Robert Herjavec’s keen entrepreneurial sense makes him a good judge of character — both of businesses and people. This is obvious to viewers who watch him evaluate the pitches of business hopefuls on the ABC show “Shark Tank.” But on a less visible stage, he’s used this skill to navigate a number of major acquisitions, building and selling several companies.
As founder and CEO of The Herjavec Group, he’s now focused on buying. Based in Mississauga, Canada, the $125 million-and-growing global security and network acceleration services company recently completed its sixth acquisition in seven years. With its staff doubled over last year to about 200 employees, Herjavec says incorporating new employees into his company’s culture has been a challenge.
When you buy a company, he says to immediately evaluate its employees against your needs and make three lists: people you’re definitely keeping, people you’re not and people who fall in between.
“You have to understand why your company is good at what it does and what kind of people fit into your environment, and you go and look for those,” Herjavec says.
Aim for a deeper understanding of potential hires’ values and thus their fit with your own by having multiple people interview them in person. Check their references, talk with their team members and even ask their customers for feedback. Then test them out through a trial workday.
But Herjavec warns to avoid the initial temptation to hire people similar to you that you think you’re going to like.
“You have to be flexible,” he says. “Maybe somebody in the other environment is going to enhance what it is you already have. And then some people aren’t going to fit your environment, aren’t going to enhance it, but my gosh, they’re just such highly, personally motivated people that you’re willing to make the investment to change them and train them.”
To weed out potential hires that make your maybe list, set a timeline for finalizing the decision. The deadline should be before you take over the company. If your evaluation process hasn’t moved them to one of the other two lists by that time, Herjavec says to be brutally honest and go with your gut — they’re a no.
“If you’re not 100 percent sure, then don’t keep them,” he says. “The hardest thing in a culture is indecision. I think people would rather know the hard truth than a positive lie.”
That applies even after you’ve chosen to hire someone, because no evaluation process is foolproof.
“When we realize we’ve hired the wrong person, we don’t spend months trying to figure that out,” Herjavec says. “When someone’s wrong, they’re wrong.”
Give potential hires the opportunity to evaluate their fit with your company, as well, by being clear about your expectations and mission. Then have them interview associates in similar roles to get a hands-on impression.
“Your mission statement is what you live and breathe every day,” Herjavec says. “It’s who you are.”
Once your employee selection is complete, incorporate new employees into your culture as quickly as possible. The Herjavec Group does this by physically taking acquired employees out of their old office environments and bringing them into theirs.
“We find that culture shock, that bucket of cold water, works great because it shakes them up and forces them to change immediately, and they get to experience what it is we do right away,” Herjavec says. “In situations where we haven’t done that, the implementation of change has taken longer because people tend to revert to what they’re comfortable with. Generally, what they’re comfortable with is the things that they know, and what they know is the way they used to do things.”
Be a matchmaker
Robert Herjavec has several general guidelines when considering an acquisition besides culture.
The founder and CEO of The Herjavec Group says to first make sure the company differentiates from your own in a way that benefits your business.
“We look for people who complement something we’re missing,” he says. “Look for complementary businesses either from a product, the coverage, a client base and so on.”
Evaluate the potential company’s client base to avoid one that overlaps too much with your own. More importantly, Herjavec says, make sure clients are satisfied with the company’s performance. To do this, go out and talk directly to customers.
“People try to make shortcuts — they have metrics, questionnaires and all kinds of stuff,” Herjavec says. “It’s one of those things that you have to do. You just have to get on the plane and go see people.”
Also, be wiling to go through a lot of potential deals before finding the right fit — don’t settle.
“We figured out what kind of business we’re looking for, what it has to look like, what we need and we’re not afraid to walk away,” Herjavec says. “I feel no pressure to do a deal.”
How to reach: The Herjavec Group, (905) 306-9948 or www.herjavecgroup.com
Picture your company a year from now. Then five years. Then ten. What will your organization look like? Will it be structured the way it needs to be for success? A clear understanding of how the work needs to be done and how communication needs to flow creates the foundation for good work force planning and the creation of strong decision-making structures.
Often the organic growth of a company naturally creates a structure that works. But the unchecked morphing of departments and hiring practices can also result in disjointed responsibilities within positions or departments. When these stress points become obvious and painful, someone inevitably shouts, “We need to reorganize!” But knee-jerk reactions can cause drastic shocks to the organization. By slowing down and thoughtfully evaluating the following structural elements, you’ll make valuable improvements methodically and without drama.
Who’s in charge?
People often take the structure of an organization for granted — until things start falling apart. Before breakdowns happen, take a critical look at the authority relationships in the hierarchy.
- Do they support the best communication and decision-making?
- Does the chain of command support local autonomy?
- Do distant authority figures hinder productivity?
For example, if the team at an oil drilling site needs to make a quick decision in the field, communicating with and waiting for approval from a distant boss can jeopardize operations. But if the chain of command supports them, the team members can proceed based on their expertise and knowledge of the local conditions without a loss of productivity. In this decentralized organizational design, the team structure and a clear understanding of who is whose boss can create a very diverse group of job responsibilities.
In departments like corporate accounting, a centralized chain of command connects experts and those doing similar functions regardless of the geographic location of the individuals or the lines of business they support, providing standardization and efficiencies.
Too flat vs. too tall
Another potential pitfall in a company’s structure is how flat or how tall the hierarchy has become. A clear visualization of your structure can help you spot overtaxed managers or single-branch “stacked” levels of organizational chart boxes with too little distribution of management.
In a “flat” organization, potential issues include:
- Too many direct reports for managers, often of very diverse work responsibilities, which stretch the managers too thin.
- Not enough opportunities for career development and upward mobility.
- Too wide a gulf between the planning and communication requirements of each level in the organization.
On the flip side, a too-tall a hierarchy can waste the flow of communication or decision-making with authority that is sliced too thin — think of bureaucratic organizations that have lots of red tape.
Analyze the flow
If you look at the organizational chart on both a macro and a micro level, you can evaluate whether the structure of the organization as a whole and the structure for each position make sense for the right flow of information and style of decision-making.
- Are there isolated positions duplicated throughout the organization without bosses that can understand their needs — such as software help desk people reporting to nontechnical managers — just so that they can be stationed in the departments they support?
