After losing his job as an airplane pilot following the Sept. 11 attacks, Jerry Lasco turned to his hobby of food and wine for answers. With a desire to start his own business, Lasco brainstormed for a business idea that solved a problem people were experiencing.
“The problem that we wanted to solve was fear,” says Lasco, CEO of Lasco Enterprises LLC, the management company of The Tasting Room, Max’s Wine Dive and The Black Door. “The fear of not knowing how to navigate a wine store and not knowing how to navigate a wine list was a big fear that we wanted to solve.”
Helping average consumers understand a vast wine selection and taste the wine before they buy proved to be a good solution to the problem. Today, Lasco operates seven wine locations in three cities and had revenue of $12.5 million in 2010.
Smart Business spoke to Lasco about what it takes to get an entrepreneurial company off the ground.
Solve a problem. The question that I think is important for entrepreneurs is, ‘What’s the void in the market or what problem can you solve?’ Whether it’s starting a new company or a business initiative, what problem is it solving? You need to ask yourself a lot of questions and you need to do a very thorough analysis. Everybody has to go through some sort of due diligence process and gain a confidence level that their idea has legs. Then you take a leap of faith and put everything on the line to test whether or not you’re right. Due diligence is critical, and it’s specific to whatever industry or idea you have.
Prepare for growth. You don’t want to grow before you’ve got everything taken care of in your own backyard on your first business. You’ve got to have that down pat and you have to feel very confident in your initial business because that becomes your backbone. Secondly, the skill set that made you a successful entrepreneur — the risk taking, the idea, the strategic thinking — isn’t necessarily the skill set you need to be a growth company, which has a lot more to do with strong management abilities, organizational abilities, systems abilities, and visionary and motivational leadership. I think of entrepreneurs as inventors, but that doesn’t mean you can manage a complex organization and a complex system. You have to look in the mirror and figure out whether or not you personally have those skill sets or you need to bring those skill sets into your company. You have to make sure that you’ve got a complementary skill set or tool kit.
Manage your cash flow. There is a mindset that you have to have if growth is your goal. That means you’re going to have to reinvest and you’re going to have to hire more brainpower and manpower to allow you to grow. You have to have really good cash flow management. Running out of capital or running into financial troubles can devastate everything. There are countless stories about businesses that have had great ideas and probably would have succeeded except for a small mismanagement of cash flow. You never know when something unforeseen could come about. It’s challenging for small businesses because you don’t want to invest in accounting, a controller or a CFO because most small businesses can’t afford that. Whatever you do you have to know what’s going on in your books and in your cash flow situation, even if that means you’re staying up at night and doing it yourself.
Hire the right people. As you grow, it becomes much less about the entrepreneur and much more about the leader of the company. I think a great leader’s strongest asset is having the wherewithal to bring great people into the company. Get people that you can trust that have complementary skills. The greatest variable that is going to affect your growth positively or negatively is that you have the wrong people on board, a bunch of yes-people or people that aren’t contributing or aren’t complementary in strengths. If you put the right group together and you have a good idea, you have an excellent opportunity to get to where you are going. To be a good leader you really have to understand yourself and know what your motivations are and know what your strengths are. You have to hire people that have strengths in areas that you don’t have strengths in. Once you decide to grow, that’s when you have to specialize. You have to bring people in that are really good in those specialty areas.
How to reach: Lasco Enterprises LLC, www.lascoenterprises.com
Sometimes, in the pursuit of success, you begin to fail your company.
That’s the position that Mike Gauthier found himself in at his $24 million company, Save on Everything, the brand name of Mike’s Market Share Coupons Inc.
Gauthier, the company’s founder and president, answered a period of rapid growth by altering the structure of his company and constructing a leadership team of outside hires. But in the process, he allowed his company to get away from the culture that had made it a success in the first place.
So Gauthier had to bring his company full circle, bringing it back to a culture that valued internal growth and promoting the ideas of its people.
Smart Business spoke with Gauthier about how to bring your company back to what it does best.
What is the biggest challenge you’ve recently faced in your role?
One of our biggest challenges was a culture change we went through a few years back. We grew substantially, and that brought in a bunch of smart people with their own policies and procedural habits. Although those things are a necessity, one of the things we lost was the essence of who we are as a company, what I like to term our ‘saga’ — what are we about, why are we here. We forgot about that and started making policies and procedures more important than who we are.
So I’ve had to do a huge shift back to what our company was about. We had lost really good people during that time, and I had to end up replacing the management to have more my style and my feel of how a company should run. So we really had to reinvent ourselves, change our products, add new products, and we’ve done that pretty successfully.
What does a business need to have in order to not be bogged down in procedures?
Culture has to be a shared environment. People have to know what is going on within the company. If you’re keeping them in the dark, you’re not going to build a very good culture. I try to bring in more of a family-type culture here, even though it’s tougher to do that as you get into being a larger company. Right now, we’re at about 120 employees, so it’s manageable. But it’s having that daily involvement of your people. We have daily updates so that people know what is going on in the company, what is going on in sales, how we’re doing against our measurements and so forth.
Cultures also tend to flourish when people have a reason more than a job. They have to know that their ideas are valued and viewed as critical to success. They have to see changes will be made if they come up with good ideas. And you have to not punish them for making mistakes. You have to let them try things.
How do you allow your people to try new things, but still stay on goal?
It takes good ideas. You have to ask for them. With our sales staff, we’ll come up with new products from one of the sales members. They’ll see something, and they’ll tell us whether they think it can work in our organization. Instead of blowing it off, we’ll take the idea and see if it actually could work for us. We try to take ideas and work with them. We allow people on the production side to come up with new looks, new covers for the magazines we do. We tell them ‘Here is what we’re looking for; you come up with the product. You design it and come up with the idea.’ That gives them ownership. They take ownership and pride in what the product is going to look like. Then it starts to become more than a job.
