fast-casual segment — competitors include Five Guys and Panera Bread rather than Subway — the company steadily grew its regional foothold from Jacksonville, Fla., to 300 locations in 17 states.

But at the beginning of 2007, all of that changed. The restaurants started losing traffic.

“Up until that point, we never had a down quarter,” Robin says. “We’d been building on a continuous basis, and we didn’t even realize how good we had it.”

While the brothers didn’t know it yet, the company’s problem went deeper than the economic recession. The problem was “crappy” marketing.

“What we learned is that people who weren’t eating there — they didn’t really understand what we were,” Robin says. “The Subway customer assumed when they saw our sign that we were just like Subway.”

Root out the problem

Facing some of the darkest days in Firehouse’s history, founders Chris and Robin knew that the company’s franchisees were looking to them for reassurance. Feeling that they owed it to them to look at every opportunity to revive business, they took input from owners and employees, realizing that many of the ideas weren’t viable options.

“For the first time, we could feel the weight of the system on our shoulders, almost literally looking at us and asking, ‘What are we going to do?’” Robin says.

“Some of them were saying we should cut our portions down — which my blood pressure is going up thinking about it. But we had to look at different opportunities. That whole process — all it did was lead us to say, ‘We’ve got to do something.’”

Both felt strongly that they couldn’t jeopardize the quality or quantity that defined the Firehouse Subs brand in exchange for short-term profits. But they agreed they couldn’t stand still either. So as they debated how to handle the declining numbers, the Sorensens also started taking a hard look at their advertising agency.

The company had talked about changing advertising agencies in the past. And seeing the poor results of recent efforts, its leadership offered the agency one last opportunity to present its ideas on how to resuscitate customer traffic. Needless to say, they weren’t impressed.

“Basically, we were out of options,” Robin says. “We weren’t in great shape. So we did something drastic.”

Feeling more and more that the reason for poor performance stemmed from ineffective brand marketing, the leaders proposed a radical change.

In the summer 2008, they decided to rescind the 2 percent in royalties that franchisees paid the company for its corporate marketing efforts. Instead, they told franchisees that they could keep the money — if they agreed to do their own marketing.

“We came up with a comprehensive plan on what they need to do with that money at their discretion, the old fashioned stuff — hiring sign wavers, developing catering, knocking on doors, ‘touching’ people, speaking at the chamber — all of the things that helped us build the company,” Robin says.

Then they hopped on a bus, traveling around the country to present the new marketing plan to store owners with a national founder’s tour. A key part of the presentation was showing franchisees how to execute the new, guerrilla-style marketing initiatives.

“We’d have 10 people from our office get off the bus and we’d all hit three, four or five stores depending on the city,” Robin says. “We would go out and market those stores on the ground ourselves with them to show them how to get it done. We always built sales wherever we were at. So it was radical, but we tried it.”

After six months, about 20 percent of the system was really on board and executing on the suggestions. So the brothers decided to extend the efforts for another six months.

In the end, the local marketing ramp-up wasn’t enough to stop the decline. Continuing to lose traction, the company closed out the 2008 year down 6 percent in comparable store sales. By 2009, the company was falling nearly 7 percent. The Firehouse Subs brand still wasn’t registering with the customers; and Chris and Robin went shopping for a new advertising agency.

Focus on the right customers

As they began their search, the brothers looked for a smaller agency where they would know the owners personally. So they were skeptical when their consultant proposed a meeting with Zimmerman Advertising, an agency worth $2 billion whose clients include high-profile brands such as Papa John’s Pizza.

“I said, ‘Let’s not even go down there to Ft. Lauderdale because they are too big,’” Robin says. “‘We’re going to be lost in the shuffle.’ And the consultant said, ‘They are different people down there. They are a unique agency, and I’ve seen a lot of them. … I think you guys are going to hit it off.’”

Compared to the last 20 presentations they’d gone through, Zimmerman was the only agency so far that had no marketing ideas to pitch. As they sat down to meet with the company’s leadership, its staff admitted that they didn’t know much about who Firehouse was. Instead, they pitched themselves.

The agency’s founder, Jordan Zimmerman, pointed out that both of the company’s previous agencies had pitched their ideas for the business before they even had time to research who and its customers were. But Zimmerman did things differently.

“His point was how do they know if that’s right when they haven’t had enough time or money to go out and really do thorough research?” Robin says. “And he was right.”

So when the meeting was over, they hired Zimmerman as their new agency. They also gave them the money to go out and do the necessary market research to develop their brand strategy. The agency used techniques such as intercepting customers — going into other stores and offering them a free lunch at Firehouse Subs in exchange for feedback — Zimmerman soon figured out why the company was losing customers. The brand needed to reach more people.

At the time, the company had lost about 10 percent of its traffic. But while the owners were so focused on getting those people back in the door, they’d also overlooked an essential question: are these the right people?

“The point is — they’re gone,” Robin says. “We weren’t really focusing on the 90 percent that are OK with our proposition. So we started trying to better understand who those customers are and who other customers are.”

The agency also told the brothers that it would take a 4 percent investment from each of the franchisees to execute a new brand marketing strategy.

“I said to them, ‘So you’re asking me to go our franchisees and say not only do you have to give me the 2 percent back that we let you keep temporarily, but you’re required to, and you need to give us two more that you’re not required to?’” Robin says. “It was radical.”

But while knocking on doors worked occasionally, the customer data made it clear that Firehouse Subs had to reach more consumers with its message if it was going to stay profitable.