- If decisions are made along the lines of client or product divisions, are teams grouped in reporting relationships due to their geographic location just so that a local boss can watch them work?
Visualization illuminates problems
Making work force data visible and easy to understand facilitates structural discussions. An organizational chart that doesn’t match the reality of decision-making helps pinpoint the choke points in your chain of command. Your organizational chart should not look like modern art that you have to squint at to interpret. Instead, it should be a realistic depiction of the authority structure.
By visualizing how the company is structured and evaluating its current design compared to the ideal, you can pinpoint barriers to positive interactions between departments and positions. Then you are ready to design your organization for a successful future.
Lois Melbourne is co-founder and CEO of Aquire, a work force planning and analytics solutions company based in Irving, Texas. Visit www.aquire.com for more information.
Much is being said about the generational differences we are seeing in our organizations:
- Younger/emerging talent are passing up promotions that require relocation or longer working hours.
- Talent believed to be happy in their current roles surprise us by departing.
- Younger talent is moving to other companies — often with lateral pay — because the companies appear to offer new and interesting development opportunities.
If it were not for health care security, we’d probably see even more of this job and company hopping. What is going on?
For the first time in history, we have three vastly different generations working side-by-side within our companies: baby boomers, Gen-Xers, and millennials. Here is a high-level descriptor of each:
Baby boomers, who are currently senior executives in most companies, were born roughly between 1946 and 1964. They accept authority figures, have a strong commitment to what they do and give maximum effort. Most of them live to work and would classify as workaholics. They understand that money is what buys experiences and freedoms. They will change jobs, but usually stay within the same industry.
Generation Xers, who are currently senior managers and rising leaders in most companies, were born roughly between 1965 and 1978. They like informality and are loyal to themselves and building their skills. As opposed to baby boomers who live to work; Generation Xers work to live and seek a bigger work-life balance. They have less confidence in long-term rewards and greater expectation for short-term rewards. They change jobs, change companies and move across industries. They are also prolific entrepreneurs.
Millenials, who are newer hires and are quickly climbing the ranks due to strong skills in networking, problem solving and technology, were born around 1979. They question authority and work hard for high value. They are smart workers and can get away with little effort to achieve maximum results. While many of them are seeing success in their jobs, they aren’t as interested in climbing the corporate ladder as baby boomers or Generation Xers. They view money as necessary to live a luxurious lifestyle. Their work and personal lives are integrated. They pursue self-improvement and value life-long learning.
What do we know about these millennials who represent the future work force for most companies? They are racially diverse. Some would call them color-blind, ignoring race and ethnicity. They are extremely independent, growing up with divorce, day care, single parents, latchkey parenting, and the technological revolution. They feel empowered. They feel secure. They are optimistic about the future.
They are blunt and expressive. They value self-expression over self-control. Making their point is most important. They are still younger than they seem; extremely adaptable, technologically savvy, learning-oriented, efficient multitaskers, and they are by far the best-educated generation in our history.
So, as baby boomer or Gen-X senior executives, how do we lead millennials?
Encourage their values. Visibly recognize their individuality and let them be expressive. If they want to champion a social responsibility project on behalf of the company, encourage them. Let them use such opportunities to refine their leadership and communication skills.
Give them input into decision-making. They want to understand not just “what,” but “why.” They are not challenging authority — they simply want to understand and learn.
Develop and mentor them. More than anything, this generation requires coaching and feedback. If they don’t get it, they will leave for a place where they will get it. They are accustomed to rapid feedback from their technology-influenced upbringing and world — and they don’t separate that from the workplace.
Show them how their work helps the bottom line. Like all employees, millennials want to know their contributions matter. Provide full disclosure. They are accustomed to the ugly truths. Be transparent.
Create customized career paths. Millennials do not value longevity, because they have not known it in their own lives. They do not see staying with a company as a good thing. They have not experienced loyalty, so they don’t know how to offer it. They will want to have frequent, specific-career conversations.
Provide access to technology. This is the smartest, most technically astute generation ever to enter our work force. If we can tap into their gifts, and be willing to modify practices that may not serve well anymore, we can harness some of the brightest and best talent our country has ever known.
Leading this new generation provides tremendous potential for companies — but it is not for the faint of heart. Millennials don’t want anything from their employer that is vastly different from prior generations. The difference is they will leave if they don’t get it.
Leslie W. Braksick is co-founder of CLG Inc. (www.clg.com), coauthor of Preparing CEOs for Success: What I Wish I Knew (2010), and author of Unlock Behavior, Unleash Profits (2000, 2007). Braksick and her CLG colleagues work with leaders at all levels to ensure they tap into the discretionary performance of all generations of employees. You can reach her at 412-269-7240 or firstname.lastname@example.org.
When Harlan Platt saw a sign for a free safety deposit box at the bank next to his, he went into his bank and asked his bankers to match the offer. When they told him they were unable to do so, Platt took all of his business to the other bank.
Smart Business spoke with Platt, a professor of finance at the Northeastern University College of Business Administration in Boston, about how empowering employees to deliver excellent service is key to retaining satisfied customers.
Q: How do you view world-class customer service?
I would describe it as when you’re finished, it’s been painless and it may even be pleasureful.
It can be something that is not pleasureful, but you feel good afterward.
The consumer knows it because it’s so exceptional, it’s so unusual, it’s (such) a deviance from most experiences that it just stands out in the same way that when you have a good glass of wine you say, ‘Oh my god, now I see why people pay for expensive wine!’
You have to empower. Obviously, if people are not empowered, they can’t do anything.
I don’t expect companies to cut their own throat. But when a longstanding customer walks in, I would have expected the manager (at my old bank) who I spoke to to say, ‘But you know, let me get on the phone and call some people and see what I can do.’ And then call me back and say, ‘I’ve got it for you.’ That’s where I think it’s not just the empowerment, I think it goes back to the hiring function — who you hire.
Q: How do you hire to ensure excellent service?
If you hire people who are ‘people people,’ if you hire people who want to do a superior job, if you hire people who go home at night and feel good because they helped somebody else, then you can have an accomplished (team). You can empower people as much as you want, but if you employ people who are very ... solipsistic, thinking mostly of themselves, it’s not going to happen. They have to extend themselves. I think that’s really what you’re talking about, is an individual extending themselves to make the product/service of a company better suited to the needs of a customer.