How do you find people who are a good cultural match?
That is a tough part of the job. We went through all the scientific methodology and all of the other aptitude programs that are out there. They give you some idea, but in reality it’s all about who wants to step up to the plate. The trouble is, I’ve found that when you bring someone in from the outside, a lot of them are anesthetized from the neck up. They haven’t been cultured to think for themselves. So if you’re running a culture like ours, it takes a while to change that. Ultimately, it’s up to them. If they feel like it’s important, that they want to change and work hard, they’ll do it.
HOW TO REACH: Save on Everything, (248) 362-9119 or www.saveoneverything.com
Sometimes, an old stove can really help you weather an economic recession.
Not the stove itself, actually. It’s the money you save by not buying a new stove right away.
At MotorCity Casino Hotel, president and CEO Gregg Solomon has used a heavy dose of common-sense, cost-saving frugality to help his 2,800-employee facility to weather the toughest economic climate in 70 years.
“There is always a natural attention you pay to controlling your discretionary spending,” Solomon says. “Rather than schedule the replacement of a piece of kitchen equipment, we’re going to see if it makes it through the year. If not, we’ll have to replace it. Those sorts of things, when you’re planning capital expenditures, you can reasonably estimate that you’ll be replacing a certain amount of equipment. In this case, we decided that if it breaks, we’ll deal with it, otherwise we’re going to try to get another year out of it.”
But it’s not all about capping capital expenses. For Solomon to make it through the recession with his business positioned for future success, he has also needed to throw some strategy, opportunism and leadership into the mix. He’s needed to find opportunities to grow that are financially advantageous and build an organization of enabled, motivated people who can capitalize on those opportunities.
Like a lot of business leaders, Solomon has done some learning on the job as his business has progressed through the recession. What he has learned has driven home to him the importance of not just financial and strategic positioning, but the need of employees to have the support, direction and encouragement of management in uncertain times.
“Basically, a lot of it was not allowing us to fall into the negative mindset that a lot of companies get trapped in,” he says. “Without question, a major challenge has been keeping everyone’s attitude on track when things are not good.”
Watch your costs
When you need to keep a close eye on your cost structure, it’s about how you spend your money as much as the amount you spend. Often, you can’t simply take an organizational hedge trimmer and cut a nice, smooth line across all departments and areas. Some departments are going to need more investment than others.
At a large casino with many departments and areas all vying for budgetary support, Solomon needed to come up with a guiding principle that would help determine which areas got financing first.
The deciding fact for Solomon and his team was whether an expense or cost-cutting maneuver would adversely affect the customer experience. If a move could generate a negative impact for the customer, it was deemed a bad move. If it could help improve the customer experience, Solomon’s staff pursued the idea.
“We took a hard look at our labor component and tried to find more creative ways to do business,” he says. “One of the things we looked at was working with unions to implement four-day, 10-hour-shift workweeks. That allowed us to better appropriate labor than five-day, eight-hour-shift workweeks, which is the concept that is predominant in our industry.”
Solomon and his team looked at every discretionary expenditure, including electricity usage, facility maintenance and even magazine subscriptions, to see if there was a better way to arrive at a positive end result.
“It goes back to whether you need to replace that piece of kitchen equipment right now,” Solomon says. “The key is, you don’t budget to the maximum extent that you’re able to spend. We always have some discretion regarding additional expenses that weren’t in our original forecast. You try to project the reality of the situation beforehand. A department head sees that a piece of equipment is becoming more costly to maintain and we see that it really doesn’t have another year in it. Or maybe we lose a maintenance agreement on a piece of equipment and can’t be sure that we’ll get the replacement parts. You take it as it comes.”
Another strategic maneuver that Solomon helped facilitate was the use of MotorCity as a proving ground for new technology. The casino’s leaders formed alliances with gaming manufacturers, arranging partnerships that paved the way for new features, such as server-based gaming. The arrangement helped provide a large number of new attractions for the gaming floor at MotorCity on favorable financial terms.
“They would provide a huge amount of equipment to us on a trial basis, and we would either be able to defer payment or arrange other favorable terms,” Solomon says. “It allowed us to get a huge number of new games on the floor without an immediate financial impact.”
As a business leader, you need to take a proactive approach to leadership. You can’t wait for the market to boom or bust before you devise and carry out a plan of attack. When the economic outlook is anywhere between murky and gloomy, it can be difficult to be that bold. However, Solomon says the key is to remember what makes your business great and remember that you are still the one running your business, not the circumstances of the marketplace and not your competition.
“Stick to your game,” he says. “Don’t let other competitors run your business. Don’t get caught in a fact-and-react loop, where they tripled their offer so you’re going to quadruple it. You have to realize that the economy might be different, but it doesn’t change the fundamentals. It just makes sense to stick to what you know is right. Be mindful of your competition, but don’t let them run your business.”
Build on brainpower
You can keep your expense structure lean and construct a strategy for the future, but your best laid plans won’t ever become reality without the involvement of your people. Your managers and employees need to get on board with your plans if your business is ever going to fully recover from the recession.
Early on, Solomon acknowledged the importance of strong binding ties, both vertically between layers of management and horizontally between departments. He needed his people not just talking with each other but thinking with each other. Solomon knew innovation would become a key component to fighting the recession, and he wanted an environment where creative ideas could develop.
First, he needed a method for getting his people together and interacting.
“One of the most important things is to inspire an atmosphere where people talk in plain English and are not hesitant to speak up,” Solomon says. “You don’t want people getting defensive if somebody gives advice or comments about something they have observed in a department. Don’t be defensive if someone handles a situation on the floor that might not be in their department but needed to be handled right then. More than anything, it’s constantly keeping your folks together in a free-form environment where everyone can speak and there is no downside to being honest.”
