Craig Shular is an upbeat guy, but even he accepts that things had gotten pretty ugly at GrafTech International Ltd. in the early 2000s. Debt had surged to more than $1 billion despite net sales in the $500-million range. Shareholders couldn’t flee the publicly owned company fast enough.
“Most people had written us off,” says Shular, chairman, president and CEO at the manufacturer of carbon and graphite products. “The banks had frozen all our facilities. Suppliers were making us pay cash on delivery. It was that kind of environment.”
Big problems often require big cutbacks and this situation was no different. The company ended up going from 10 graphite electrode plants to five and reduced its employee count from 5,000 to about 2,200. Benefit programs had to be completely redone.
“Brutal,” says Shular, when asked to describe the steps that had to be taken at the company’s low point. “A very tough process.”
The challenge for Shular was that in the midst of all this turmoil, he had to find a way to get the employees who remained at GrafTech to buy into his plan to get the company back on its feet.
He had a vision he hoped reflected an optimistic view of the company’s future, but he had no way of really knowing if it could be fulfilled. It was something to work toward, and so it was up to him to take that optimism and build off of it.
“Unless you have a very clear picture at the senior management level and you can articulate that to all your teammates everywhere around the world, you’re going to have a tough time propelling the team forward,” Shular says. “The team is not going to be able to embrace the types of changes you’re asking them to make. That very clear vision that is very well-articulated to every team member is fundamental to enabling and embracing the type of changes that have to happen.”
Shular firmly latched onto that optimism and hoped his employees, who he prefers to call teammates, would join with him and do the same.
Lay it all out there
Shular needed to make it clear to his leadership team how deep the company had sunk and he had to do that before he could move forward with his recovery plan. In that situation, you really can’t afford to sugarcoat the truth.
“Do not hold anything back,” Shular says. “Give the team the exact, blunt, clear picture of your current reality. Here’s where your customers are. Here’s the quality of the product. Here’s what the balance sheet looks like. Here’s what your cash flow looks like. All the various metrics you use to drive your business. Here’s what we look like today and make very clear how that’s just not going to be able to continue. It’s not going to allow us to be successful.”
Shular didn’t stop at his leadership team. He wanted employees throughout the company and around the world to understand that the leadership team was not in denial about the need for change at GrafTech.
“So when someone in South Africa or France or Brazil goes home at night and their spouse says, ‘Gee, what was your day like? What’s going on in the company,’ that individual can articulate the current reality,’” Shular says. “Here’s what it looks like.”
As the cuts were announced, the climate at GrafTech was quite bleak. It was a necessary condition, but not one that Shular wanted to persist for too long. He needed to act with compassion, but also with a bit of urgency.
“If you continue to roll those out over a period of time, you’re going to get a team that is constantly looking over their shoulders,” Shular says. “What’s going to happen next? When is it me? When is it my family? So another very important part of any turnaround is to the maximum extent possible, lay out your plan and roll it out all at once.”
Shular wanted people to understand where the company was and the steps he was now forced to take. But he also wanted them to see a picture of where he felt the company could get to in its recovery.
“What we told everyone was that this was what we have to get done,” Shular says. “If we can get this done, and it will take months and in some cases a couple years to execute on all these, then we have a very good shot of getting to our vision.”
When you’re in a situation where you’re making significant cuts, you’ve got to keep the plan in everyone’s mind. The idea that they might lose their job doesn’t fade easily from the mind of your employees.
“You’re going to have to continue to overarticulate the vision and articulate where you are on the milestones,” Shular says. “Having some short-term milestones where the team can be successful and acknowledging them, highlighting them and celebrating them will help the team toward more of a view forward.”
It’s those little victories that can start the momentum you need to achieve bigger victories, or at least instill a little more confidence in your people.
“Preferably, they are some shorter-term milestones where the team can start to see two months from kickoff, ‘Oh, look what we did,’” Shular says. “So you’ve got to have some near-term successes that you believe you can knock off early in that game to continue to build the confidence in the team. Then you have to celebrate the hell out of those successes. Highlight them, celebrate them, have fun. If you don’t have fun in a turnaround, you’re going to lose a lot of people.”
Get in front of people
Shular couldn’t meet with every one of his employees around the world in the time period he needed to.
So he had to make the visits he could make really count and then rely on technology to fill in the gaps to ensure everybody had a clear idea of the direction he wanted to take. To that end, it wasn’t just meeting with top management at each location and having a catered lunch in the executive conference room when Shular arrived in town.
He wanted to interact with as many people as he could at the locations he visited, even it took all day and night.
“Don’t go in and just meet the day shift,” Shular says. “There are two other shifts. The other two shifts are going to get the message with or without you and I think it’s much better if they hear the message directly from the CEO. I have found that there is nothing more powerful than being on the third shift as the CEO is on the plant floor conducting a town hall.”
If you don’t have second and third shifts, the philosophy still applies. You’ve got to meet with people from throughout your company if you want them to believe that you value their place in the organization.
“Walk the plant floor and spend time with the operators, the men and women who actually make the products and provide services to the customer,” Shular says.
Take the time to field questions and do it with an attitude of patience, not one that conveys a feeling of being late for your next appointment.
“It gives you some direct feedback on maybe how the message is not coming through clearly or is not playing clearly in these countries,” Shular says. “They misinterpreted it. It lets you see that and get it rectified.”
One aspect that you might overlook in delivering information to your people is the mode of travel that you use to get to those meetings. At a time when someone’s good friend at the plant or in the office has been laid off, first-class airfare and fancy rental cars can easily become an example of insensitivity on your part.
“Everybody flies economy,” Shular says. “When you’re in a facility asking them and challenging them to drive continuous improvement every day, whether it’s productivity, quality, on-time delivery, inventory turns, it’s important that not only the CEO, but the entire leadership team walk that talk. So for the CEO to pull up in a big full-size rental car, that doesn’t work for us. I’m going to be in the cheapest, smallest car I can get. I’m going to arrive in economy. You’d be surprised how clear those messages trickle through the entire team.”