You don’t hire 60,000 people and insist or ensure that the ones you are hiring are ‘people people.’ It just can’t be done; it’s a whole different mission. By contrast, if that hiring had been done, say, not at a regional level but at a store level, even a big firm ... could pull it off.
You and I both have been in situations where the person you’re speaking to is nasty, makes you feel uncomfortable, tries to make you embarrassed for even asking. That’s not a good person to hire. And I think companies can inform their hiring process or train their hiring process to weed (them) out.
Too many companies say, ‘We’re going to hire 60,000 people. That’s the goal,’ not, ‘We want to hire 60,000 great people who are going to provide superior customer service.’
Q: How does delivering superior service impact customer loyalty?
Simple: They care about me. It’s just that one sentence. They care about me. I’m not just a number, I’m not just an account, I’m not just an individual who walked in. They care about me.
I had done a transfer on my online banking with (my new bank) and I think I did it twice, and one account was short and then a check didn’t clear. So I called up and I said, ‘I made a mistake and you charged me $35.’ She said, ‘I’ll change that. I’ll fix it, don’t worry.’ That’s very nice. I know one thing for certain, if I had done that at almost any other bank, they would have been very sympathetic and then they would have hung up the phone. With her, I didn’t have to fight or argue, I simply said, ‘I made a mistake and you charged me $35.’ And immediately they said, ‘No problem.’
Q: Can delivering top-notch service affect pricing?
Stonyfield Farm is a company (that) talks to its consumers and says, essentially, ‘We’re looking out for you. We’ve moved away (in the Stonyfield Farm case) from hormone-ingesting cows, going back to the old days.’
By separating itself from the pack ... it owns its brand.
What they own is a niche, and that allows them premium pricing. So if you go to the supermarket, there is nobody that can deliver the product that Stonyfield is delivering. My wife buys it because this hormone-based milk is now an association of tumors in women. She pays $3.69 for the large-sized yogurt that’s Stonyfield Farm, and the store brand is on sale for $1.49 and it’s regularly priced at $1.69. That’s a premium price.
Of course, Stonyfield doesn’t sell as much and they have higher costs. And buying milk where the cows don’t use hormones, that affects their output and so the price is presumably higher. So the higher price is somewhat justified by these cost factors, but I think your point is better taken, that they can premium price because they own the niche.
HOW TO REACH: Northeastern University College of Business Administration, (617) 373-3232 or www.cba.neu.edu.
Scott Wise admits it’s difficult to find and keep good employees for the seven restaurants he operates. But despite that, he knows he’s doing something right ? Scotty’s Brewhouse grew from $11.6 million in annual revenue to $18 million between 2008 and 2010, a 55 percent increase.
“It’s important to keep growing our company so everybody’s fire continues to burn, so everybody feels they have another place for them to move forward,” says Wise, founder, president and CEO of the 1,000-employee company.
“Your employee is No. 1, not your customer,” he says. “If your employee is not happy, your customer is going to know that and is probably not going to come back.”
Smart Business spoke with Wise about how Scotty’s finds workers and stokes the fire within them.
What does it take to find a good employee?
Gosh, it’s hard. It’s tough. It starts all the way from the beginning. From the minute you hire them, you’ve got to hold hope that your manager has done his job. We try to put a lot of effort into the manager who’s doing the hiring so that he or she can find the right person. You absolutely have to recognize the right person, see through the bullshit and make sure that someone is not just saying things you can say to get hired. So it starts with that.
But from watching over my entire company, I would say just the generation we are dealing with right now, I don’t want to blame anybody or blame a generation, but it’s just, I hate to say weaker, but I think every generation gets a little weaker in some respects. Maybe they have been a little more overprotected or they need to know a little bit more about why ? “Why do I have to be there at 10 o’clock instead of 10:30?”
They ask a lot more questions. They want to know why they are doing this, or what’s in it for them if they sell these different food items or these different drink items.
I think that the toughest challenge is to always keep all your staff motivated, content, happy and, obviously, as the end result ? pleasing your guests.
What solutions are you taking to address the challenges of Gen Y workers and others?
It takes proper training. If you don’t train them correctly, they won’t want to stay with a company that doesn’t train them properly. The employees won’t feel like they know what they are doing, and they feel uncomfortable where they are, and they are not going to want to stay there.
To follow up, the chief executive needs to personally send an e-mail to every new trainee that comes into the company and tell them, ‘Hey, here’s my e-mail address. This is really me typing this e-mail. If you ever have a question or you feel like someone is saying something rude to you or anything, you need to e-mail me here.’
It all takes good training. We actually have two directors of training in our company so we try to put a lot of emphasis on them and making sure that they have proper training manuals and everything in place.
What are the responsibilities of the two directors?
One travels to the restaurants and actually goes to each store and talks to staff and the training manager.
The other one, who is the main director of training, manages the entire database and stays back to make sure everything is put together. Then she gives out information to him to transfer to the restaurants. They work together in the training.
What types of perks are successful with employees?
Try to just take a little bit extra effort to show support to all employees: Christmas parties, summer baseball games, anniversary cards and gym workout memberships are a few.
You don’t want them to be giving 80 hours a week at work and just killing themselves with that.
You want people to have a good work/life balance. That’s kind of my philosophy. I really think that helps.
How to reach: Scotty’s Brewhouse, (317) 759-6336 or www.scottysbrewhouse.com
Managers waste a lot of money hiring the wrong people.
For a hiring, estimates range from 1.5 to three times the salary for the full costs including things such as benefits, taxes, equipment, training, office space, etc. But, it is even more expensive to hire the wrong person. The position becomes open; you place ads, search, hire and train. The person starts and you realize he or she isn’t a fit, let him or her go and start the process again.
That can easily waste a year, yet it happens all the time.
Taking your time is crucial
The most important thing you can do when hiring a new employee is to take your time. Finding qualified people who are a near perfect “10” match for your company does indeed take a lot of time. Anything less than a “10” will drag down your business. More times than not, when a position becomes open, managers very often hire quickly. Why is that?
Some managers really dread the interviewing process. It’s expensive, it’s a hassle, it’s an add-on to your busy day, and it’s tempting to move someone into place quickly to get the job done. No matter what the excuse, nothing is more important than hiring the right people. There are many ways to make sure you hire “right.”