In a large, layered organization like MotorCity, Solomon wants all of his decision-makers in the same room periodically. With scores of managers and scores of different jobs in different areas of the casino complex, management-level interaction can’t be left to chance meetings on the casino floor.
“We need to have a quarterly meeting with our entire management team,” Solomon says. “We refer to it as our ‘Sound Board Session,’ — Sound Board being the name of our theater. We present to our management team a whole list of results, issues, opportunities, and we have three meetings to cover all of our shifts. That type of forum has been a great way to communicate the overall vision and strategy, the things that have happened in the past quarter and where we are going in the next quarter. Marketing, strategies, all of those things are presented in those meetings.”
Laterally, Solomon helps tear down would-be silos by taking away financial incentives for departments and managers to hoard ideas. No person or department at the casino is going to get ahead or make more money by trampling on their colleagues.
“A lot of companies inadvertently create scenarios by way of compensation or otherwise, and it actually encourages negative behavior for the property as a whole, thinking they will inspire more aggressive management techniques at the department level,” Solomon says. “But generally, it ends up becoming ‘Well, who cares about the other guy?’ We don’t do that. People know they’ll be rewarded for being a team player.
“It all goes back to communicating with the entire staff. When they are better informed about how they relate to the overall picture, it becomes an issue of you knowing the complete scenario, and if you choose to go against what is in the best interest of the overall operation, that would not be a good statement about your management style. If you give your people enough information about how they relate to the whole, they should be able to make the right decisions voluntarily. If they don’t make the right decisions, then you have a question to answer about whether they’re the right kind of manager.”
Keeping your staff engaged and informed is the first step. From there, you need to continue reinforcing the need for new ideas and creative thinking. If you want your people trying new things, you need to live with the trial-and-error process that accompanies innovation. You have to be willing to acknowledge that failure is a possible outcome of trying something new, and if your team isn’t failing at times, the mental gears of your business probably aren’t spinning fast enough.
“The most significant thing you can do is not punish people for failure,” Solomon says. “We are very dedicated to the proposition that if you’re not trying things and making some mistakes, you’re not trying enough new things. You have to foster an environment where it is OK to fail, and we want you to recognize failure quickly and remediate it or move on. But if you’re not failing on some things, you’re not trying enough new innovative ways of doing things.”
In Solomon’s experience, taking chances and embracing new ideas offers far more of a competitive advantage than holding back and taking a more conservative approach. You can’t simply bet the farm on one idea, but a willingness to stick your neck out on a new idea could aid your company’s recovery from the recession.
“When you look at the home runs we’ve had versus the impact of some project’s failure, there is overwhelming evidence that the green-light thinking, things nobody else is doing, we’ve gotten a lot more in terms of competitive advantage than if we had simply stuck with all the safe things you can do as a business,” Solomon says. “If you are allowing your people to try new things, you simply have to stick with the fact that they’re going to fail on occasion. Then recognize it quickly, move on and don’t dwell on what didn’t work. Just be mindful of not repeating them.”
How to reach: MotorCity Casino Hotel, (866) 752-9622 or www.motorcitycasino.com
The Solomon file
Born: Covina, Calif.
First job: I started in the industry as a slot mechanic when I was 20 years old.
What is the best business lesson you’ve learned?
You have to put in the time. Early in my career, I worked for the company that became Mandalay Resort Group. My first boss asked me how much I wanted to work, and I told him I wanted to work enough to get paid as much as I could per week. So they put me on salary, and that turned out to be a great strategic decision. I put in all the time I could, they never sent me home due to incurring overtime, and I learned a lot about various aspects of the industry. It turned out to be a very critical thing in my career.
One of my peers once said, ‘A smart guy learns in one hour what it takes me eight. But I put in nine hours, so that makes me smarter than him.’ That really stuck with me.
What is your definition of success?
Success is still measured by the bottom line in any business. But what I would say is that success is producing the highest return on investment in a way that is still mindful of the human beings involved in the process.
Tom Swidarski may not be a secret service agent, a bouncer at a night club or a front desk manager at a high-profile office building, but as president and CEO of Diebold Inc., his job’s focus is similar to all three — security.
On one hand, Swidarski’s job is to supply security solutions for his customers, which include financial institutions, government operations and commercial businesses across 600 worldwide locations. However, in addition to handling security for customers, Swidarski is also responsible for ensuring the security of Diebold’s 150-year-old legacy, a part of his job that presents its very own set of challenges.
When Swidarski became president of Diebold in 2005, he was tasked with the weighty challenge of eliminating $100 million of cost out of the company over three years — a program dubbed the “SmartBusiness 100.”
“We weren’t sure exactly how we were going to do that,” he says. “But we said, ‘Hey, Charles Diebold probably had ‘SmartBusiness 1.’ He got the first dollar out. It’s our job to get the $100 million.’”
Building a profitable business is a matter of controlling costs as much as it is generating revenue, and amid the global economic slump, Diebold’s SmartBusiness cost-savings initiatives have been a key part of increasing Diebold’s profitability and securing its position in the competitive global landscape.
Since 2005, Swidarski has not only led Diebold to achieve the SmartBusiness 100; but in the last year, the company has already launched SmartBusiness 300, and begun its third $100 million tranche of cost reduction. The company’s shares rose 18 percent last year, with fourth quarter revenue increasing nine percent to $791 million.
“Hopefully, the economy turns and things move in the right direction, but in all of our businesses, you can control the cost side of the equation,” Swidarski says. “You can’t control the revenue side — so it’s making sure that we have a good understanding of the cost side.”