“The simplicity of it was just 'find more people,'” Chris says. “Tell them who we are and why we’re better. With the economy down, there were a certain number of people who couldn’t afford to eat with us, and we weren’t going to get them back until the economic situation was corrected. But there were thousands upon thousands of people that we could reach, which is what we did.”

Try a new tactic

With the help of Zimmerman, Robin and Chris began making the changes to the company’s marketing and advertising. First, the company increased its emphasis on the items that make it different from competitors — its big portions of quality meats. At the heart of the strategy was the radio.

The agency suggested that, as founders, Robin and Chris should represent the brand in radio commercials. Instead of discounting the price, they’d focus on Firehouse Subs’ bigger portions and fresh-sliced, steamed meat and cheese. The commercials would also include a new slogan: “Our way beats their way. If you don’t agree, it’s free.” By mentioning the price in the commercials, customers would know exactly what to expect coming into the restaurants — a medium hook and ladder for $5.39, not a $5 footlong.

“We’re giving a guarantee,” Robin says. “So if you take one bite and you don’t like it, we’ll give you your money back. While everybody is talking about smaller sandwiches — $2 torpedoes, $5 footlongs — we’re going to be the only one talking about premium.”

At first, Chris and Robin were hesitant about going on the radio, even as they helped write and develop the spots. So they began a 10-week test run, doing radio spots in Jacksonville, Fla., Knoxville, Tenn., and Augusta, Ga.

“We were concerned about not doing it well, and we don’t want the system thinking that we think it’s all about us,” Robin says. “What if we fail at it? So Zimmerman was like, ‘If you suck, we’ll be the first to tell you.’”

Within days of starting the radio campaigns, the stores saw 10 to 15 percent lifts.

“Without discounting, without changing who we were, without coming up with the next cheap sandwich, we stuck to what’s made us who we are and just started blasting the airwaves and finding new customers,” Chris says. “And it worked.”

Bring the fight home

The company now had real data in its back pocket showing that the radio worked. But now, Chris and Robin had to go back to owners with the new marketing strategy and convince them to invest in it. In summer 2009, the company held its first ever corporate-wide conference to introduce the new agency and new marketing investment.

The brothers explained the tests and the results of radio campaigns. They explained the big picture and the vision. Because the plan to give owners the reins over marketing hadn’t worked, they felt that they had even more authority to ask franchisees to support the changes.

“If we hadn’t given them money to try it on their own, they may have demanded some other options,” Robin says.

“We said, ‘You’ve had this for a year. We tried an agency. We couldn’t get results. We gave them an opportunity to present their ideas. They weren’t good. We tried it. Check. Then we gave you the money for a year. It didn’t work enough to turn us around. Check. Now we have a new agency.”

They asked the 80 percent attendance of franchisees in attendance to double down on their investment into the corporate marketing. In the following five months, they held meetings with the other 20 percent to get their support. In the end, everybody who was eligible to be on the radio voted to do it.

“As much money as we spent, it came down to buying the right media to talk to the right group of people, and hitting it heavy with the right message,” Robin says.

“The bottom line is that it was a major risk, a double down in a bad economy, and it absolutely was the most phenomenal thing we’ve ever done.”

Since the second quarter of 2009, the company has continued to increase sales 4 to 6 percent every year, fueling its expansion to approximately 500 locations today. Revenue for 2010 was an impressive $256 million. The brothers have already invested close to $5 million of their own money in the radio campaigns. Yet there is still one thing they would have done differently a second time around.

“Fired our agency earlier,” Chris says.

How to reach: Firehouse Subs, (800) 388-3473 or www.firehousesubs.com

Takeaways

1.         Figure out where you need to improve.

2.         Rethink your market of customers.

3.         Step outside your communication comfort zone.

The Sorensen File

Chris and Robin Sorensen

Co-founders

Firehouse Subs

Born: Jacksonville, Fla.

Favorite Firehouse sub:

Robin: Smokehouse Beef & Cheddar Brisket

Chris: Smoked Turkey Breast

About the Firehouse Subs Public Safety Foundation

Founded: 2005

Mission: To buy life-saving equipment for fire, police and other public safety institutions

Robin: We’ve saved lives with the equipment that we’ve donated, and it’s really taken on a life of its own. People understand Ronald McDonald House, and that’s big part of who they are. We want the same thing with Firehouse, because not many companies have really made a great connection like that, like we have. We started it from the heart because we enjoyed it and thought it would be great. One of our agencies put it as one of our brand pillars in who we are. It’s one of the pillars of building a great business in the community.

About 50 percent of the donations come from the store and our customers. The other 50 come from our vendors, franchisees, Chris and I and our partner Steven. We’ve put in almost $600,000 of it ourselves.

What are the best business lessons that you’ve each learned in your careers?

Robin: One of the biggest failures — there’s two parts to it. One is people just aren’t willing to do what it takes to grow their business. You hear it in the way they talk about it, ‘I’m willing to do this, but I’m not willing to do that. I’m not willing to put the hours in.’ They set parameters on themselves: ‘I’ll work five days a week, but I’m not working on Saturday during the college football season.’ When we opened up, it wasn’t that we said we’ll do anything; that was our philosophy and mindset. The other part of is, are you in it for you or are you in it for the company — the frugality piece.

Chris: I was told this advice from an old mentor of mine. He told us if you want to be a smart business owner, you don’t buy expensive cars or a yacht. He told us if you can’t write a check for it, don’t buy it. My brother and I still practice this to this day.