Pre-employment profiling is one very valuable tool. When you Google “pre-employment profiles,” there are more than 7 million results. Pre-employment profiles tell you potential employee tendencies (something you are not likely to find out in a regular one-on-one interview). Profiles can detect characteristics such as sociability, fit, how likely the candidate is to stick it out in a demanding work situation, leadership traits and the like. Really good stuff to know.
You can also have top candidates take more than one profile. Your management team should also take a profile “to match up” with potential hires. In fact, many profile companies will profile your managers free of charge in hopes of getting more business.
When we’ve gone against a profile because we suspected it was wrong, we regretted it later. Profiling is a great way to get hiring done right. It’s much more accurate than your gut.
Check background and credit
Background checks are another way to determine whether or not to hire someone. If a person is having trouble with their life outside of work, it’s likely that will cause issues at work. Background checks are on a par with drug testing.
Here’s another idea: Why not do a credit check? Anytime I’ve mentioned this, people have questioned whether it’s right or not. If they have trouble managing their personal finances, they likely will have issues at work. But there may also be extenuating circumstances ? such as a divorce or illness in the family. Use credit checks to help get the “complete picture” of a person — and give them a chance to explain anything about the report they wish. Sometimes you can learn a lot by how a person explains or rationalizes.
There are also many online companies that will provide specific tests that can help you determine a person’s knowledge. For example, you could have a potential accounting person take a bookkeeping exam. The testing company will grade the exam and provide feedback. Or, you could create your own test detailed to the job requirements.
Break bread and talk
Take the candidate to lunch. You’ll learn more about them, and it helps to get away from the workplace atmosphere. They will open up and you will, too. Have them drive. Is their car a mess? This might show you how they will keep their workspace and whether or not they are detailed-oriented.
Let their future co-workers meet with them, too. The co-workers may see something you don’t, and it gives the candidate a chance to hear about your company culture.
When you hire the right people you have so much more time to work on the business instead of in the business.
David Harding is president and CEO of HardingPoorman Group, a locally owned and operated graphic communications firm in Indianapolis consisting of several integrated companies all under one roof. The company has been voted as one of the “Best Places to Work” in Indiana by the Indiana Chamber of Commerce. Harding can be reached at email@example.com. For more information, go to www.hardingpoorman.com.
At his company’s national convention last year, founder and CEO Ed Kaloust was unsure of how to handle the announcement for Medi-Weightloss Clinics’ employee of the year. The problem wasn’t identifying a worthy candidate, but narrowing the success stories down to just one person.
“We just had three spectacular employees,” says Kaloust, who has grown the weight loss company from start-up to $16.5 million in revenue in 2011.
So he decided to announce three winners.
In today’s economic environment, having too many good people is hardly a problem a CEO is worried about. In fact, Kaloust says having the right people in the organization to grow its unique business model — a medically supervised and managed weight-loss program where physicians help clients lose weight through a combination of medication and diet – is why the Tampa-based business was one of Inc.’s fastest growing privately held companies in 2011.
“One thing that I believe in is what I call my ‘PLU’ method,” Kaloust says. “I believe that we need People Like Us. So we are very, very selective in the people that we choose to do this. By doing that, we can then be very supportive in helping them develop their program.”
From the time he started the company, Kaloust has been resolute in sticking to his PLU philosophy, carefully evaluating any business partner before he brings them into the enterprise, even if it means growing more slowly.
“People are really having a tough time out there,” Kaloust says. “I believe that it’s critical to keep that in front of us and to understand that growing through quality PLUs, people like us, is much better than trying to build 15 or 20 of these a month.”
Through deliberate organic growth, Kaloust has expanded the company from its initial three employees to 55 employees and 90 franchisees today. But in addition to having a company built with PLUs, he says, a leader needs to be able to support them effectively.
“My focus has changed from building the infrastructure to leading the infrastructure,” Kaloust says.
You need to let your people know that you are available to help them achieve their goals today, tomorrow and in the future, by “over-servicing” them. For example, Kaloust assigns a franchise field consultant to every 12 to 14 franchisees to help handle all of the marketing and compliance issues at each location so that they don’t need to worry about it.
“You need to do everything you can to protect the people who are investing in your program,” Kaloust says.
“That is one of the keys to not only growth, but it’s very key right now. Every time we turn around there is a new problem out there. So you’ve got to be there in front of them and keep reminding them, and you’ve got to be there to support them.”
It’s also important for leaders to demonstrate confidence and stability that people can look to and be inspired by.
“We have to protect the system and protect the clinics that aren’t doing well,” he says. … “We do whatever we can to help them get though the economy right now.”
Kaloust shows this by letting his people know that there is no problem too small for his involvement and no interference if an employee or franchisee calls him or comes to him with an issue.
“I’m not afraid to reach down to the smallest issue that we have in the company,” he says. “If I can help, I want to do that.”
In addition to having formal support systems in place for employees, an open-door policy lets them know you care about their wellbeing.
“I just make the time,” he says. “It doesn’t always happen and I don’t have that now as much as I used to because we have built such a strong company, but I would get involved.”
With the right team and support in place, Kaloust says, success is just a matter of letting people do what they do best.
“I believe that adage that you can take away everything I have and give me back the people, and I’ll do it again,” he says.
How to reach: Medi-Weightloss Clinics, www.mediweightlossclinics.com or (877) 633-5677
Ed Kaloust spent 43 years in the securities and investments industry before founding Medi-Weightloss Clinics in 2004. He had never planned on being in the weight-loss business. In fact, he was set on retirement, soon to be heading off in a custom-built sailboat to fulfill his dreams of blue water sailing. But then he got hit with a market opportunity that he couldn’t say no to.
“I felt that we were in the perfect storm, because we had a country that had an overweight issue and had 70 percent of its population dealing with it,” says Kaloust, CEO of the company.
In addition to making sure you have a clear problem, a differentiating solution and the right people to execute it, Kaloust says having a partner can be a key factor in how well you capitalize on a new market opportunity.
In addition to being an asset through complementary talents, partnerships can be a mirror to help you reflect on and guide decisions about a company’s direction.