Get the info
One way to better understand the cost of your business is to utilize your information-gathering and research tools. By having focused research to use in your company’s strategic planning, you’ll know where resources are most needed for your business to become faster, more nimble and more cost-effective, whether that’s in setting up new operations or proactively adjusting value points with spending to meet changing customer needs.
Before you decide how to allocate your company’s physical and financial resources, you have to make sure information about your customers, industry, competitors and so on, is collected and evaluated similarly throughout your organization. In Diebold’s case, Swidarski added paperwork for all of his global market managers to analyze industry activity in detail.
“What we tried to put in place was a similar process that we could use across the board in terms of the evaluation,” he says. “Then we put it incumbent upon each of the country managers to fill out the documents and forms. At first, people looked at is as, ‘I’m filling out documents and forms.’… Now they understand that to get the R&D effort that we need for a place like Thailand, we need to know the specifics and granularity of the competitive landscape there and how that differs from Brazil, because they are different competitors. To get a group of diverse people across 90 countries focused on the priorities, everybody has to understand the endpoint. So collecting that information became very important.”
Implementing new information-gathering procedures in your business is sometimes necessary to ensure you have all the knowledge needed to make financial decisions.
For example, Swidarski recognized that Diebold could better plan for global operations by moving its $70 million per year R&D — previously based in the United States — out to its top revenue-generating countries and develop micro-market plans to map out each market’s strategy.
“In those micro-market plans, we know exactly what gaps we have, what technology from a software-hardware service standpoint and what we need to do to create competitive advantage,” Swidarski says. “Those countries — they drive about 80 percent of our total revenue — so [there is] very focused effort there.”
Having focused research for specific markets also helps Diebold identify which markets need new capabilities and which could be served by the company’s existing technology.
“Other countries may fall out that are going to use the technology we develop for a China or a Brazil or a United States or a France,” Swidarski says. “So though we may not develop something specific for a smaller country in Europe, we still have the technology that we developed that may be specialized for France that we can use there. That helps us hone our resources not only on the front end but on the back end.”
Look at the big picture
Another way businesses can learn to be more cost-effective is by changing the way they analyze their operations. There are many different parties and steps involved in operational processes such as product design or engineering, so it’s difficult to gauge how cutting costs in one area might affect another. To understand where costs can be streamlined, you need to look at entire processes as whole, complete puzzles instead of as their separate pieces.
“You may make a module less expensive, but then you have to service it out in the field,” Swidarski says. “So for us, it’s looking at all aspects of it and the intelligence you want to build in the module that may give you savings on the backend. That is even more important than saving $2 on the front end if you are going to save $5 or $10 on the backend by having a sensor that helps you have reduced inventory.
“Probably some of our biggest innovations come from our treasury. Our day sales outstanding in the United States have dropped from 60 and 75 days to about 30 days because of process improvements with less people. That’s really where we get the biggest gain. How do we handle everyday processes and look at them wholistically, rather than ‘my little piece of it.’ When you look at an order-to-cash process, where are the areas of ways you call pull out of that? And through that, you get cost savings, as well. We need to do that based on the competitive environment that we are in.”
By looking at the big picture, you’ll have a better sense of how different parts of a process interact and affect one other and, therefore, recognizing how to trim, alter or consolidate costs in one or more areas without sacrificing quality in others.
“There’s more to come out from a process-improvement standpoint than there is from working with suppliers and saying, ‘I want that for 3 cents versus 4 cents,’” Swidarski says. “That gets you a little bit. But it doesn’t change the process.
“It’s not only the design aspect of what’s needed in the marketplace; it’s what are the other aspects of what that device is doing and the connective tissue of it as to what the total cost is and how we attack that wholistically. So we’ve brought our engineers from our service organizations in earlier. We brought manufacturing into design. We brought software in and where we use to test serially, we now test entire pieces wholistically. It really has made a tremendous difference.”
Recognize your value points
You can’t have a good understanding of cost if your strategic analysis doesn’t take into account how the value points that your customers are choosing constantly change. So lastly, to understand the cost side of your business, you need to follow your value points.
The real value a business brings to its customers is shaped and changed based on the competitive landscape. Swidarski sees that more and more of the value Diebold provides customers today is in the service side of its products such as ATMs; so he’s led Diebold’s transition into services-focused organization rather than a manufacturing one.
“The way I view it is: If someone defines you as a manufacturer, you may or may not be,” Swidarski says. “That may be a little part of what your value is. … In our case, if you use a simple device like an ATM, the knowledge of how that needs to be incorporated within an environment is much more important — the software associated with that, the intelligence you can put on that to make it more valuable, the ability to self-heal a remote device. So as we look at it, manufacturing may be a phase that 10 or 15 years down the road, doesn’t have to be something that we absolutely do. Now, today, we do that, but I wanted to make sure that the value points, that the bank that my customer’s choosing, I recognize what those value points are.
“There’s 80 percent that’s spent on managing an ATM that has nothing to do with how much that hardware costs. It’s that 80 percent that has the services that have the greatest value that we spend a lot of time focusing on.”
The point is, you don’t want to define your value it in a way that may not be relevant for your customers changing needs and interests.
“When I met with the first CEO from one of the biggest banks in India, he said to me, ‘You know, your ATM costs four times what it costs for me to buy a car,’ and I said, ‘Well, my ATM’s about 40 times more reliable than your car,’” Swidarski says. “The point is, as you deal with different folks from a different perspective, there are different issues that are the most important issues in their decision process. Having something over-engineered and developed from very sophisticated U.S. folks may not make it to the marketplace because the price points might be wrong.”
When you better understand the cost of doing business, you don’t just learn what strategies are needed to save money and be more efficient. You also learn you can focus your financial resources where they can have the most impact, so as your customers value points change, your business can adapt and grow to meet them.