To help drive that message home, Shular instituted a policy where no one, himself included, would fly anything other than economy no matter how far or long their flight might be.
“Because of our global network and all the travel we have, for us, that was over a $6 million savings a year to get everybody in economy,” says Shular, who says he flies about 150,000 miles a year.
If you’re trying to balance the cost of travel with the importance of face-to-face communication, Shular says look at what you’re trying to gain from the trip and think about the message you want to convey to your people.
You can’t be ruled by cost but you also can’t be limited by it if it could help your business. It’s often a tricky line to navigate.
“Are we growing customers? Are we taking care of customers? Are we penetrating new markets? Is it going to allow us to be more successful in the future? Is it going to drive cash flow and profitability?” Shular says.
“As a business person, we would weigh those kinds of decisions all the time. We are very careful not to get to a place where we’re so driven by cost that we lose the view and drive toward what is propelling growth. Propelling profitable growth is our No. 1 mission. So the day that we let cost become the decider or the overriding decider, we won’t be in a good place.”
Focus on family
Shular hoped to instill optimism with his people at the same time he was delivering bad news through his approach, particularly with pay cuts.
“We cut salaries, but what we did was all that money that was cut, we put it into our global bonus plan,” Shular says. “What we said to the team was if we hit 1 ½ times target for that year’s goals, we’ll pay out all the bonus money plus all the salary money that had been cut. In addition, we said all the officers’ salaries, which were cut 10 percent, they can never get that money back. That will go into the pool and it will be paid out to all the other teammates if we hit 1 ½ times target.”
Shular wanted to show people that he wasn’t just slashing to reach a number and that things would never be the same again. He wanted to provide a sense of hope that if people worked hard, they would be rewarded for it.
He also wanted to show a sense of understanding that a recession and cutbacks are generally tougher on employees than they are on management.
“Significant portions of the management team cannot get any bonus unless the people get a bonus,” Shular says. “We don’t have a situation where the senior management team made a pretty nice bonus and the rest of the team got nothing or a very meager bonus. We all sit in exactly the same bonus pool and we all have the same metrics and we’re very much aligned. Having the right well-aligned incentive compensation program is very important to driving teamwork.”
As it turned out, his people did work hard and did earn that money back.
“The team that year hit 1.8 times target,” Shular says. “All that money, including the officers’ money, got paid out to all the teammates.”
If you show yourself to be an ally of entry-level employees and middle management as well as top management and the leadership team, you’ll fare a lot better earning support for the things you want to do. And you’ll probably find the results are better too.
Shular recalls something one of the employees said at a meeting he had with the third shift at a plant that GrafTech had acquired as part of its turnaround.
“He stands up and says, ‘Gee Craig, do you think we could get our fishing competition back?’” Shular says. “And I say, ‘Fishing competition? How is that work? What’s that all about?’”
Shular discovered that employees at this location at one time had an annual redfish competition that had become a company event. The previous owner had let the event fade away, and Shular was being asked if he could help get it back on the calendar.
“I said, ‘As long as you invite me,’” Shular said with a chuckle. “And so we reorganized and reinstituted it. It was last October. We have 150 teammates at that site and 78 joined the competition over a weekend. … It’s important that leadership drive fun. Work should be a fun process. When you think about it, we spend a majority of our time at work. In my view, the only reason we all work is for our families. If you don’t believe that, look at any individual that gets a promotion or a success at work or accomplishes a hard-fought goal. The first person they call is somebody back home. So we’re all here because of our family.”
Keep driving forward
One area that wasn’t touched during the company’s recovery was research and development.
“In fact, we grew R&D,” Shular says. “It was so paramount to us that we would have to invest in R&D and spend a lot of time on innovation that we moved our global headquarters here to Parma to be right next door and under the same roof as our R&D operation.”
The relocation of headquarters, along with the acquisition of several companies that broadened the expertise and capability of GrafTech, was evidence that the company wasn’t just looking to recover, but that it was looking to continue growing.
GrafTech had made some significant strides. The banks were looking at the company much more fondly and the company’s market cap had jumped to $3.2 billion.
But Shular was already thinking about the next downturn and what could be done to lessen the blow it and keep the growth momentum going.
“We knew a recession was going to come eventually, they always do,” Shular says. “I don’t think anyone knew when, but one of our mantras each day was, ‘We’re a day closer to the next recession.’ So we didn’t want complacency to fall into the company. We had done a great turnaround and everyone was patting us on the back. We didn’t want to fall into the usual trap of, ‘Hey, we’re pretty good.’ So we kept a mantra that we need more new product development, more patents, more innovation and continued relentless drive on cost structure and productivity.”
The next recession did come, of course, and it was a big one. Net sales took a dive from $1.2 billion in 2008 to $659 million in 2009. But sales got back over the $1 billion mark in 2010 and GrafTech reached $1.32 billion in 2011 with a market cap of $1.9 billion.
The company is also back up to 3,181 employees.
“Today, we sit with almost 800 patents and patent-pending operations, one of the largest in our space,” Shular says.
“So that’s the turnaround, that’s building a spectacular balance sheet and that’s having a great balance sheet and a great team that is very, very nimble in the trough and can still play offense. So we expect as these economies continue to recover to emerge with a bigger, better and stronger business model and be the clear low-cost producer in our industry with a lot more science, technology and patents than when we entered this recession.”
How to reach: GrafTech International Ltd., (216) 676-2000 or www.graftech.com
Takeaways: Be honest about your problems. Consider costs. Always prepare for the next recession.
The development of a strategic business plan requires an analysis of growth through strategic acquisition. Making strategic acquisitions is a fundamental component of a company’s business plan and revenue enhancement.
As chairman of Clark-Reliance, I get together with Rick Solon, president and CEO, and the rest of our leadership team to continue to use strategic acquisitions to grow our 127-year-old company.