“It’s a lonely office when you are a CEO or a president,” Kaloust says. “Everybody is looking at you, and where do you look?”
By partnering with James Edlund, now president of the company, Kaloust was able to balance his financial background with Edlund’s pharmaceutical experience to grow Medi-Weightloss nationwide.
“There are a lot of people who say that partnerships don’t work,” Kaloust says. “That’s not true. Some partners don’t work, but other partners will help you go on to do bigger and better things than you can do on your own.”
How to reach: Medi-Weightloss Clinics, www.mediweightlossclinics.com or (877) 633-5677
Like many CEOs, Ray Titus got a reality check when the U.S. economy tanked in 2008. With his franchise development services company coming off 20 straight years of year-over-year growth, the idea of not growing was at the very least a foreign concept.
“It was all great and roses and now the last couple of years have been really trying and challenging,” says Titus, CEO of United Franchise Group, which owns and manages approximately 1,400 franchise locations in 50 countries, including well-known brands such as SIGNARAMA, EmbroidMe and Billboard Connection. “We were in a position to grow again as usual, and unfortunately the franchisees got hit, the economy, everything that was going on.”
The company’s customers and employees lacked direction, unsure of how to deal with the financial uncertainty of what would become a global economic recession. As fear of the unknown threatened to paralyze the company, Titus realized that changes were needed to adapt for survival in the new business environment.
“You had a real freezing of decision-making that was being done,” Titus says. “Nobody knew what was going to happen next, so nobody wanted to make a decision.
“We live in a business world today that is changing on a daily basis, a weekly basis, so anybody that is stuck in their ways — it’s my way or the highway.”
Because UFG had focused on growth for two decades, Titus knew that the first step forward would be taking a step back.
After reading a book called “Islands of Profit in a Sea of Red Ink,” Titus discovered an important takeaway about operating as a successful brand and revenue-generating business.
“That book really hit it right between the eyes, because it talked about that there was as much as 40 percent of your business that was not profitable,” Titus says. “You just did this work because you always did it.”
To create a stronger business moving forward, Titus realized that the company needed to start thinking more about profitability when making investment decisions.
“We were really focused more on growth than we were even on profit,” Titus says. “As an organization, when you take a step back, you realize, ‘Wait a second, there are certain things in this organization that we are more profitable on than others.’”
The first change that Titus made was to put a stop to the expansion mode that the company had been in for years. That meant selling fewer new stores and franchises and refocusing on strengthening the brand.
“We had to change the way that we were doing business,” he says. “We had to look at things a little differently, make cuts, look at expenses differently and change the thought process.”
Part of that was revising the company’s strategic planning process to having only one- and three-year strategic plans.
“We always looked at five years and even 10 years as a company,” Titus says. “You’re obsolete in your planning and your strategic plan if you are going beyond three years.”
Titus also now spends much more time doing due diligence to evaluate investments, assessing factors such as profitability and vetting out those that aren’t a good fit with the company’s philosophy and goals.
“We’ve created some really smart steps for us to go forward with,” he says.
“Based on that, it’s meeting the criteria, the budget, looking at everything and does it get us to where we want to go in our one-year and three-year strategic plan.”
Improving profitability short term was a matter of identifying and eliminating expenses that had minimal return for the company. Titus knew that several of the countries the company was running as a direct organization, including a new store in Switzerland, had become money drains but were still mounting in costs.
“What started out as a small investment all of a sudden became a rather large investment into it and we weren’t getting any return on it,” Titus says.
But by selling master licenses in less profitable countries such as Switzerland and Canada, Titus handed over the expense and ownership sides of the businesses so the company could scale back to a support role.
“So we went from something that was costing us a lot of money to something that costs us nothing, and we’ll probably end up in a better spot when it is all said and done,” he says.
At the same time, Titus knows that some investments pay off in ways that aren’t as apparent on a budget line, such as in learning opportunities.
“It’s easy to cut people from going to trade shows or seminars, but looking back on it, each time that we’ve ever done that it’s a mistake,” he says.
Instead, invest smarter. Rather than having four or five employees traveling to a trade show, have one or two people attend and then relay the information to the rest of the company.
Evaluate your talent
Ultimately, restructuring the business to withstand the recession also called for some initial job cuts. While it wasn’t an easy time, making these cuts was necessary to strengthen the company from the inside out.
“There has been a change in mentality that was needed, but it still doesn’t mean it isn’t painful,” he says.
In times of financial uncertainty, it’s important to fully understand how each employee fits into your company’s vision so you can hold your organization accountable for progress and goals.
“I think it’s kind of bizarre that now we go year after year, month after month and everybody thinks they are an A,” he says. “Everybody thinks that they are 15 percent underpaid.”
If you want your people to be the best they can be and add the most value they can to your company, you have to set clear expectations and a high bar.
“Every great teacher and every great coach that I ever had got more out of me than I even thought that I could,” Titus says. “If you do that with your people, they’ll eventually really appreciate that management style — tough love but love.”
Titus evaluates his people through an annual review process that assigns employees with an A, B or C letter grade based on 12 criteria — an idea he got from Jack Welch’s management book. A’s usually get bonuses, raises and more money. B’s are valued employees that do a great job with the company, and C’s get a warning — 30 or 60 days to show improvement. Just like in school, C is the passing grade.
“We don’t hire D’s and F’s, and we don’t keep D’s and F’s,” Titus says.
The evaluation process frequently reveals strengths or weaknesses of a person that weren’t obvious to their boss or co-workers.
“The first year that we did it years ago, we went around the table and the manager was saying that this person is B, but by the time we got around the table it was very clear that that person was a C, or an A,” he says.
Knowing people’s strengths can also tell you how they can be utilized more effectively for the success of the company. During the recession, Titus realized some of his managers were actually more valuable reverting to the sales or customer service roles where they started out and really excelled.
“Certain people took roles that they did for ten years, eight years prior and went back to doing what they really, really did well,” Titus says.
Titus even removed himself as brand leader for each of the individual brands and put a separate president in charge of each brand, which freed him up to take the role as director of franchise sales and get more involved in big picture strategic planning.
“It’s focusing your people and yourself on taking a step back, and getting away from the titles and all the other things out there to really go back to what made you successful in the first place,” Titus says.