“It’s in viewing the value chain and how you fit in,” Swidarski says. “Not limiting our thought process in that regard has allowed us to move the value points and allows us to generate over half our revenues from recurring revenue.”
“Now we are about managing high value of networks, creating and managing complex networks. That’s really what we do. It happens to be an ATM today. It happens to be security devices. But in the future it can be anything.”
How to reach: Diebold Inc., (330) 490-4000 or www.diebold.com
The Swidarski File
President and CEO
Education: Bachelor’s degree in marketing and management at the University of Dayton; master’s degree in business management from Cleveland State University
What is a typical week in the life of Tom Swidarski when you are not in the office?
Quite a bit of my time — maybe 40 or 50 percent — is spent traveling. And a lot of that is international. That’s really for me to get in front of customers as well as our associates and understand and make sure that we’re meeting customer needs and where we have holes or gaps and making sure that the information we’re getting in. It’s important for customers, especially larger customers that are maybe spending $100 million or $150 million with you, that they see the CEO and that he’s committed to it. So China is important in that regard. Brazil is important in that regard. For me, it’s also important to not only go see them but also to view our operations, to sit with our top team as well as always spend time with our folks internally.
How do you get employees to buy in to your vision?
If you can demonstrate in the deepest, darkest hours the humanity of making tough calls and doing it appropriately, that really helps people buy in to the vision of what you are trying to accomplish, regardless of how good you are at communicating. Regardless of how good your vision is and how fancy it is, it comes down to do people trust you. For me, that’s what it’s about.
Richard Howe wouldn’t call himself a “turnaround guy,” but based on his track record of turning around struggling companies, some of his peers might.
“I’m not a ‘turnaround guy’ just because I’ve done three turnarounds,” Howe says. “You get kind of branded that way, but I’m not really the turnaround guy. Really, I’m a business grower.”
As president and CEO of Inuvo Inc., Howe has already helped reposition the $50 million company to generate fourth quarter revenues 46 percent higher than the same quarter of 2009, which was also the year he joined Inuvo. Part of his strategy to accomplish this was improving Inuvo’s organizational structure to eliminate inefficiency and better carry out the company’s vision.
“I’ve run about a dozen businesses and three of them were turnarounds, and they all have similar characteristic traits to them,” Howe says. “One specifically, is the company has been excessive in its spending of money, so that needs to be curtailed. The costs need to get under control. Two, the team, the people around you often need to be changed, retooled and improved.”
One of the biggest expenses most companies have is in employee head count.
“I believe in team, so I spend a lot of time making sure we have the right people in the right roles in the company,” Howe says.
“You go through an exercise of evaluating staff. We created a system and the system had variables in it, different characteristic traits for what constitutes a great employee and what constitutes a not-so-great employee, and we rank ordered them. We took a look and said, ‘Going forward, what are the parts of the company that we’re going to focus on? From the collection of resources that we have and scores that we’ve gotten from everybody, who’s best to help us achieve the vision of the company?’”
Rather than set a specific head count number of employees to keep or cut, you should simply look at ways to structure the leadership more effectively. Sometimes that can involve small changes in personnel, but in other cases — at Inuvo it was also a matter of consolidating subsidiary businesses — it can mean creating an entirely new organizational structure and changing out entire management teams and boards.
While making personnel decisions is always difficult, reassessing your leadership team is a key part of getting your company back to operating efficiently and profitably on a cash-flow basis. It also demonstrates to existing employees that you’re giving them the leadership they need to achieve growth.
“The whole company was re-energized and re-motivated when they finally realized that we actually did have a senior leadership team at the company that was committed to the success of the company, one,” Howe says. “Two, they felt like they were a part of something that was going to be very successful and grow.”
Howe saw that personnel headcount was the biggest expense base for Inuvo and a key area to improve cost efficiency; yet, before making these decisions it’s important to look at all your areas of business to examine cost saving opportunities.
“Every single expense line in the company we just systematically went down through them and said ‘Why are we spending this money? Why are we spending this money?’ And, is it giving us a return or not?’” Howe says.
Most important, once you have a plan to reduce expenses, you need to enact it quickly.
“When you first do a turnaround, you’ve never done one and you get in there and you tend to over analyze the problems,” Howe says. “It causes you to take too much time to make the kinds of expense cuts you need to make to get the operation under control.”
How to reach: Inuvo Inc., (727) 324-0211 or www.inuvo.com
There will always be unforeseeable challenges and problems that arise to threaten a company’s growth, but according to Rich Howe, the most successful business people are those who undertake such challenges with strong intent and determination.
“It’s one of the single, greatest characteristic traits that I’ve found in successful business people; it’s the sense of urgency,” says Howe, the president and CEO of Inuvo. “It’s waking up and realizing that today is the best day to call someone or do something or get something done. … I’ve just found that those people tend to be able to get the impossible accomplished.”
Even when things aren’t going their way, these people won’t let themselves be steered off course.
“In business, you are going to encounter rough periods,” Howe says. “It’s just going to happen. It seems like some individuals have the ability to get punched in the face and get back up and keep going, and others seem to not be able to deal with those challenges, and they end up failing as a result. The most important characteristic trait of any leader: Can you take a punch and get back up and keep fighting? And if you can, then there’s a good chance that you are going to be successful, because it’s the getting back up part that’s the key.”
Whether you’re prepared for it or not, Apple’s iPad and the myriad of new tablet computers coming to market will change the way you do business. Not because there is a shiny new gadget available, but because that shiny new gadget is raising your customers’ expectations by a degree far greater than smartphones like the iPhone, Blackberry and Droid already have.
Regardless of the business you’re in – B2B, consumer direct or retail – the customer experience you provide is critical for long-term sustainability and growth. This is especially true for commodities that can be purchased at multiple retailers, online or direct from the manufacturer.