Paul Schumacher was eager to get down to business as he addressed employees at Schumacher Homes’ 2012 annual meeting. That’s because business was good. In 2011, the company’s leads were up. Sales were up. Customers were happy. And to top it all off, it was the single best year in Schumacher’s 20-year history. All in all, the market outlook for custom home building was looking pretty great.

But if you weren’t in that meeting, you’d never know it.

“It’s probably the best time ever to build a custom home and get exactly what you want,” says Schumacher, founder and CEO of the custom home building company that has built more than 10,000 homes to date. “Low interest rates, material costs — everything is in the advantage of the customer — other than the perception that it’s gloom and doom out there.”

Schumacher understands that many prospective homebuyers remain recession-wary. Value is the new cultural mentality, and consumers are now quicker to assign labels such as “expensive” and “extravagant” to products advertised as “new” or “customized.” In fact, the company’s biggest competition now comes from the used home market.

“When you think of building a new home, people think, ‘Oh my God; it’s going to be too expensive,’” Schumacher says. “‘It’s going to take forever, and I’m going to end up in a divorce when it’s done.’ So we’ve just got to flip that on its end.”

Show; don’t tell

As a veteran homebuilder, Schumacher knows that no one in the construction industry is going to say that they don’t make a quality product. He’s seen the word “quality” exhausted by competitors and other builders. So to set the company apart from its competitor’s claims, he’s created a business model that lets customers experience its quality firsthand.

Schumacher developed the unique model early in his homebuilding career. He frequently had customers who were interested in model homes, but either wanted to build in another area or purchase the models. That meant the company needed new model homes to showcase the quality finishes, design elements and building materials for its next set of customers.

This dilemma led Schumacher to a realization. Making it easy for people to experience your value is the first step in converting new customers and showing them what you can do for them. If quality was one of the company’s key differentiators, why not display the model homes in commercial locations where people could view the quality, design and finishes any time they wanted? Then the company could build its new homes on the customer’s lots.

“It’s very different than the typical homebuilder coming in, and putting in a subdivision – going up one street and down the other — with a cookie-cutter approach,” Schumacher says.

“People can go through 365 days a year and see and experience our quality and not just talk about it. When they go through a model home they can hold us accountable, and we expect them to hold us accountable to that exact same quality that they see in our model homes.”

The “build on your lot” model also opens the company to a broad group of potential customers. While location is predetermined with all used homes and many homebuilders, Schumacher can offer customers quality custom homes that fit virtually any price range in any geographic location.

“We say, ‘We want you to live in what you love,” Schumacher says. “So in any geographic location we’ll have 200 to 300 different floor plans that we offer, but those are just a starting point.”

Today, the company builds model homes along the highways throughout where it does business. It’s no surprise that employees refer to them as “a parade of homes,” especially considering how many people pass through them each week.

From a marketing and advertising standpoint, the models help the company learn about the attitudes of buyers in different communities where it operates.

“It’s great to have big numbers coming through where we can kind of hear the same things over and over to try and identify trends,” Schumacher says.

“People really like the fact that we’re like a permanent fixture on the highway, that we’re not going anywhere. We’re not a builder that’s just going to go into a subdivision and when the subdivision is built out, they’re just going to move across town or out of town.”

Make it special

An ongoing challenge for any business is creating products that people prefer to ones readily found out in the market. While you need a product that’s affordable and good quality — of course — you also need to offer a better buying experience.

To show customers that building a new, custom home won’t blow their budget or boost their blood pressure, Schumacher developed his business around the idea that it’s all about customers getting exactly what they want.

“We say we’re not going to stop in the design process until we nail it and you’re getting exactly what you want, because our competition is the used home market,” he says. “We always tell people in buying a used home — someone else’s dream home — it just comes down to how many compromises are you willing to make. In building a new home, you don’t have to make any because it’s all designed around you.”

First, the company uses every opportunity to survey consumers and learn their new home “wish lists,” incorporating the market’s feedback into upgrades in existing models. It also adds these design options and features into its vast design database for future customers.

“You have to change,” Schumacher says. “Our whole design philosophy is we have to be able to give something to someone when they walk in a model home — it’s a blueprint that’s fun and exciting and inspiring — to get them to build, because if it’s the same old, same old, been there, done that, there’s no point in building it. They can go out and find it in the market.”

Larger trends in consumer feedback even prompted Schumacher to launch a new line of home designs called the Earnhardt Collection, which addresses a market segment that desires more informal spaces such as great rooms and open kitchens. Collaborating with the Earnhardt family — popular from the NASCAR racing world — the company launched the new line in late 2011, and it is already popular with customers.

“People really want unique, fresh homes,” Schumacher says. “They want a very relaxed and comfortable atmosphere — formal is out.”

Since the majority of people want significant customization on the outside or inside of their home, the company also emphasizes the fun, straightforward nature of its design process. To help people envision their changes, designers demonstrate them on a live monitor, using interactive, real-time design technology.

“They’re seeing the walls move before their eyes,” Schumacher says. “They’re seeing the exterior change. And the beauty of that is we’re all so visual, we can say, ‘Is this exactly what you mean or do you want to add two more feet here? Do you want to rearrange the kitchen?’ and they’re doing it all right in front of their eyes. People say this is great because you can get so much more done when you’re doing it in real time.”