“We’ve got to sit down with our people and we’ve got to say what we like, what they are supposed to be doing, what they are not doing and correct it, but then we’ve also got to be able to say ‘This is how I’m rating you.’”
Lead a new mindset
Titus knew that the lessons learned from the down economy — getting more pricing for products, being more efficient with resources and so on — were things the company needed to keep doing moving forward.
“All of us have had to evolve a little bit more and be more conscious of how we spend our money, what we are investing in, and even the projects that we bring on. It’s not throwing bodies at problems,” he says. “It’s throwing solutions at problems.”
The challenge was explaining to employees and franchisees that there would be no getting back to normal.
“I have ten direct reports and they average 20 years with the company,” Titus says. “So they go back so far that they’re used to different mentalities in business.
“As we’ve turned and been in a really good spot now for about nine or ten months as an organization, we’ve learned that we can’t go back out and say everything is fine and now it’s back to the way that it was. We don’t want people doing what they did before.”
When you’re asking people to accept a new way of doing things, it’s critical to manage expectations by clearly communicating what that vision involves, especially for long-term employees who may be eager to revert to old ways. Clear communication from the top down is the key to making sure people understand what is expected of them as well as keeping morale high moving forward.
“Any time you do cuts of any kind it is painful and it’s hard to keep morale in a good spot and keep things positive, especially when people all around are getting budgets cut or somebody is getting laid off,” Titus says.
“The challenge there is to keep a good positive attitude and convey that we are doing well, but in the same breath, we still have to be careful. We have to watch what we are doing and keep moving forward as an organization to improve how we do business.”
To make sure the message doesn’t get skewed, Titus prefers to deliver it person, whether it’s participating in superregional meetings, traveling nationally to different offices for Q&A’s or spending time with franchisees locally. There is nothing like face-to-face communication to really get to know people and make sure that you are all on the same page.
“You don’t run a business from a desk,” Titus says. “You run a business with people, so you’ve got to get out from behind your desk and get face to face with customers and prospects.
“Some of those meetings are tough meetings. Some of them will appreciate it and some of them don’t, and it doesn’t matter. The bottom line is we’ve got to be involved in the different aspects of our business that we can make a difference in.”
The company’s ability to execute these changes has made all the difference. By late 2010, UFG was seeing dramatic improvement from the start of the recession, and just one year later, annual revenue had grown from approximately $450 million to $500 million.
“We have consistently moved forward as an organization,” Titus says. “I don’t want to say that it is back to normal because what is normal? We’re in a new normal. So things are improving. Store volumes are up. Franchise sales are up. We’re in good place now.”
How to reach: United Franchise Group, www.unitedfranchisegroup.com or (561) 640-5570
The Titus File
United Franchise Group
Who are your business mentors?
My first mentor was my dad. My eighth-grade school paper was how to start a franchise company. I would not be anywhere near where I am today if it hadn’t been for him. So he was the first one, and he introduced me to my second one, which was Gary Rockwell, who worked for my dad for 40 years. From my standpoint, the next one would be J.J. Prendamano. He is my father-in-law who has worked for me for 20 years. For me to have him as a mentor, as a helper and employee has just been incredible.
What is the greatest piece of business advice that you’ve ever received?
My dad telling me that there are always two sides to every story. There are always two sides. Sometimes you can really get emotional or caught up when you hear one thing, but there is a really good reason. There are always two sides and the truth is usually somewhere in the middle, a little bit of one and a little bit of another.
About JJ’s Entrepreneurs mentoring program:
Founded in 2011, J.J.’s Entrepreneur was developed by UFG to encourage and teach students about the benefits of entrepreneurship and owning their own business. The program was also created to honor J.J. Prendamano, a long-term employee who was diagnosed with brain cancer, by recognizing his commitment to mentoring and helping new business owners become successful. Through a five-year minimum $75,000 commitment by UFG, students participating in the competition are mentored by Titus and Prendamano as they create their own innovative business plans. Two winning students are selected to launch their business concepts, with one student awarded $10,000 and one receiving $5,000.
Many businesses that put hiring on hold during the recession are now prepared to retool their top talent. Organizations that are prospering in what is the new economy recognize that a sharp, experienced team is critical to success.
“Companies are looking for opportunities to take their businesses to the next level, and that includes upgrading executive talent,” says Tyler Ridgeway, director for the Human Capital Resources Group at Kreischer Miller. “They are evaluating their key players. Who are the executives they can’t afford to lose, and who are the ‘B’ and C’ players that they can upgrade?”
Leading executives have also been affected by persistently high unemployment rates. There are plenty of experienced leaders who are in transition. Some have sold their companies and haven’t yet settled into their next business role. Others left corporations to seek different work cultures.
So the good news for companies positioned to hire executives is that the crop of talent is rich, and those people, too, are looking for the right match.
“They want work that has meaning,” says Ridgeway. “They want to make an impact on a company’s future success.”
Smart Business spoke with Ridgeway about what top executives are seeking in a position, and how companies can implement creative strategies to attract top-notch talent.
What do top executives in transition seek in a new leadership position today?
The game has changed in the last five years, and executives are focused on much more than compensation. They are equally interested in a company’s vision and the ethics of its management team.
They’re looking for inspirational leadership, a strong moral compass. They want to make a difference and they want to make an impact on the company’s growth. We’re also seeing executives potentially take lateral compensation roles if adequate bonuses and incentive compensation are negotiated. Executives for hire are looking closely at companies to be sure they can present a compelling strategy and platform for growth.
How does a company attract interest from experienced top talent?
Companies that have success recruiting the best executive talent use creative strategies to build a strong applicant pool before making their selection. First, reach out to the trusted advisers who know your company best. This includes retained search consultants, bankers, accountants, attorneys and other members of an advisory board.
Talk to these individuals about potential gaps in your business: What expertise is lacking? What functions in the business require more attention or oversight? Essentially, what are those missing pieces? These discussions can help you seriously consider what job functions new talent could fill.
At the same time, tap into social media and utilize resources such as LinkedIn to grow your connections. Social media is not only helpful for finding talent but for getting referrals and accelerating the interview process. Tools such as LinkedIn allow you to develop more trust in candidates and can help you gain a deeper understanding of their experience and their connections.
How has the interview process changed?