Any strategic acquisition strategy should consider the following:
Evaluate companies that have products and services that can expand and diversify your current product line and overall value.
It is important to find companies that not only complement your current product line, but improve and add to the product offering. Identify companies that have products that can diversify your existing product offering but that fit into the bundle of products you are selling to a specific market or market segment. The integration of the existing and acquired product lines creates sales opportunities to all customers of the merged companies.
You should also consider acquisition opportunities that will allow you access to a different industry or industry niche but one that still fits your strategic mission.
Your core customers probably are focused within a few industries. An acquisition can act as the “introduction” for your existing products into an industry or industry segment that you have not been able to penetrate but that has good growth potential. You may need to evaluate your sales channel model, because your existing model may not be effective for the new industry.
There are a few fundamentals as you start an acquisition strategy:
1. Identify and create a list of companies that you want to acquire that can result in a market share increase, product line diversification or industry diversification. Focus on companies that complement the core strategic intentions of your organization. Create a cross-functional acquisition team consisting of members of sales, marketing, operations, finance and business systems to discuss growth and become your due diligence team.
2. If you do not have sufficient internal expertise, identify a consultant with skill and experience in acquisitions who can assist you in this process.
3. Determine the best way to contact the company you are interested in and their preferred way to be approached. Some companies may prefer a letter of introduction, while others would prefer phone contact. Someone on your team may have a relationship or contact that can open the door for discussion.
4. Construct a letter of intent to purchase the company outlining key purchase terms and conditions and an overall timeline to complete the deal.
5. Create a comprehensive due diligence checklist that your team will use to thoroughly examine or audit the potential acquisition.
6. Make sure that the company is truly a good fit as you examine the financials and learn more about the operation, corporate culture and work force.
7. Have a law firm with an expertise in acquisitions put the deal together. They know the details and can guide you through the legalities, administration and what to do when you run into problems, which is inevitable in any transaction of this type.
8. Get your cross functional team very engaged during the due diligence phase. That way, you can begin integrating the two staffs, which will help the company you are acquiring get to know the people and get adjusted to your corporate culture.
While the acquisition process is a long, tough transition for all involved, if the right fit is found between two companies, it can make a world of difference for your company’s growth moving forward.
Matthew P. Figgie is chairman of Clark-Reliance, a global, multidivisional manufacturing company with sales in more than 80 countries, serving the power generation petroleum, refining and chemical processing industries. He is also chairman of Figgie Capital and the Figgie Foundation.
Rick Solon is president and CEO of Clark-Reliance and has more than 35 years of experience in manufacturing and operating companies.
Tom Overdeck doesn’t have a crystal ball or any kind of secret tricks that are helping him lead Kost USA Inc. into the future. What he does have is a mission and a vision for what he wants his company to become.
A manufacturer of more than 100 chemicals, coolants and lubricants that has sales of $80 million, the company is poised for some impressive growth and to be positioned as a leader in its industry. Over the next 10 years, Overdeck, CEO, expects Kost USA to become a $250 million company.
“My biggest job as CEO is work toward providing the environment, the climate and the culture to support this but also to provide the infrastructure to support all of this,” Overdeck says. “Providing the infrastructure is a key element in a growing company. That is an important aspect of my role besides providing a vision and giving the organization the capability of executing.”
The key to achieving successful company growth is following the vision and sticking to a path that allows the company to remain true to its heritage.
“We’re a customer-focused company, so we need to continue to reinvest in our technologies to bring the best and most functional products to our customer base,” Overdeck says. “We have to do that within our own heritage and expertise. The vision says that we’re going to be a $250 million sales company while doubling our percent of EBITDA as a percent of sales. The vision in itself is not that complicated, but the pieces of how you get there are where all the work is.”
Here is how Overdeck keeps his company’s growth aligned with the mission and vision.
Communicate your mission and vision
When your company is in a growth mode, there are very few elements more important than the company culture, mission and vision. These elements are the foundation to guide the growth of the company and its employees.
“You have to ask yourself what kind of culture you need to be successful in your vision,” Overdeck says. “You have to have good leadership and everyone has to understand what their job is. The vision can be established by top management, or it can be the result of collaboration by a management team, but it is important to have a vision. What’s very important is the mission and mission statement. Whether you have five employees or 500, employees really needs to understand how their job delivers some piece of that mission and they have to be able to relate to that and understand it.”
Every employee should be encouraged to offer information about how to improve the process. By doing that you allow employees to understand the mission and how their job is related to accomplishing the mission.
“In all of that, you find it becomes easier to empower people if you’ve got the right culture, the right people and they understand what the mission and vision are,” he says. “The watch out is that you have to make sure that you’re recognizing their contribution and rewarding them in some manner. Once you get on that flywheel, the momentum builds.”
Kost USA’s mission states: “We are trusted entrepreneurial partners with our customers, creating joint growth by providing preferred liquid technologies and passionate service. It has been critical to the company’s success that employees are aware how they can contribute.”
“From that mission statement our people need to take away what they’re doing on their jobs that affects that mission,” he says. “It ends up being a cultural thing. You have to have employees that understand the importance of it and are committed to it. You have to stay focused. You have to have a two-way flow of information and communication with the management team being the conduit between the vision and the employee population. No idea is a bad idea, so all your employees need to be active participants in ideas.”
Manage growth opportunities
When following a mission and vision for growth it is important to have a person or team in charge of monitoring progress toward those goals. Without that oversight it is easy to get sidetracked.
“The key to our success is that we first created a management team, and this team works together in a cross-functional mode allowing for advanced planning, support and execution of new and improved technical product innovations,” Overdeck says. “The management team determines which opportunities best fit the heritage and the vision. We have predetermined criteria as to what constitutes success in a particular project before we spend a lot of time, energy, money and resources on it. It becomes data-based decision-making, and it becomes apparent fairly quickly if your project is on track or not.