Even with these design elements, Schumacher knows that price is still the major factor in building a new home instead of buying used.

“People say ‘I love the plan. I’ve designed it. I’ve customized it. It’s exactly what I want,’” Schumacher says. “But the next big question is, ‘OK — how much?’”

To answer this question, he’s spent the last 10 years developing a price quoting system that lets customers individually price every piece of their home. When you are dealing with customers who are unfamiliar with the many costs going into the final product — design, labor, building — transparent pricing is even more critical, Schumacher says.

“We put them in control so they see where every dollar is spent,” Schumacher says.

“It’s that innovation all around the whole design and buying cycle that I think really differentiates us.”

Go green

The success of the company’s business model is evident in the quick turnaround time, good communication and high quality that make up its competitive advantage. But it’s also the product of the 225 employees who contribute to the company’s goal-oriented and results-driven culture.

The backbone of this culture is a company-wide scorecard system, which rates each store location and individual employee with color-coded metrics. Metrics are built around areas such as sales, time of construction and homeowner satisfaction.

“A big part of our success is the whole scorecard system where everyone, every department knows what’s expected of them on a monthly, quarterly and yearly basis and everyone is working in the same direction,” Schumacher says. “Without those goals, a lot of it is just talk.”

Red scorecards indicate stores or employees that are below a goal, yellow indicates that they’re within 10 percent of a goal and green signifies that they’ve met or exceeded a goal. The simple and visual nature of the scorecards makes them especially effective, he says.

“Anyone in Schumacher Homes can pick up a scorecard, and without even looking at what the individual metric is, they can see a lot of green means ‘Man, we’re doing a good job! We’re on plan.’ Yellow — ‘Hey, we’ve got to address those areas’ — and red, ‘We’ve got to take note of it,’” he says.

Scorecards also show individuals how their achievements roll up into the company’s overall progress on its goals. Results are shared on the corporate Intranet as well as publicized at regional meetings.

“We’re an open book,” Schumacher says. “Whoever is in first place, it’s very well-known and whoever is in last place it’s very well-known. Everyone really strives to be the best they can, to meet their goals and then to be the best in the region and the best in the overall company.”

Schumacher uses company meetings as an opportunity to recognize top performers as well as to recognize accomplishments such as ‘most improved.’ When you discuss goals clearly and often, people can see what you trying to accomplish on a short-term and long-term basis, empowering them to be part of the success.

“You communicate the importance of the goals, in that, by hitting the goals we can get to the next level of investment or we can do these significant projects,” Schumacher says. “So everyone understands their significance, their role, and what the company is trying to do.”

Today, the company’s culture is built on green scorecards and how employees can see more of them. When visiting different offices, Schumacher notices that employees are quick to pull out their scorecards and ask for feedback.

“They’ll say, ‘What is it going to take for us to be green in whatever the metric is?’” he says. “There’s great sense of pride and teamwork in that.

“We know that we have to have a very good, straightforward, simple process that makes it fun and exciting. At the same time we have to deliver an unbeatable value, a great value.”

Out of 35,378 homebuilders in America, the company was recognized with the 2012 National Housing Quality Award, an industry benchmark award for total quality management. Coming off its best sales year ever, it’s also seeing a new spike in customer interest through leads and site visits.

“Our mantra here is we don’t really care what’s going on in the industry — we’ve got to go make our own market,” Schumacher says.

How to reach: Schumacher Homes, (877) 267-3482 or www.schumacherhomes.com

Takeaways:

  • Show your value to customers.
  • Customize your customer experience.
  • Get your team invested in your value proposition.

The Schumacher File

Paul Schumacher

founder and CEO

Schumacher Homes

Born: Canton, Ohio

Education: Western Reserve Academy, Cornell University, University of South Carolina

What is one part of your daily routine that you wouldn’t change?

Working out every day at 5 a.m. — physical stamina and mental stamina go hand in hand.

Who are your heroes in the business world and why?

My mom and dad are great role models for a strong work ethic, positive attitude and to believe all things are possible.

What would your friends be surprised to find out about you?

I had four holes in one — and climbing Mt. Kilimanjaro with my 14-year-old son in June.

On getting out of the ‘flipping’ business into the home construction business: What I realized is that all you are doing is dealing with someone else’s mess, because you’re just going in and fixing up old houses. As I got into it after a year or two I thought, man, it would be great to have your own brand new, fresh product and not be fixing up someone else’s mess from 40 or 50 years ago.

Esurance’s advertising was not translating into buying customers, and Gary Tolman needed to know why.

“We could see through the actual purchase process and monitoring what goes on through our website that when we got to the end, and the people had to push the buy button, we weren’t getting the conversion rate,” says Tolman, who’s been president and CEO of Esurance Insurance Services Inc. since 1999.

When Esurance began selling its insurance products on the Internet, the company quickly developed a niche in the under-30 market, a group attracted to the low-cost and convenience of buying online. But as more insurance companies moved online, the company struggled to build the kind of brand recognition that stacked up to entrenched competitors such as Geico, Allstate, State Farm and Progressive, which spend hundreds of millions in advertising dollars each year.

“You’ve got the auto insurance industry spending $5 billion a year on ads,” Tolman says. “You turn the TV on and you’re going to see the [Geico] Gecko or [Progressive’s] Flo or Mayhem from Allstate.”

Tolman knew that rather than try to copy the model of companies with far more money and resources, Esurance needed to reposition itself to better reach the customers it could acquire and retain. That meant “aging up” its marketing to reach older, more mature and multicar drivers with higher lifetime value.