The interview process in this market has stretched into a longer course. In some cases, the process slows because of business issues that must first be addressed. However, companies also recognize the ramifications of hiring the wrong person. They want to get it right the first time, so there is greater scrutiny and more screening involved.
For instance, a business might ask a candidate applying for a chief financial officer position to write a business plan for what he or she aims to accomplish in the first six months of employment.
Another option some businesses explore is hiring interim executives to fill roles, often with the potential of transitioning into a salaried, full-time position at the company.
How can hiring an interim executive benefit a business looking to fill gaps?
Interim assignments are a very effective mechanism for companies that want to attract solid talent, and the type of positions that can be filled on a temporary basis extends beyond the accounting functions that were once typical. Now, companies are posting interim assignments in the areas of finance, technology, operations and marketing.
The way these arrangements often work is that a business owner hires an executive to manage a specific project. By bringing the person inside, the owner gains a sense of how the executive performs. Does this person mesh with the company culture? In some cases, a project expands into an open position, and the owner can feel confident hiring an executive who has been tested.
The challenge with this type of employment is that you are limiting your pool of candidates largely to those who are not currently employed. But the benefits of an interim hire include the ability to fully realize what skill gaps the company needs to fill and to potentially reduce the hiring cycle.
The key to attaining top talent in today’s market is to think beyond traditional hiring means and keep your options open. Connect with trusted advisers and use tools such as social media to help validate decisions.
Tyler Ridgeway is director of the Human Capital Resources Group at Kreischer Miller. Reach him at firstname.lastname@example.org or (215) 441-4600.
About a month after Jim Nixon bought Varel International Inc. in 1998, he stood before his employees and put a slide up saying that in three years, the company would be making a $100 million a year in revenue. His employees thought he was a comedian.
“Several of them actually laughed,” the president and CEO says. “They thought it was hilarious. That was the starting point.”
It was a rough place to begin, but the laughing wasn’t unwarranted. When he bought Varel, he realized that he had to completely overhaul the entire business to the point where people questioned why he bought a company instead of just starting one from scratch.
“I had an inkling when we bought the company in 1998 that there was a lot to do,” Nixon says. “Being forever the optimist, there was a lot more to do than I actually thought.”
The beginning of his problems was that Varel, which manufactures high-performance drill bits, had major quality issues.
“The company had an attitude that quality wasn’t terribly important, and if there was a problem with the product, you would just give them a new one,” he says.
As a result, the business had a really bad reputation in the industry. Additionally, the organization was very local in nature instead of being a global competitor, as it had nearly no international business.
“That was a very significant challenge, but we came in with our eyes open and we knew there was a lot to do, but there’s always more than you expect, and that was true of this also,” he says.
Despite the laughs, he was determined to change the business into a top-notch organization.
To start, Nixon was looking at the company’s numbers and saw a line item called “performance credits” of about $300,000 a month, which was significant for a company doing about $2.5 million a month in revenue.
He inquired as to what performance credits actually were and was astonished to discover that when a distributor’s customer didn’t like the performance he got, Varel was simply giving them a new product to replace it.
“There was no investigation into what was wrong, so you never learned from it,” he says.
He realized that if they wanted to save money, they had to create better products, but without knowing what was wrong with the products, he didn’t know where to start. He began by looking at Varel’s processes. What he found was astonishing. The company claimed to be ISO 9000 certified but what he discovered was the only part of the business that was actually certified was the engineering design group — about five people. So he had about 1,100 people in Mexico manufacturing products with no quality systems in place.
“So our first thing was get a recognized quality system in place at our primary manufacturing facility,” he says.
It took about nine months to get them certified, and by the time that process was finished, the performance credits had dwindled to nearly nothing. The tradeoff, though, was that the scrap in the manufacturing plant was about $250,000 a month now.
“At least then we knew where we had to attack it,” Nixon says.
He started working with the unions in Mexico to change the philosophy of the plant. Workers were operating in an old-fashioned batch-and-queue manufacturing environment where a machinist would machine all the pieces he was given and then move them to the next operation, and so on. He changed it to implement Toyota’s lean model of manufacturing and production, which calls for people to be their own inspectors. Operators began working two or three machines, and they became responsible for the quality that came off of their machines. The only time an inspector was looking at parts now was during the set-up process of getting a machine up and running.
Not only did quality improve, but scrap levels dropped from about 7 percent initially to less than 1 percent. On top of that, the business had been making products primarily for the mining industry, but by improving, they started doing more for the oil and gas field market.
“The most important aspect of that is understanding what your issues are and drilling down deep enough to understand what the true underlying issues of the product actually are,” Nixon says. …“The first stage of any product-based business has got to be really understand the quality issues you have within the product, stabilize them, and from there, move forward with improved technology, with improving designs and improving the product for your customers.”
Get better people
With processes in place that were improving the company, Nixon next needed to ramp up the quality of people he was bringing into the organization.
In the past, Varel had traditionally hired people locally who had some understanding of the industry, but there was no expertise. He decided to change the approach by bringing in experienced veterans from the industry and build the organization out through recommendations from potential customers as to who they thought had the best technologies and who were the best sales people.
“We went from being a somewhat parochial, ‘Let’s hire locally in Dallas,’ to ‘Let’s hire all over the world,’” Nixon says.
But doing that wasn’t exactly easy.
“Initially, our ability to hire the best quality people was somewhat low because that was linked to the old quality image,” he says, “Until we really started building momentum in the company and changing the image and reputation in the industry, it was difficult to hire the very best people.”
He overcame that by targeting what he calls renegades — people who were with major competitors and were unhappy and felt as though they were being held back. He put in place a lucrative pay and incentive system to attract these talented individuals.
As a result, he started hiring people from Australia, Malaysia, Indonesia, the Middle East and all over Europe.
“As we’ve gone through changing the image and improving the quality and expanding our business, it’s become easier and easier to hire some of the best people in the industry to come and join us,” he says.
As he brings them in, he’s kept them there by giving them the ability to achieve results without being micromanaged.
“You put in place the measures for accountability, and then you review those measures on a regular basis,” he says.
He has monthly reports that define how each region and reviews those and asks questions around them, so people understand that they’re responsible for it.