“If your project is on track, then you keep supporting it and putting more resources behind it. In the event it’s not meeting the predetermined criteria, you have to take a step back and ask what you’re doing wrong. Do we need to modify our thought process or is this just a bad project? It’s not flying by the seat of your pants.”
Managing growth is about customers, employees and partnerships you have with suppliers. Those are the biggest drivers of growth and you have to balance the opportunities.
“You always have more to do than you have available time and resources so you have to make decisions early on about how many projects you can handle simultaneously,” Overdeck says. “That’s where you rely on some of the data you hear from your customers, suppliers or employees to get you pointed in the proper direction and what the expectations are. You have to be realistic and gauge your success against that predetermined criteria. That becomes critical because otherwise you’re going to get yourself saddled in a particular project that might suck up a lot of resources and it’s less attractive in the long run.”
Overdeck and his team at Kost USA are constantly trying to find new chemistry within the framework of a particular chemical compound. However, they realize it’s important not to spread themselves too thin.
“It’s like branches on a tree,” he says. “You can’t be developing too many branches all at the same time. That’s where you start determining which seem to be the most logical fit for you at any one point in time in your business platform, and that’s always an ever-changing environment as time goes on. We’re always developing additional limbs off the main trunk of our chemistry.”
Constantly looking for new developments keeps the company’s products and services unique. You need to understand who you’re serving to be able to provide the best products.
“If you’re truly in touch with your customer base, you truly understand what you’re good at and what you want to be a leader in, then it becomes easier to understand when to increase the number of offerings, the best way to accomplish that, and why you’re expanding at all,” he says. “You need to understand the customer’s motivation, not only what they buy, but how they buy it and why they buy it. You also need to understand the competitive landscape and with these insights you can begin to define and develop products that meet your customer’s needs and move forward.”
Align your organization
To turn a vision for growth into actual results, it takes complete alignment around your customers, the marketplace and your product or service to make those plans fall into place.
“You must align the organizational capabilities to be successful,” Overdeck says. “Consideration regarding those capabilities differs based upon what your customers select as a market they want you to be good at.
“For instance, in some industries, great delivery may be very important, high level of customer service might be very important, low pricing may be very important or product features may be very important. You have to find one or two of those that drives the business. When you understand that, then you have to build your organizational capability to handle that.”
You can’t necessarily expand and overextend until you build the organizational capability to support it. That puts a check on unbounded expansion.
“Doing it by intuition and gut feel is where you get yourself into trouble,” Overdeck says. “You can end up making an investment in your facility or moving into a new product line without really thinking about how you’re most effectively going to deliver that and that’s where people get themselves into trouble. You might have a good idea, but the idea and the investment in the idea are ahead of your capabilities, and at that point you’re going to fail.”
In order to build your capabilities for the future, you have to have full understanding of what your core competency is.
“Once you understand what you’re really good at and what your competitors are not so good at, that’s what you focus on,” he says. “That’s an on-going process that you continue to build on. The key is you have to know what you’re good at. If you’re really not good at anything you’re wasting your time. Sometimes it’s not that easy to really understand what you’re good at. Sometimes you may think you know why you’re doing well, but that really may not be the answer.”
Overdeck makes sure he uses his resources to their full benefit. He utilizes his customers, employees and suppliers to better align the company with the direction he wants to go in.
“You have to be as informed as you can by getting as many sources of information coming back as you can enlist,” he says. “A common mistake is to think you know the answers as opposed to directing questions in a way that would foster additional ideas and thoughts as to why this company is good. It’s a function of how you handle yourself with your customers, your suppliers and your employees.
“There’s nothing that’s totally understood and on cruise control. You have to always try to make yourself better and in that process you have to keep your eyes wide open. If you stay focused on that, pretty soon you’re a leader in your industry and that’s where you want to be. That’s what you’re always trying to find — that niche where you can provide leadership, but importantly you have to make sure it’s a niche the marketplace wants.”
Alignment cannot just be internal. You have to make sure you have alignment with your customers needs and their needs align with your capabilities.
“There’s nothing more important than that,” he says. “From there, you can innovate your products and services to meet their needs. However, it’s not just a one-way street. A customer may have a need but you have to make sure that the need is aligned with your core competencies, your technical heritage and that it supports the company vision.
“A successful company wants to be a leader in the product and services that they select. From this foundation you can continue to grow complementary offerings. Once you’re on task it becomes easier to know directionally how to expand these products and services. This will help you maximize the value proposition to a customer. In my mind, it’s a pretty simple approach, but it’s very important that you stay on that path.”
Ultimately the path to growth and executing a successful vision is being able to build alignment around both internal and external operations and that means building relationships and partnerships.
“You put a fair amount of responsibility on the shoulders of your representatives to ask questions beyond the obvious to better understand your customer’s business,” Overdeck says.
“Then you become to that customer a resource and a partner. You’re not just a vendor. That’s how you begin to bridge this gap of knowledge so you can really understand where your offering is best suited relative to accomplishing your company vision. Being an entrepreneurial partner with your customer base is where you want to be perceived.”
HOW TO REACH: Kost USA Inc., (800) 661-9391 or www.kostusa.com
- Make sure everyone understands the company mission and vision and how he or she fits into it.
- Understand where opportunities are that help your company grow.
- Be certain everything you do is aligned around your vision and your capabilities.
The Overdeck File
Kost USA Inc.
Born: Gary, Ind.
Education: Attended Indiana University and earned a degree in marketing. I went to work with Dow Chemical and during that time earned my MBA in finance from St. Louis University.
What was your very first job and what did that experience teach you?
In my junior and senior years of high school, I would go back home during the summers and work in the steel mills in Gary, Ind., for U.S. Steel. The magnitude of that world had an impression upon me. It gave me an experience of what American industry was like. That’s where I began to think about process change. I was just an hourly labor guy, but I was still looking around and saying to myself, ‘There are better ways of doing this.’
Who is somebody that you admire in business?