“Companies that are going to be successful over the next four to six years are going to be the companies who have the best marketing efficiency,” Tolman says.

“So you’ve got to be good at that to get to your customer at the right time during the buying process.”

Here’s how Tolman has repositioned the brand to attract this new market of customers.

Get some backup

The company designed its 2004 television advertising campaign, which is based on the concept of an animated, pink-haired secret agent named Erin Esurance, with goal of increasing its brand recognition. While it did just that, a competitive analysis showed that customers still didn’t rank Esurance as high in terms of trustworthiness and credibility, which older, established drivers looked for in an auto insurance company.

“We wanted to position Esurance differently than we had in the past,” Tolman says. “Under Erin, we were kind of looked at as the cartoon company.”

That’s where Allstate came in.

“We want to be known as a smart insurance company, one that’s providing a convenient way of providing the policy, one that’s going to provide a lot of information over time, one that’s going to provide great service,” Tolman says.

“I knew what we needed. We needed support in terms of brand.”

According to Tolman, the most important piece of building a successful brand is having the right parent company. While its parent company at the time — White Mountains Insurance Group —was a wonderful partner, it didn’t supply a strong brand name. So when Allstate inquired about purchasing the company in 2011, Tolman saw the perfect parent to give the 12-year-old Esurance more brand power. As an Allstate company, it gained the marketing advantage of a large, recognizable parent with a track record of creditability and trustworthiness.

“Our brand is recognized,” Tolman says. “We’re considered to be innovative and fun, but unfortunately in terms of trustworthiness, we don’t index that high.

“We needed someone like an Allstate, a Traveler’s or even a State Farm to really provide this halo to the Esurance brand.”

So in October 2011, Tolman sold the company to Allstate for an impressive $1 billion. When he’d sold it to White Mountains in 2000, it was for $9 million in cash.

Instead of spending a lot of money trying to build the brand on your own, Tolman suggests finding a partner with the resources and reputation to help you build it.

“You can spend a lot of money trying to build brand,” he says.

“Allstate brings brand, a brand that has a great deal of trustworthiness and credibility in the market. I think that’s going to be huge for us.”

In addition to the name, look for a parent that has products or expertise that can enhance your own offerings for customers. For example, having access to Allstate’s products and expertise now allows the company to move from a mono-lined insurance company to develop bundled insurance products. For customers who already trust Allstate with their home insurance, this is an opportunity to utilize the parent’s brand power once again to convert new customers.

“You need to have something that differentiates you in the market,” Tolman says. “If you have a bundled product, either auto/homeowner’s or auto/renter’s, that makes a big difference.”

Do something different

As an online insurance company, Esurance caters the do-it-yourself consumer, rather than someone who wants to work with an agent to buy insurance. While young people already tend to fit into this first group, Tolman knew that developing a brand message to reach a more stable, mature driver would take more than a new parent company.

“You look at the lifetime value that we would get from those particular segments, and then we realized that we need to move up age-wise and also in terms of getting more people with more cars and multi-drivers,” Tolman says.

“That requires us to shift our message. We don’t want to be known as the cartoon insurance company.”

It would take a new advertising strategy to get this group thinking about the company differently.

“We knew where we wanted to go over time,” Tolman says. “We wanted to age up with our in-force policy holder base. We wanted to acquire people that had multiple drivers, more cars and were married. So it’s positioning the advertising to get to that target market.”

After the acquisition, Tolman began shopping around for an advertising agency that could position Esurance as a professional insurance company, accounting for its new parent in Allstate. He helped whittle down the choices to three agencies before the company went with Leo Burnett from Chicago.

Early this year, the company rolled out a new national ad campaign centered on the tagline, “Insurance for the modern world,” using a series of television commercials narrated by “The Office” actor John Krasinski. In its first campaign since being acquired by Allstate last year, the company examines real-world problems and solutions for customers in a “modern” world, stressing buying factors such as trust, transparency, tools and mobility in choosing in insurance company. In one commercial the narrator asks, “What makes you trust a company? Wait — scratch that — what makes you trust a car insurance company? A talking animal? A talking celebrity? A talking celebrity animal?”

When you don’t have the resources of larger and longer standing companies in the marketplace, Tolman says your advertising needs to really convince your target customers why it makes sense for them to have your company’s products.

“We just didn’t want to go out and preach savings, savings, savings,” he says. “We wanted to say that there are different things you can do.”

Stay nimble

Today, Esurance does business in 30 states, and with its new parent, Tolman expects that to increase that number to 40 over the next few years. But even as a big company with close to $1 billion in revenue, the company continues to think small and move quickly, especially when it comes to planning its brand and marketing strategies.

“We’re constantly tweaking where we’re spending our dollars,” Tolman says.

“We can be in a position where our online marketing is extremely effective for six months and then they’ll be some activity in the market where some companies get more aggressive, so that becomes less effective.”

While he is much more careful about taking risks when it comes to pricing or product design, Tolman says businesses must take risks in areas such as marketing where there is significant pay off. Being data-oriented allows you to see quickly what’s working and what isn’t so that you can take the right risks, which is why Esurance lets metrics drive many of its marketing decisions.

One of the company’s key metrics is customer conversion, so it spends a lot of time updating and tweaking its website to lead customers to the point where they purchase a product.

“You can do some marketing that drives a lot of traffic but has lower conversion rates,” Tolman says. “You can do other marketing that’s more expensive but it’s probably going to have higher conversion rates.