The impact of mobile on the enterprise, however, is being felt far beyond the point of sale. For example, at Eli Lilly and Co., advanced mobile devices and applications offer its pharmaceutical sales force the capability to be highly productive while they are presenting to physicians, as well as during the significant downtime waiting to see them.
For Lilly, mobile devices with longer battery life like the iPad that are always on and provide instant, secure access to any and all existing resources a physician may want to review about a drug are a must. Compared to the antiquated process of combing through hard copy brochures that may or may not have the very latest information or waiting for a laptop computer to start-up and open applications, this is a tremendous enhancement to the customer experience.
In deal-flow environments such as the one at Simon Property Group Inc., the sales force manages tens of thousands of active leases which have volumes of paperwork and space plans associated with them. Traditionally, the Simon sales force has had to travel with the associated paperwork or store it on discs, neither of which is easy to access quickly and seamlessly. Mobile devices like the iPad have helped Simon bring the largely paper-based leasing side of their business into a streamlined digital space that is much more customer friendly.
The important distinction between the way you may have done business in the past and the way you will have to do business in the future is the consumers’ expectation of access to what they want to see, how they want to see it and when they want to see it. Offering customers a technology-limited experience will be met with increasing frustration or abandonment as the tablet and smarter smartphones become ubiquitous.
For most companies, accessing e-mail via mobile devices is now common. This is great and it represents a big leap forward for many organizations. The new standard, however, is for your work force to be able to take everything they do in the office and do it whenever and wherever they need to, without disruption and without having to fundamentally alter the way they do business.
This means having secure access to all documents, software and other applications – multiple reservoirs of corporate information – and being able to interact with them in familiar environments that have the same interfaces as the office.
Though they are more than just incremental upgrades, mobile devices are still not replacing primary business computers in most workplaces. Today’s mobile devices are highly integrated into the work flow and they are excellent tools for displaying and communicating. However, mobile devices are not yet particularly conducive to content creation. Yes, portable keyboards and docks make mobile devices more like full capability desktop environments. But they are not the first choice when one needs to create a business plan or design a website.
The impact of mobile on the enterprise largely results in acknowledging that your customers (and your employees) expect more from you than they did before smartphones and tablets made their debut. Allowing customer expectations to drive the way you engage and interact with them should help you assess how to implement mobile throughout your business and match the right tools with the right people for deeper connections and a better overall brand experience.
James L. Jay is president and CEO of TechPoint, Indiana’s technology industry and entrepreneurship growth initiative. Jay also serves as president and CEO of TechPoint Ventures, which has invested more than $16 million in early-stage capital in twelve Indiana-based technology companies through HALO Capital Group since 2009. An Indianapolis native, Jay has a successful track record as an entrepreneur, business leader and public servant.
With the vast array of telecommunications choices and unproven technologies available to businesses, how can they determine which solutions will work to meet their unique operational needs and be the most cost-effective?
“The variety of options available to large companies only adds to the complexity. There are too many competing carriers and technologies,” says Shane Heise, president of Simplify Inc., a firm that helps large multi-location corporations simplify and optimize their communications lifecycle management. “It makes for a world where companies are forced into being reactionary and devoting too many resources to deal with the chaos. This is the opposite of any best-practices approach; but it’s the norm that the industry creates.”
Smart Business spoke with Heise about how to make the right choices that fit your telecommunications needs.
What telecommunications challenges are companies facing right now?
There is a lot of uncertainty in the marketplace right now when it comes to telecommunications. Much of that is due to consolidation in the industry. Additionally, the traditional way of buying telecommunications (local, long distance and data products) has changed because of different technologies available today, some to which people have never before had access.
Most companies today hear buzzwords like VoIP and SIP, but they don’t have anybody on staff with the expertise to even know if those are the best strategies for them. Are they going to save you money long-term? What is the return on investment? Could going to one of these new technologies increase productivity?
Can you really rely on your carrier for these answers? They aren’t going to give you an honest appraisal of their products compared to those of their competitors. The key is opening your mind and saying, ‘I do have those challenges and I know there are a lot of technologies out there, but I don’t know how to uncover what’s best for me.’
How are companies dealing with these challenges?
The traditional telecommunications provider’s tactic is to lock you up in a long-term contract, or try to consolidate all your spend with them as a single provider. They tell you that the more you spend, the better your price points.
However, that’s not necessarily true. You don’t have to give everything to one carrier to get the best price. You don’t have to sign high-commitment, long-term contracts with a single provider. You can consolidate everything into a handful of companies and still get the best solution at the best price, while still doing what is right for your business instead of just doing things the way they’ve always been done.
How can this be done?
Instead of working with an account representative that proposes the same old contract renewal with a few minor changes, consider using a dashboard that identifies trends and assesses your current situation. Then take action to improve technology, reduce cost, etc. You can proactively identify, assess and take action, or reactively work within the constraints of a traditional contract renewal. Which would you rather do? We recommend using a strategic solution process that puts together short- and long-term technical, cost-effective solutions.
How does an executive team ensure that they are optimized?
Great question. You need a collaborative process that leads to a strategic solution. The telcos are not invested in your business. They aren’t meeting as a team and brainstorming new solutions for you. They are proposing options that benefit them but not necessarily you. They may cooperate, but they can’t collaborate. Instead of being in reactionary mode, renegotiating and renewing each contract, companies can ensure optimization by peeling back the layers, assessing all of the telecom spend and bringing an objective voice into the conversation. It’s about collaboration. Ultimately, contract negotiation is part of the process and some renewals may be appropriate. The question is whether you arrive at your strategy based on objective input from a collaborative partner or merely a price quote from a cooperative vendor. The difference is vast. We’re trying to open the eyes of executives to what a collaborative relationship looks like and can mean to the bottom line.