My dad. He wasn’t a business person, he worked in the steel mills as a machinist, but he was a very bright guy. He had wonderful ideas and a number of patents that he applied for and got. I looked at his commitment and his desire to succeed even though he was handicapped by not having the proper education. He was always willing to stand up and find a better way to do something.
What Kost USA product are you most proud of?
We consider ourselves experts in heavy duty off-road engine coolant for large trucks used in mines and quarries. There’s a lot of technology involved in the additive systems to make the product work as well as they can work, and we’re very good at that. We’re not a household name, but within that particular subset of the industry we’re recognized as guys who know their stuff. Another area is stationary engine coolant for the drilling work being done in the Marcellus Shale Region.
Bill Giesler has had to endure more change at Pedco E&A Services Inc. in the past five years than the company has had in its 30-year history. The climate of the current economy, the moves necessary to adapt to it, clients’ changing needs, and the start of retiring baby boomers has given the company a wake up call.
Giesler, Pedco’s owner and president, knew that with all this happening around the 84-employee design and consulting firm, business operations and the way leadership looked at the company had to change.
“We said, ‘Wait a minute. We’ve got to really change how we look at this business, how we manage the business, and how we lead the business,’” Giesler says. “In the last five years, this company has made a right turn from wherever we were headed; we deviated significantly from that path and really took control of our destiny as opposed to just floating down the river and going wherever it was taking us.”
That revelation and the ongoing changes inside and outside the business led the company to explore strategic planning.
“Our clients are changing in the downturn and they’re getting leaner and meaner and looking for quicker, better, cheaper ways of doing business, and we’ve really got to stay in alignment with where they are and what they’re doing,” Giesler says. “It really boils down to managing change. A lot of changes have been occurring over the last couple of years and just trying to stay in alignment with our clients on one side and then on the internal piece, we’ve got a lot of transitions occurring internally.”
The company had run itself tactically over the years and needed help making the transition to more strategic business and processes
“Over the last five years we’ve really opened ourselves up to bringing in outside experts and we brought them in for marketing, business development, HR, strategic planning, project management training and not just local experts but national experts as well,” he says. “What we’ve done is really tried to learn what the best practices are nationally and those that apply to us that we can use we grasp those and implemented those into our processes and how we look at the business.”
Trying to problem solve challenges internally was no longer garnering the best results. Giesler needed to strategize about how the company could improve for the future.
“You have to start off with strategic planning. … Think strategically and be open to using outside advisers and experts to understand best practices industrywide and utilize that,” he says. “The process that we went through recently is we discovered to a deeper level who we are. We developed six critical success factors to our business and we had really never thought of our business in those terms. Once you kind of focus on that you understand what drives what.”
Strategic planning is a great way to make your company nimble and adaptable to change. To get the most out of it you have to involve a team.
“You need to involve a cross-functional team in that process,” he says. “When we started out revisiting our process we were just going to use three or four of the very senior people to develop the plan. To have success at that strategic planning process and really get buy-in and then be able to implement it you need to involve a whole lot more people and it needs to be cross-functional. You need to reach out into every part of the organization that has an important role and involve somebody at some level in the process.”
HOW TO REACH: Pedco E&A Services Inc., (513) 782-4920 or www.pedcoea.com
Roll with the changes
As a result of a new strategic plan, Bill Gielser, president of Pedco E&A Services, kept pace with change by finding out more from the company’s clients.
“It’s really developing your critical success factors, action plans and priorities as a result of the strategic planning process,” he says. “You have to continue to have those high-level meetings on a periodic basis to make sure that you’re staying in alignment.”
Surveying and measuring customer satisfaction in some way shape or form is an important process.
“It really takes a lot of doubt out of how well you are doing,” Giesler says. “We also do an annual survey to understand what’s going right and what’s not and we look for themes. We’ve really implemented that strategy so that we stay close to them and that we’re looking at that and analyzing that and really setting goals based on that on an annual basis.”
Along with staying aligned with customers, it is critical that you continue to invest in your resources as much as possible.
“A lot of times the first thing to get cut in a recession is investing in training and development and I would really challenge people to do your utmost best to continue to invest in those things even though it’s a down economy,” he says. “That will pay dividends over and over and over as you move forward and as you come out of the down economy.”
When family business owners prepare for the next generation to enter into the business, most families initiate discussion of the succession process.
However, for unrelated business partners, this can be an entirely different situation, says Ricci M. Victorio, CSP®, managing partner at Mosaic Family Business Center.
“You need to talk, before it’s time to retire, about how the business is going to continue with or without your presence,” says Victorio. “No matter how young, healthy or determined you are to stay at the helm, if your sudden departure would be devastating to the business, you need a contingency succession plan. And ‘devastating’ is not a word you want as part of your strategic plan.”
Smart Business spoke with Victorio about how to ensure that your business will continue to thrive and grow.
How does succession in professional firms differ from that in family-owned businesses?
In a family business, parents will introduce their children into the business at a fairly early stage in their professional careers. Throughout their maturation, if all is going well, employees, clients and vendors become familiar with the next generation, understanding that at some point in time, there will be a transfer of control and eventually ownership. A parent can start transferring stock to a child or a family trust over many years. It can be purchased out of bonuses, gifted or inherited.
In a professional firm, however, the succession challenge is in buying out retiring partners who are still earning full salaries and stock payouts. Gifting or inheriting is certainly never an option in nonrelated stock transfers.
How do you create a profitable environment to allow younger partners to be able to buy the stock in a shorter period of time when all of the cash is going out to the senior partners?
Founding partners tend to have the most significant clients, and passing them on to junior partners is a complicated process in retaining client confidence and to the firm as it relates to who receives the lion’s share of the billing credit and income.
How can you begin to create a pathway to develop future partners and help them learn to market the firm?
Though the younger associates may have been working under the lead professional handling the task management of serving clients, they probably haven’t learned to market and perform business development. Partners are concerned that new clients may not emerge if they retire, thus creating a potential revenue impact on the firm and in their buyout price. A typical question asked is, ‘If we stop working, who will bring in new clients?’