“We’re always looking at how we should change the website in terms of the questions asked. How should the page be displayed and what should be on the page?”

Tolman says in order to stay ahead of customer trends, businesses need to look beyond just what competitors are doing and see what successful businesses outside of their market are doing to build their brands. Also, think two of three years out so that you are continuing to be innovative in the type of marketing you use and the channels that are most effective. This is always changing.

In the case of the Erin Esurance campaign, the advertising met the needs of the brand at the time, but eventually the campaign was right for growth.

“Certainly with Erin, that was very effective in getting brand recognition,” Tolman says. “That was very different back then. Insurance companies were not using cartoon advertising. It was quick and it was flashy and it got to the market that we were targeting, which was more the younger, single insurance.”

The fact that people are now looking for information not just from sites, but through online reviews and social media channels, is what prompted the company to start a bigger dialogue with consumers through Facebook.

“We’ve changed how we’re positioning ourselves in social media,” Tolman says. “Now we certainly are pushing people to make comments about us on Facebook.”

Because the market is not stable, business leaders need to be aware that the things that work today may not work tomorrow. Remain flexible in your marketing just as in other areas of business. To get optimum value with your marketing dollars, Tolman suggests staying attuned to where you are getting most of your leads from — whether it’s in television, radio or online — while also being prepared to readjust spending.

“As a direct-to-consumer company you need to be nimble,” he says. “You need to move quickly as the market changes.

“We take some risks in areas and we launch new features in marketing and IT, but we look very quickly at whether they’re working or not. If they’re not working, we see if we can get them to work or if we just kill them.”

How to reach: Esurance Insurance Services Inc., (800) 378-7262 or www.esurance.com

Takeaways

1. Find parent companies that lend brand power.

2. Develop marketing and advertising that appeals to your audience.

3. Listen to the market to stay ahead of industry trends  .

The Tolman File

Gary Tolman

President and CEO

Esurance Insurance Services, Inc.

Born: Keene, N.H.

Education: University of New Hampshire

What do you like most about your job?

What’s interesting about insurance, particularly auto insurance, is that people need it. It’s a product that people have to have. Certainly it’s a very competitive market, but it’s not something you buy when it’s nice, when you have some extra money around. You’re required in all states to have auto insurance. So even though it’s become more commodity-like over time, it’s something that people need. And you know they’ll be a market there. Also, generally competitors are responsible competitors.

Why Esurance chose online: We launched the company and we tried everything. We tried print ads. We tried TV ads, which I can tell you were terrible early on. We tried direct mail. We were unsuccessful. Then online is where we found our sweet spot.

On the decision to “age up” the company’s marketing:  Over time, we could see what was happening in our particular market segment. You could look at the people who were 20 to 30 and see how long they were staying with us, how many people were on their policy, how many cars they had, and then you compare that to the people 30 to 40 and 40 to 50. You need to acquire the customers and then you need to retain them. If you have a lot of younger, single-car drivers, they tend to move quite a bit.

When Dollar General was shopping for a single vendor for its phone systems, Norm Worthington figured they would do the same thing as most big companies. They would call up Verizon or AT&T. He also knew that those companies didn’t have the answer.

“They found us instead and realized that we really are the only ones that could do it,” says Worthington, the founder and CEO of Star2Star Communications LLC, a technology company that delivers Internet telephone systems and services for business communications.

Today Star2Star provides phones at all of Dollar General’s 10,000 stores in North America. One of the key differentiators from competitors is that the company — which generated revenue of $10.8 million in 2010 — leverages a diversified, international network of distributors to sell its solutions.

Smart Business spoke with Worthington about how companies can improve costs and reach more customers by leveraging established distribution channels for sales.

What kinds of companies benefit from using established distributors rather than a direct sales force?

If you’re only going to serve one city, well maybe it makes sense to  have your own sales force; but if you’re saying I have technology that lets me cover around the world or North America, then for logistical reasons, I need to have a distribution that lets me rapidly be there, be across that whole geography. You can only do that effectively by connecting with established distribution channels.

It’s a lot less expensive to use established channels than to build your own. This is another built-in advantage if you’re looking at it as a financial decision. Unless you have a very, very low cost of operations, and this again is driven by your technology, you really can’t put the product or service out at a competitive price while paying your distribution channels a share of the revenue that they expect, and then have enough left over to operate your own organization. I think we’re very unique in that the special technology that we have allows us to operate at such a low cost that we’re able to do that. So we could in fact leverage the distribution channel without having to raise the price to an uncompetitive level.

What are keys to operating this kind of distribution network effectively?

I think the most important thing on that is that you have to be culturally committed to it. Here’s the reality of dealing with the channel: Your partners are sometimes going to be challenging to deal with. There’s less margin in it than if you do it direct. So there’s a continuing tension, continuing incentive to kind of carve out special exceptions. The classic case is start off this way and you end up creating a direct sales team or a government-direct sales force. You have these special exceptions instead of involving and engaging your partners. That sometimes has some kind of advantage in the very short term to revenue or margins, but in the long term you just destroy the trust in the channel because every one of your customers, your dealers, wonders whether they’ll find the lead, make the introduction, do the footwork on the sale and then have it stolen away from them by the parent company.

What can business leaders do to reinforce the cultural commitment?