How can you be sure the approach you are taking is truly strategic?
The heart of it is having the right analytics, the right insight into the provider world, and a commitment to an over- arching, specific direction. The dynamics of the industry are continuing to evolve and new technologies are available, but who has time to test all the options? Ultimately, you need to know players in the industry who have both the insight to provide guidance and the accountability to be responsible for the direction they suggest. This goes beyond the average consultant. Companies need a trusted adviser. Most successful executives wouldn’t dare go through life without a trusted wealth manager. Why would they allow the business to go without a trusted adviser for such a critical service as communications? Executives don’t just need a consultant. They need someone whose neck is on the line for any solution they suggest. They need a trusted adviser.
Shane Heise is the president of Simplify Inc. To learn more about Simplify, call 87-SIMPLIFY ext. 236, or visit
Is a business valuation needed when you aren’t planning to sell your business? What factors determine a company’s value? What do you need to know before hiring a valuation professional? These are some of the common questions that business owners pose when the issue of a valuation is raised. Since 2011 is expected by some economists to see an increase in mergers and acquisitions activity, it is a good time to review the role of business valuations.
“Valuations are useful in such circumstances as mergers and acquisitions, due diligence by a lender, succession planning, estate planning and complying with government regulations,” says Jeff Hipshman, partner, HMWC CPAs & Business Advisors in Tustin. “Even if none of these trigger events are happening now, it still can be beneficial to have a valuation. A business valuation can impart insights into a company’s strengths and weaknesses, as well as provide a road map for increasing its value. Understanding what adds value to your company can help you in future business decisions, such as timing the sale of your business for the maximum selling price.”
Smart Business spoke with Hipshman about some of the typical questions that business owners ask about business valuations.
Why is a valuation needed?
Valuations can be helpful in many situations, including some you may not have even thought about:
- You want to buy or sell a business.
- You are divorcing.
- You use gifts as a tax strategy in your estate plan.
- You are liquidating your business.
- You are the executor of an estate.
- You are setting up a buy-sell agreement.
- You are seeking business financing.
- You are doing strategic planning.
- You require a fairness opinion.
- You need to comply with certain FASB standards.
- You are converting your C corporation to an S corporation.
What methods do valuators commonly use?
The business is first analyzed and then a valuation method is selected based on the analysis, the interest being valued and the purpose of the valuation. Your financial statements are a starting point when setting a value for your company. But important information will be missed if the analysis relies solely on the financial statements. Valuators select their valuation methods based on their analysis and all other facts and circumstances.
Typically, a valuator considers one primary method to derive the asset’s value, and one or two others to serve as checks or supports of that value. The process of valuing a business is necessarily somewhat subjective. Valuation professionals may vary in their estimates. In using the various methods, even the same valuator may come up with several estimates.
Here are some of the most common valuation methods:
- Income approach. This approach capitalizes the company’s expected income or cash flow stream by determining the rate of return on investment required by a potential investor, and it sets the value at the amount appropriate to generate that rate of return. This method is often used in conjunction with a discounted cash flow analysis to estimate the present value of the future stream of net cash flows generated by the business.
- Market approach. This approach gathers data from acquisitions of similar businesses or from the stock prices of comparable publicly traded companies. The valuator adjusts the data to account for differences between the subject company and comparable firms. An adequate number of comparable companies are necessary to produce credible results.
- Asset-based approach, also called adjusted book value method. This approach requires establishing the value of all assets and liabilities as a method of valuing the entire business. This method is often used when a business’s earnings and cash flow don’t materially contribute to its value. The identification and valuation of intangible assets is the most challenging aspect of this method.
To ensure a quality valuation, be sure to hire an independent valuator who knows the ins and outs of your company and industry.
What makes some businesses worth more than others?
Many factors affect your company’s value. In addition to financial factors (e.g., profitability, revenue sources, cash flow, current debt and equity), some of the key factors affecting value include:
- Economy: Economic conditions, especially costs of materials and availability of capital, can profoundly affect a company’s continued profitability.
- Industry: A particular industry’s economic outlook can have an impact on the value of a business. In addition, markets and channels of distribution as well as changes in production technology can greatly affect a company’s future potential and have a major impact on value.
- Competition: The number and nature of current and potential competitors and their ease of entry into a company’s market can profoundly affect a company’s success.
- Regulations: From a valuation standpoint, compliance requirements and restrictions to market entry may be particularly important. Also, current or anticipated zoning and licensing restrictions can substantially affect price.
- Market position: Reputation, pricing policies and diversification of customer base all significantly affect a company’s ability to generate earnings.
- Intangibles: An established name and reputation, a customer base, a skilled work force and many others are what increase the value of a business above its tangible assets’ fair market value. They can greatly increase a company’s profitability.
- Internal controls. The functioning of accounting and operational controls affects risk. If internal controls are faulty, financial and other data could be as well.
Jeff Hipshman is a partner at HMWC CPAs & Business Advisors (www.hmwccpa.com), one of Orange County’s largest local accounting firms. Contact him at (714) 505-9000 to discuss how your company or client could benefit from HMWC’s business valuation services.
Every business owner has, or at least has heard of, a business plan. It summarizes the operational and financial objectives of your business and gives a high-level overview of the operations of your company. Business plans are not only useful for planning purposes, but are oftentimes necessary to obtain financing and attract investors.
But what about a business model? This distant cousin of the business plan is rarely written or talked about, but it’s what separates a Starbucks from an ordinary coffee shop. It describes your business and how it will generate revenues. It assesses the marketplace’s needs, risks and costs and is the basic framework your company will follow to become profitable.