Business succession is not unlike family succession. Here are some helpful tips to consider:
? As a senior partner, you need to groom younger people by creating opportunities for clients to work with you and your protégé.
? Mentor the younger person by giving him or her more responsibility and allow the client to interact with that person.
? Tell clients that you work in teams because you want to always have someone who understands the project, even if you are unavailable. This is a key point and one that is often overlooked.
? Appoint a young, talented potential successor as the client’s primary contact but continue to work as a team.
? Succession is occurring on multiple levels, including in your clients’ business, so it is important to match younger people with like-minded clients. This will aid professional firms in keeping long-term clients as the business goes through succession.
How can a senior leader transition to a new role before retirement?
This is a delicate conversation because you’re talking about affecting the financial stability of high-powered professionals who wish to maintain their income. You want to increase productivity and profit by using the founders’ expertise and connections to bring in new clients. Founders can explain to clients they are still involved from a strategic or global viewpoint and introduce highly capable, qualified younger associates to handle the actual casework, which will build confidence and new relationships.
As a result, profits and stock value improve, and salaries can be increased for new and existing staff. It is critical that new staff understand that they are progressing and have potential for growth, or they will move on to another firm where those opportunities are present.
You also need to redefine the roles and responsibilities of the senior members. This discussion can be more easily accomplished (and without the drama) through the facilitation of an experienced succession coach. Salaries can be realigned for fewer hours, providing revenue to pay the next tier of partners. You retain the skills of senior members while creating a circle that continues to build success.
Succession planning must be a fundamental element in every business’s strategic plan, even if you’re not looking to transition in the near future. It is always important to be prepared for a change within your business and provide a smooth transition for the clients; because, leadership change can occur without warning.
Ricci M. Victorio, CSP, is managing partner at Mosaic Family Business Center. Reach her at (415) 788-1952.
Insights Wealth Management & Family Business Consulting is brought to you by Mosaic Financial Partners
Yoh Services was a boutique shop in a bind.
Nearly three years ago, when Lori Schultz joined Yoh Services LLC as its president, the company was enduring the hardships of the recession, like just about every business in America. But the work force solutions company — a 5,200-employee subsidiary of Day & Zimmerman — was dealing with another layer of inefficiency on top of the recession’s effects.
“Yoh had 12 different brands, operating very fragmented out into the service delivery model,” Schultz says. “We were operating very much in a boutique fashion. So, for example, IT ran separate, engineering ran separate, health care ran separate. They all ran under separate leadership, no synergies between any of the groups.”
It was a model that had worked at one time, but the market started changing in the first years of the new millennium, and the recession accelerated the pace of change to warp speed.
“The boutique model was very much a model that made sense in the ’90s, with higher margins and delivery service to the client,” Schultz says. “However, a lot of the transformation in our business really led to having more bundled services, more streamlined. Specialization still existed, but you still had a very streamlined delivery model to clients.”
Schultz had to spearhead an effort to consolidate Yoh from 12 specialized brands to one full-service brand containing a number of product and service offerings. Conceptually, it all made sense. In practice, it wasn’t nearly as clean of a transition. Schultz and her leadership team had to convince 5,200 people that the old system was outdated, the new system was the way of the future, and the time was right to make the change.
“That was the biggest challenge on my plate,” she says. “To get the buy-in at the management level, make sure we had the right teams in place, and that this was something that we had to do; then, to take that and get buy-in throughout the whole organization.”
Learn the process
Before Schultz could change anything, she needed to understand how Yoh’s system worked — or didn’t work. She needed to understand the inconsistencies and inefficiencies in the boutique operating system in order to sit down with her management team and build a system that better addressed the needs of the current marketplace.
Gaining that understanding meant getting out of the office. Schultz traveled throughout Yoh’s footprint, talking with associates and gaining a better knowledge of the company’s product and service delivery model to its clients.
“I needed to understand some of the unique challenges our people in the field faced,” Schultz says. “That was step one.”
The second step was to identify areas in which Yoh could build synergies among various operating entities. To comprehend that, she needed to develop relationships with the managers leading the various operating units.
“Part of the dynamics is making sure I have the right leadership team in place,” she says. “I can’t get this done without having the right leadership team in place. As all of this transformation is happening at the same time, I’m looking at my leadership team, making changes in some cases, and in other cases, bringing in new talent from the outside.”
Schultz needed a leadership team with excellent communication skills and complete buy-in with the new company direction, and she needed the entire leadership team in place, empowered and on board before anyone at Yoh corporate headquarters could even think about rolling out the new vision to the company at large.
Lead your leadership
Schultz didn’t change the composition of her leadership team all that much. But she did make major changes to how the people in place operated.
“The key was really spending some time with them and learning, No. 1, what their level of competency was, and then where they had been with the company, then how they fit into the new direction of the organization,” Schultz says. “We got a lot of feedback from them, too, about their history and what they wanted in terms of a future.”
As Schultz spoke to her leaders, she began to form an idea of how her leadership team could be constructed to provide the best possible leadership framework for the reconstructed Yoh organization.
“With some of our leaders, we made some dramatic changes to their existing roles,” she says. “We needed to put them in a role that I felt best suited them for the new organization. At the same time, we still left some of the team in their existing roles.”
The alterations to the leadership team cascaded down to the field leadership, where the dynamics needed to change in order to better respond to client needs in a comprehensive fashion.
“In the field, we made major changes because we were a very strong delivery model organization,” Schultz says. “We were very good at serving our clients, but we were not a sales organization. So we had to change the dynamic in terms of delivery and sales. We brought in new people to serve in some of those roles. The result, and what I have today, is a kind of hybrid leadership team. I have a mix of existing people who were here when I joined Yoh and some new talent as well. I would say it’s about a 50-50 mix now.”
With a blend of new and established leaders, Schultz faced another challenge: developing cohesion among leaders who were either used to the old way of doing things or completely unfamiliar with the internal workings of Yoh. It was a battle that Schultz had to fight simultaneously on two fronts.