It’s being as considerate and as sensitive as you can be in providing information to your distribution partners. It’s easy in the rush of business, especially when you’re doubling every year as we have for the last five years, to make the improper assumption that because you and everyone that you see on a daily basis knows something, that of course, everyone else knows it too. It’s a common error. So you have to really keep at the forefront of your mind what has changed, what has to be disseminated to your partners and how best do that.

Trust and confidence in the channel goes a long way. So if you fumble or stumble on something you’ll get a second and a third chance. And if you introduce something new, it will be reached for, taken and adopted much more readily than if that trust and confidence doesn’t exist.

How to reach: Star2Star Communications LLC, (941) 234-0001 or www.star2star.com

David Epstein understands that his passion for customer service can become irritating.

“It drives my wife crazy,” says Epstein, the co-founder, chairman and co-CEO of C3/CustomerContactChannels. “If I walk into a store with her and I see something wrong, I’m immediately re-engineering the entire process of the store.”

For Epstein, customer service isn’t just a job; it’s a way to make a difference in people’s lives and help them solve their problems. As a well-known venture capitalist, one of the founding members of the American Marketing Association and the head of numerous successful business enterprises in his career, he knows that this mentality is even more powerful when it’s a group one.

“There isn’t a person that works at C3 who doesn’t understand the impact that they can make every day, not only on C3, but on our clients and our client’s customers,” Epstein says.

By filling C3 with employees who see their jobs as an opportunity to make a difference, and then giving them a culture and leadership that supports them, Epstein has helped grow the business process outsourcing (BPO) company from 15 to 7,200 employees in just two years.

Raise the bar minimum

To provide its BPO services for clients and customers, it’s been necessary for C3 to hire thousands of people in a rather short period of time. But as it’s filled its contact centers across 16 worldwide locations, the company has been careful not to take hiring lightly.

While the BPO industry is known for its triple-digit turnover and employees who look at the positions as “phone jobs,” Epstein says that the root problem, as in many industries, isn’t the job. It’s that companies aren’t being discriminating enough in the hiring process to weed out candidates who they know probably won’t be successful.

“Typically, for every 10 people that are interviewed, this industry has a reputation for saying that eight of them are qualified or they are offered a job,” he says. “There’s not been a steeped process for selecting the right kind of people.”

Just because someone can do a job, doesn’t mean that care about doing it well. When you hire employees who don’t care, that translates into the customer and client experience.

That’s why C3 has a talent acquisition team that is extremely judicious in selecting people who are the right ones to grow the business.

“We go through a whole different kind of profiling to understand if somebody is really going to have the propensity to be successful in this job,” Epstein says. “It starts with their communication skills but it really ends with, ‘Will they have that passion? Will they feel that energy and share the values and be here day in and day out in this job to do a great job for our clients?’”

For every 10 people that are interviewed, the company typically narrows the pool down to three or four that it thinks demonstrate the right skills and attitudes.

“We feel like making a difference is an important element to what we do every day,” Epstein says. “So our people who are out in the field select the right kind of people that want to come to work not just because they need a paycheck, but because they want to make a difference for themselves, for their company, their clients and the people on the other end of the phone.”

When you start with the right employees, you can feel comfortable tapping those people for referrals who they know share the same values.

“It’s the friend-get-a-friend concept, but it continues to grow,” Epstein says.

Since 2010, he says that the company has seen turnover 70 percent lower than the industry standard — only two or three percent of call center employees each month.

“Because we’re selective on the way in, it reduces our turnover down to a very, very manageable number,” Epstein says.

“We believe that we’ve really put together the dream team of the BPO space.”

Help people, not clients

There’s a true story Epstein frequently tells when he’s out in the field or speaking to training classes. It was several years ago when one of the company’s health care clients was walking through a contact center and came across a C3 customer service professional who was crying. After the agent regained her composure and finished the call, the client went back to her and asked about what had happened. She replied that she was assisting an elderly man with his prescriptions and he had been extremely appreciative, saying that he didn’t have any family around to help him. Noticing that his birthday was the following day, she’d also wished him a happy birthday.

“He began to cry because it was the first time in three years that he had heard those words,” Epstein says. “We tell that story and we say, do you think she made a difference for that gentleman that day? She made a difference in his life.”

Before you can make a difference with customers, Epstein says you need your people to care about customer service on a deeper level than a job or a business transaction. That involves creating a culture that engages people on a personal level.

“It is a paramount objective for us to make a difference for our clients,” Epstein says. “But first you need to make a difference for yourself. Then you’ve got a chance to make a difference for the company you work for.”

While it’s easy to write something on paper and make it a corporate goal, it becomes a personal goal when you actually live it. This is one of the reasons the company encourages employees to extend the culture of “making a difference” to its communities.

“When things become deeply personal they become deep corporate commitments,” Epstein says.

In recent years, the company’s centers have donated more than $1 million to various causes. But aside from the money, employees know that making a difference is also about community involvement. The organization’s 900 employees in Salt Lake City, Utah have been so involved with community activities and fundraising that they now have a reporter for the local paper assigned to follow their efforts. Another example is C3’s employees in Twin Falls, Idaho, which knit more than 1,000 beanies for the premature infants ward at a local hospital.

“They were sitting there at home or on break with knitting needles, learning how to knit to make these things,” Epstein says. “You won’t find that at most places, but that was a reflection of the culture we’ve tried to create and we have created.”