“You can’t say, ‘You’re accountable to this, but you can’t do anything unless I approve it,’” he says. “You have to give them both. The way to do that is push that authority down and let them know that they have that authority and not to second-guess them and not to micromanage them but really to lead them to it. Have regular reviews but other than that, let them run their business.”
By about 2005, the business had grown to approximately $90 million in revenue, and for the first time, the company’s oil and gas business was larger than its mining business. Additionally, Varel was having success with some major companies around the world.
“Through 2005, we had gotten to the stage where we could compete with them, our products were as good as them, and we were making progress in most of the markets we were in, but we still didn’t have a clear identity as to who we were and what the differentiators were,” he says.
The next step then was to focus on differentiating Varel from its major competitors.
“We felt as though we had enough foundation laid that we could actually start to tell the story about who we were and what we can do and start to market ourselves really well,” Nixon says. “We didn’t want to go out and make a big hoo-hah about who we were and what we could do until we had in place all the building blocks for doing it.”
Many of his competitors are huge companies with tens of billions of dollars in revenue, and the way they approach business is to have central engineering and manufacturing capabilities. Seeing this, Nixon saw an opportunity to provide a more agile and flexible company to the marketplace. He set up small manufacturing facilities close to the customer base and built the technology around those to make them stand-alone facilities. While much of the competition is building product and saying, “This is what we offer,” now Varel is saying, “Here’s what we’re capable of, what can we build for you?”
Nixon says that it’s also very difficult to get a first sale from a customer, so they went about building relationships with potential customers so that when an opportunity finally presented itself, they already had an established relationship.
For example, one company needed a drill bit in the middle of the night but couldn’t get a hold of its usual bit provider. The man at that company finally remembered that he had met with a Varel guy and found his business card and called to see if a $600 bit could be delivered to him. The Varel guy made it happen.
“When he gets there, not only is he delivering the bit, but he’s delivering breakfast for the rig crew,” Nixon says. “He now has a customer for life. That foreman spent five hours trying to get a guy on the phone, he calls the Varel guy because he finds his business card, and a guy is up and in his truck delivering a $600 bit. Our major competitors won’t get out of bed for a $600 bit, but that’s what builds the relationship, and that’s what builds the breakthroughs.”
He also works to differentiate Varel by being completely honest with customers, even if it costs them a sale because he doesn’t want to just sell a bit — he wants to sell service and value, as well.
“The first time you say to the customer, ‘We have a bit that can do that, but it’s probably not the best bit for that, why don’t you let me get you one of these from someone else,’ all of a sudden, that guy is going to believe everything you tell them in the future because you’ve just taken a sale away from yourself and given it someone else in order to get him the best product,” he says. “It’s all about building the customer relationship and building the customer’s confidence and your reputation that you won’t let them down.”
By 2006, Nixon’s efforts were paying off and his people’s attitudes had changed. That year, he had a revenue goal of $120 million. Initially, they thought it was too aggressive, but by year’s end, they had hit $140 million, and they were pumped up and believing they could do anything.
“It was a cultural change — the first time we blew away our plan and targets was when the momentum was building,” he says. “It’s very exciting to see people start to have a great deal of pride and enthusiasm about what they’re doing, and that feeds into the customer service model.”
Revenue has continued to climb and Varel did nearly $300 million last year — a far cry from the approximately $30 million in business it had when Nixon first bought it. And everywhere else you look inside the company shows how much Varel has changed. The company previously had three patents, two of which had expired, and now has about 70 patents to its name. Productivity drastically increased; Nixon says that he had about 1,100 people manufacturing about 2,600 units a month when he bought the company, and today, he has about 750 people manufacturing 5,500 units a month. He’s even rolling out lean practices to all the other areas of the company beyond just manufacturing and seeing nice results, as well.
While mining made up most of Varel’s business initially, now it accounts for only about 20 percent of the company’s business, and the oil and gas field represents about 80 percent. And on top of that, its customers are now top-tier organizations from all over the world.
Varel’s competition has also taken note. A third party does an annual survey of the largest players to gauge market share. In the past, there have always been four major companies and then an “all others” category. As Varel has improved, the third-party now has Varel as its own category — creating five majors and “all others” now.
“That tells us we’ve changed significantly,” he says. “The other thing is they’ve come to us three years in a row now and asked us to join their market consortium. Of course we’re saying, ‘Nah.’ We keep saying no, and they keep coming back to us and asking us to join. Clearly they understand that we’ve become a significant part of the market.”
How to reach: Varel International Inc., (800) 827-3526 or www.varelintl.com
THE NIXON FILE
Jim Nixon, President and CEO, Varel International Inc.
Born: I was born in Glasgow, Scotland. I’m the youngest of eight children. I’ve got five older sisters, so effectively I had 6 mothers. I had a very charmed childhood.
Education: Degree in mechanical and production engineering, Stow College of Engineering in Glasgow, Scotland
As a child, what did you want to be when you grew up?
An engineer. My first memories were of getting a lot of grief from my parents for dismantling things around the house, whether it be an electric kettle, or an electric plug. I remember I managed to disassemble a tricycle when I was just over four years old.
What was your first job ever as a child, and what did you learn from it that still applies?
I had a paper round. I delivered papers when I was 11 years old. At 6 a.m., I had to start, so I would pick up papers and sell them at the bus stop for the public transport service and then go to school. Then after school I actually had a delivery round and picked up four or five dozen papers and delivered them to private homes around the area.
That taught me a lot about cash flow. The guy who you bought the papers from was always looking for his money on a Saturday, so if you didn’t collect your money from your customers on a Friday night, you couldn’t pay him. It was a very simple cash-flow model.
What’s the best advice you’ve ever received?
My father ran a butcher shop, and he worked extremely hard to provide for the eight children he had. He told me, ‘Son, your role in life is to find the gold in everyone and polish it up.’ Basically what he was saying was find the good in people and don’t waste your time trying to make them perfect -- just make them as good as they can be at what they’re good at.
What brought you to the U.S.?
I moved to the U.S. with Dresser Industries to run the global operations for one of their divisions. Shortly after I moved, Dresser was acquired by Halliburton. … I moved over here to become president of one of those divisions, and Halliburton doesn’t have division presidents, so that was really the catalyst for me to buy this company -- to take control of my own destiny, having moved my wife and my family over to the United States and then find the opportunity I had moved for had closed on me.