“Getting the new people engaged in the new vision and strategy is easy, because they came to work for you because of that very reason,” Schultz says. “You lay out the strategy, vision and direction, and that is why they come to work for you.
“The biggest challenge was really changing the direction of my existing team, because for about a year, we really had to oversee a change management issue. When you change an organization, you really blow it up and start from scratch. You are changing everything about the direction of the organization, and if you have an existing team, you need to get buy-in regardless of what you do.”
With an existing team that has to be convinced that the new way of doing business is going to be better than the old way, getting them to a point where they completely accept the new direction and mesh with new team members is a process governed by time. It takes communication, persuasion and patience to get your existing team members on board.
“Change management takes time,” Schultz says. “You have to really recognize that some of your people need more time from you to really understand the vision and the direction. You need to listen to them, listen to how they feel about being a part of a new direction.
“Then you need to be able to continuously communicate where we’re going and what is in it for them. Even then, you end up having people who revert back to the old way, and you have to come back and try to refocus them on the future and what is in front of them, not what is in the past.”
If you encounter reluctant adopters, the level of patience you show with them will likely be in direct proportion to their importance to the organization. But if a person has been in a significant role for a long time and is well-known and respected throughout the company, the extra effort will be worth it.
“If you think this is going to be a leader who is vital to the future of your organization, then you’re going to need to spend the time because it is a trust situation,” Schultz says. “If you’re coming in as a new president or CEO, and the person has been in the organization, say, 17 years, you need to build that relationship and trust. If you’re in that person’s position, trust is a difficult thing to have when a new leader is coming in and doing all these transformational things.
“You need to remember that it’s not just about you talking to them and trying to get them over the fence. You need to understand where they are coming from, too. It will benefit everyone if you can build that trust because the information they can provide to you with regard to history is important.”
Roll it out
Once Schultz developed a satisfactory level of cohesion among the leaders at Yoh, she then had to turn her attention to rolling out the new direction to the company at large.
When dealing with thousands of employees, you can’t concern yourself with the adoption of the plan by every individual. What you want is to hit for the highest possible average.
Schultz attempted to improve her batting stats by holding companywide calls to brief all employees on the progress of the transition.
“I would use those calls to communicate the direction and the vision, and how it impacted them,” Schultz says. “Moving forward, I’ve found that also has to be carried through on a quarterly basis. If you don’t continue to carry that message to the leadership team, it starts to lose a lot of value.”
Yoh’s training modules also became important buy-in tools to use on the company at large. The leadership staff at corporate headquarters initially went through a 3.5-day training session that covered the future strategic direction of the company, along with breakout sessions on the company’s new business models. From there, management worked together to build training programs for the company at large.
Though the training process is going to depend largely on the type of organization you want to build, Schultz says there is almost always a need to implement some form of a cascading training program that successively engages each level of the organization.
“It does depend a lot on where you are financially as an organization, but if you are starting with a flat organization as we were, you have to look at the leader and the people who are doing really well to put together a committee to build some of the training programs for you. Then, you look to execute and implement the training.”
Any time you can implement training in a peer-to-peer format, it’s another way you can help the buy-in process when training for a new organizational direction.
“That is one of the reasons that I think we had the most buy-in,” Schultz says. “In a lot of cases, the training was done by peer groups, and people who are recognized throughout the organization as having excelled in the field in which they are training. It was really about training that was more reality-based versus training that was more or less fluff. We were able to leverage relationships that already existed in the organization and roll it out regionally, versus having to spend a lot of money on having a few people travel everywhere and do all the training.
“The key is, if you want to do something like this, it is all built internally and rolled out through internal processes.”
How to reach: Yoh Services LLC, (215) 656-2650 or www.yoh.com
The Schultz file
Education: Psychology and business degrees from California State University, Northridge
Previous position: Senior vice president for Ajilon Consulting and for Adecco’s Engineering & Technical and Medical & Science divisions for the western U.S., responsible for overseeing all field sales and operations and developing and executing new growth strategies to sustain and increase revenue within both lines of business.
What is the best business lesson you’ve learned?
The best lesson I’ve learned is that when you come into a new organization, you want to come in and make an impact quickly, and have success quickly. But you also want to do a reality check and make sure that you’re not outpacing the rest of your team as you’re trying to get things done. Because then, you might not be listening as much as you should as you’re just trying to keep up. At times, you need to maybe slow down and recalibrate your expectations a bit.
What is your definition of success?
To get genuinely excited about contributing. I think excitement drives your success. And when that happens, you can spread the excitement around and find other people who want to contribute and want to be heard. That means success for the entire company.
Forget the rabbits. Hunt the big game.
The one-time advice of a colleague has become a guiding philosophy for Andrew Littlefair in his role as president and CEO of Clean Energy Fuels Corp., a company that is trying to turn natural gas into the commercial vehicle fuel of the future. But to make a real impact in an emerging industry, Littlefair has needed to thing big — he’s needed big thinkers, big goals and big customers to raise the profile of his business.
In short, he’s needed to hunt for elephants.
“One of the best pieces of advice I ever got was “You guys need to be hunting for elephants,” Littlefair says. “Don’t chase rabbits. That is why we needed to develop a good understanding of what our value proposition is to our customers. We needed to focus on fleets, and fleets that use a lot of fuel, so we really tried to carefully design around those markets. Then, we have stayed laser focused on going after those. We focus on airports and vehicles that operate out of airports, refuse trucks, transit buses, and now heavy duty trucks.”
To continually hunt for elephants, Littlefair needs to reinforce what Clean Energy is as a company, who the company serves and where the company needs to go in the future. Then he needs to enable his people to achieve those goals. With Littlefair’s philosophy as a main driving force, Clean Energy has risen from $91 million in 2006 revenue to $211 million in 2010 revenue.