Around the organization, Epstein says that you’ll find employees using the expression “I’m MAD for C3,” which stands for I Make A Difference for C3. This personal commitment to helping others translates into people’s attitudes toward customer service. When employees are on the phone, they connect to the person on the other end of the line instead of only thinking of doing a good job for the client.

“When people talk about a brand online, it’s usually because they’re frustrated with the service of the brand,” Epstein says. “In the hotel and hospitality industry it’s something like 35 or 40 percent of Facebook messages and blogging is usually about the service. You have a chance to make a difference by helping somebody get through something that they are seeking help on and they are frustrated.

“That is why I think people want to stay part of C3. They aren’t looking for ‘Let me just get that paycheck’ and that’s it.”

Don’t “make it work”

Creating a culture that supports employees and helps them succeed translates into better customer service, which translates into more success for your business.

“When you have a passion in your culture for taking care of your clients and your customers, that will help manage a lot of the velocity of growing so quickly,” Epstein says.

But once you have the right people and the right culture, your company’s leadership needs to make the right decisions for employees to succeed long-term.

Being entrepreneurs, a constant test for Epstein and his partners is being able to say no to certain opportunities. Whenever an opportunity presents itself, there’s a natural inclination to want to seize on it even if it might not be good for your people or your business.

“It could be prospective client that doesn’t fit right with us today, and so it’s hard to say no because you really want to build and grow,” Epstein says. “It could be an acquisition that presents itself where as you peel it back more and more, you find out culturally it will never really work. There’s a tendency for entrepreneurs to say, ‘Well, I can make it work because I’ve been learning to do that my whole career.’”

Epstein’s advice? Know when to say no. When he became one of the owners of the NHL Florida Panthers hockey team 11 years ago, Epstein says he learned this lesson the hard way.

“I thought without a doubt I could change how the business model works for a hockey team and a sports franchise,” he says. “My general feeling was that they weren’t run well and that if me and my partners who were smart business guys and had built big businesses, we could get in there, then we’d be smarter than these other guys and we could change it. Guess what? No.”

If you want your employees to stay focused on customer service excellence, as a leader, you can’t afford to be lured into opportunities that will negatively impact your business. Being a good steward for them requires managers to be good listeners, listening to their people as well as to the market.

“When you stop worrying about how much talking you’re doing and you start to listen, you can hear themes that go on that tell you, ‘OK, maybe things are going a little too quickly over here and I need to pull the reins in a little or I need to add some more resources to that,” Epstein says.

If you see an increasing demand in a certain business line, as was the case for C3’s performance optimization business, don’t hesitate to add resources accordingly — more employees, better technology — to make sure you’re not outgrowing your infrastructure. While looking at metrics is important, Epstein says that being a good listener really helps you develop a gut feel about your business that will more often than not alert you to the right path.

“The biggest thing is not to fool yourself into thinking something can be something, even though deep inside you can hear that little voice — the one you try to ignore — that’s telling you that this is really not the right fit,” Epstein says.

The same goes for people, he says. Many companies hang onto people too long before eventually admitting the fit isn’t right and that they aren’t supporting the goals or the culture you want for the organization.

“It goes on for far too long and everybody would be better off if that person was doing something different,” Epstein says.

“If you’re building an organization and you have people who don’t belong, do yourself a favor and do them a favor and get them to move on quickly.”

As in any business, it’s hard to keep a perfect track record. Still, you can do your best to listen to understand the marketplace as well as your own instincts, which typically can guide you to the best decisions.

“Undoubtedly, we will make a mistake somewhere along the line and something won’t fit in the way we thought,” Epstein says. “That’s going to happen. It’s how you minimize that that makes the difference.”

In the last couple of years, the velocity of C3’s growth has been extraordinary, which Epstein says speaks strongly to the quality of people that work for the company and their drive to make a difference. The organization’s success in this mission also explains why 90 percent of promotions at the company have been internal.

“People look at that and they say, ‘This more than just a phone job,’” Epstein says. “This is a career path and this is a company that cares about its employees, cares about its customers, cares about the people calling and cares about its community. All of those things tied into what we do and culturally who they are have given us an edge and helped us continue to be successful.”

How to reach: C3/CustomerContactChannels, (954) 849-0622 or www.c3connect.com

Takeaways

1. Be selective about hiring.

2. Make your mission more than just a job.

3. Follow your instincts to lead people in the right direction.

The Epstein File

David Epstein

Co-founder, chairman and co-CEO

C3/CustomerContactChannels

Born: New Rochelle, New York

Education: Florida International University

What goal would you still like to achieve in business?

To continue to spawn the next generation of entrepreneurs, whether it’s people that are entrepreneurial at C3 that are coming up with great ideas to build the company or it’s people who have all of this entrepreneurial energy and it doesn’t fit for C3 — helping them do it on their own or somewhere else. I think that spawning more entrepreneurism and doing that is a more personal goal. Also, it’s the idea that we continue to put people back to work.

Three things that business leaders need to know:

  • Your business: “It’s important to be clear on who you are and what you are as an organization, not try to be something that you’re not.”
  • Your go-forward strategy: “It’s like a tennis player. If you’re playing the game of tennis you either play the net or you play the baseline. You don’t play in the middle. When you play in the middle you’re dead. You have to pick your path and your strategy.”
  • Your fears: “Don’t let fear be your driver. It’s important to recognize that while some fears are clearly legitimate — you should be afraid of certain things and you shouldn’t ignore the consequences that come along with it — you can’t let it rule the day. You have to put fear in its right place, and frankly the key is to master wanting that fear.”