Smart Business learned more from Matt Marchbanks and Paul Orsborn of Comerica Bank about the main components that your business model should contain.
What is the first thing a business model should contain?
Marchbanks: The first item to include is a description of the products and services your business will offer and why customers should purchase them. What makes your business unique and differentiates your products or service offerings? How will they fulfill the needs of customers? You must consider in your business model how you will transform your product or service into something attractive to consumers and how it will be made available to them. In essence, you should describe what will make your business successful.
Should necessary expenses be included in a business model?
Orsborn: Yes, the next crucial item to consider is how much your fixed expenditures will be. First, think about the core operating costs of the business. This includes everything from rent and employees to equipment and office supplies like computers. Also take into consideration the cost of any fees you may encounter when starting your business, like licenses, agreements and legal, accounting and insurance fees. You should also determine how much your product will cost to produce. Will you need a factory or supplier to produce it? Will you need to pay for shipping or transportation across the country? If you’re going to offer a service, think about what upstart costs you will incur.
How should revenues be factored in?
Marchbanks: The next step is determining how you will make money to offset the cost of your expenses and, in the end, be profitable. Who will your potential customers be? Look at the demographic you will be targeting and identify your target customer. Next, start to think about how you will develop customer relationships and how you will sell your product or service. You will need to develop a marketing and distribution strategy. Entrepreneurs should learn about trends and new breakthroughs and research their competitors. It’s also a good idea to talk to people outside of your industry. You never know what valuable information you can gain from an outside perspective.
Should a detailed financial plan be developed?
Orsborn: Yes, your detailed financial plan should include the initial investment needed to get your business up and running, like facilities and equipment, and also working capital to begin and sustain operations. It should also include an itemized list of expenses and revenue projections and keep track of profit, return on investment and cash flow. Also remember to keep continually thinking about your business model after you start your business, especially when it’s time to branch out. If your business goals change, it’s time to revise your business model.
Matt Marchbanks and Paul Orsborn are senior vice presidents for Comerica’s Texas Business Banking Division. Comerica Bank is the commercial banking subsidiary of Comerica Incorporated (NYSE: CMA), the largest U.S. banking company headquartered in Texas, and strategically aligned by three business segments: The Business Bank, The Retail Bank, and Wealth & Institutional Management. Comerica focuses on relationships, and helping people and businesses be successful. In addition to Dallas, Houston and Austin, Texas, Comerica Bank locations can be found in Arizona, California, Florida and Michigan, with select businesses operating in several other states, as well as in Canada and Mexico. Comerica reported total assets of $53.7 billion at Dec. 31, 2010. To receive e-mail alerts of breaking Comerica news, go to www.comerica.com/newsalerts.
Stodgy and old were not the words Jodi Berg would use to describe Vitamix Corp., but those were the ones that Forbes used to describe the high-performance blender company, and seeing that in print shocked her.
“My first reaction was how could someone think we’re old and stodgy because I knew our goal wasn’t to be,” says Berg, who is now president. “I had to make sure I wasn’t just having an internal perspective but having an external perspective of how our company could be perceived. It was one of those wakeup calls that everyone should have.”
Berg had an approach to business that would help her transform the company and make it more appealing to the outside judges. Throughout her career, she had used an acronym called DANCE to help her as she moved into new positions, and that same acronym was critical to move Vitamix into a new position, as well.
The D stands for determining what your destiny or goal is. She says to ask yourself, “What is it exactly that you want to achieve or you want to be?”
“Be very specific about that,” she says. “That’s the only way you’ll know if you get there if you’re specific about where you want to go.”
She likens it to when people plan vacations and says that often people plan their vacations more than they plan their daily lives.
“When you plan a vacation, you pick a destination, you know who’s going to go, you know how you’re going to get there, you know what you’re going to do when you get there, you have an agenda, you have a plan,” she says. “Oftentimes, when people go through life, they just wing it. Why would we put more planning into our vacation than our own life? I think it’s because they just don’t think about it. If you can think of your life as destinations or a project you’re working on as a goal you want to achieve, take the time upfront to define what that is.”
Then the next part of DANCE is the A, which stands for alignment. She says you have to make sure you’re aligned around that goal and uses the vacation example again.
“If we want to go on a trip to California, whether we walk or drive or fly, we’re going to head west, but if we don’t align our compass to make sure we’re going west, we may never make it to California,” Berg says. “If we head out and we start heading north, we may feel very busy and feel like we’re accomplishing something, but we’re not getting anywhere close to our goal, so align your decisions around where your destination is.”
The N stands for network — don’t assume you have to do it all on your own.
“If you look at other people, a lot of what you’re managing to do has probably already been done by several other people — good, bad or indifferent — and you can learn from all three versions,” she says. “Look around and find people who have done it before and don’t be shy about saying, ‘This is what I’m thinking of doing; this is where I’m going.’ Bounce your ideas off of other people. The more input you have from other people, the better your decisions are going to be, and the faster you’ll be able to achieve the goal you want to achieve.”
The C — care — is the easiest one to understand but often is the most difficult to execute.
“Make sure you care for yourself in the process, and make sure you care for the people around you,” Berg says. “In an airplane, they say put your oxygen mask on first for a reason because you can’t help other people if you’ve passed out. You have to be functioning, and you have to be in good condition in able to lead.”
Then lastly, the E stands for embrace success — in any large or small form it may come.
“Oftentimes, we set a goal, and we think that we’re not successful until we achieve that goal,” she says. “In reality, every baby step that we take along the way, if that step gets us a little bit closer to that goal, then that is a success, and we’re moving in the right direction.”
By following the DANCE approach, Berg transformed Vitamix so the outside critics could see the exciting business she had seen all along.
How to reach: Vitamix Corp., (800) 848-2649 or www.vitamix.com