“Ultimately, we’re faced not only with running a business, but also creating an industry,” Littlefair says. “That is kind of a significant, ongoing and important challenge that we face. Moving people to a new fuel has all sorts of new stuff associated with it. It’s easier today than it has been in the past, but it has been a challenge and it will continue to be a challenge that keeps us on our toes.”
Find your customers
Most leafy plants grow toward a light source. Your business, in that sense, really isn’t that much different from the potted plants on your windowsills at home. Your light source is the revenue provided by your customers. Where the most revenue can be generated is almost certainly where you’ll grow your business.
About a decade ago, Clean Energy scored one of its biggest and longest-standing contracts with Waste Management. At the time, there was a governmental push to reduce emissions from city service vehicles throughout Southern California. Littlefair and his staff saw an opportunity to convert diesel garbage haulers to natural gas. Waste Management was among the first sanitation companies in the region to hop aboard the natural gas bandwagon.
It was an ambitious project for company that was just entering the space, but it was a critical win for Littlefair and his team, and taught the leaders at Clean Energy a great deal about retaining a major client.
“We really didn’t have the right product at the time, so we worked with a company that was doing vehicle conversions, and we went out and got the grant money to pay for the conversion of their diesel trucks to natural gas,” Littlefair says. “Then we went out and built a station on Waste Management’s property to dispense fuel, and worked out a long term fueling contract. That started out 10 years ago with seven trucks, business has changed a little bit over time, and today we now have a national operation and management agreement with Waste Management. We work very closely with them on building their stations, even providing the equipment and doing the maintenance.”
But getting from converting the first garbage trucks to natural gas to maintaining a longstanding and strong relationship with Waste Management was a process that took years. It took a great deal of listening, adjusting and Littlefair doing whatever it took to continue to build the relationship.
“Early on in the business, utilities were involved, and they built stations,” he says. “But it was sort of a ‘build it and they will come’ theory. There were no natural gas vehicles out there to speak of, so it was sort of like building a station and looking for a needle in a haystack. So what we did was really start to analyze the markets, figured out what we really wanted, and started to identify customers that had what we wanted. We wanted companies with a lot of vehicles, and vehicles that used a lot of fuel, and preferably vehicles that operated as return-to-base vehicles, where they always came back to a central area for refueling and maintenance.”
Over time, Littlefair and his team began to identify the customers that met those criteria, including Waste Management, and began to reach out to them. Reaching out, in this case, means doing research and gaining a deep understanding of what the customer needs.
In Clean Energy’s case, Littlefair even hired a former Waste Management senior manager as a member of his executive team.
“I ended up hiring a senior guy from Waste Management as a vice president because he knew the refuse business and he spoke the lingo,” Littlefair says. “You always have to be talking to the customer, listening to the customer, and doing whatever you can to understand how you can best serve the customer. That is how you develop the strategy for how you are going to serve the market. In our case, and in the case of many businesses, you put a lot of that connection in the hands of your sales team. You listen to them, you empower them and you motivate them. You still lead them, but they’re your ears and eyes in the field, so you delegate that customer interaction to them and hold them responsible, because you as the leader can’t do it all.”
Listening to your customers is a great start. Defining the goals of your business, and rallying your people around those goals, is essential to long-term growth. But none of those initial steps will mean anything if the seeds you planted don’t take root.
Your vision grows roots through discipline. You need to execute each day on the systems and processes you have put into place, which are aimed at allowing your company to achieve the goals that you and your leadership team have set.
It’s a maintenance task that every business head has to perform. If you aren’t setting the tone from your position, you can’t expect others to maintain the course you have set for the company.
“I’d say ‘discipline’ is the right term,” Littlefair says. “You just have to stay disciplined. I’m a pretty good motivator and leader, and a pretty good communicator, so we’re always trying to make sure that we’re doing things to ensure that we all stay on the same page. Businesses change, we add and we adapt, but you still want to make sure everybody is with you and all on the same mission. That is all really key.”
A big part of communicating and reinforcing goals is measurement. Littlefair says the long-held business belief that an ability to measure something equals an ability to manage it is still correct. The nature of how you measure and what you measure might change over time, but the need to quantify results is always present.
“How do you develop the discipline? Part of it is you need to measure you success, take stock of where are and whether you are doing well enough or not,” Littlefair says. “You had better know what you are aiming for and you had better set some goals to get there. Sometimes, I get criticism from within the company that I set goals too high. But I feel like you need to set goals that are a reach to obtain. Anybody can hit a low goal. I want to keep the organization striving for something outside their reach.”
Ambitious goals do prevent a treadmill mindset from taking hold, in which your employees become complacent and content to do the same job at the same level of competency every day. That is a recipe for stalled growth, backsliding and getting left in the dust by your competition.
But you still need to find the sweet spot between ambitious and unattainable. If you set goals that are too far beyond the capabilities of your people, you’ll overburden them, stress levels throughout the company will rise sharply, and the overall effect will be damaging to your collective morale.
It’s a tightrope that Littlefair has repeatedly walked as he continually tries to serve the needs of bigger and more demanding customers, while still staying within the capabilities of his team.
“It’s harder for me, because I am a sales-oriented individual,” he says. “I do have to check myself on that. If you set goals that are too far out of reach, the goal no longer becomes significant because you can’t attain it. What I’ve found over the years is that the organization counterbalances. If there is somebody in the organization who is too optimistic, there is somebody else who is more realistic. Any good leader is going to have to end up balancing that. You listen and take into consideration the various points of view. Not that you’re going to run your business by committee, but you can take the information from your management team, and that ends up being pretty important as you finalize your goals.”
Finding that balance as a leader is not an exact science. A great deal of balancing aggressive optimism with pragmatic realism comes from knowing the people in your organization, the customers you serve and the conditions of the market.
“There isn’t a recipe, but that is what you need to do,” Littlefair says. “You need to have an optimistic viewpoint. Sometimes being too realistic is too pessimistic. So I think a good leader takes all these inputs and puts them into place, and work that out. And you don’t do it in a vacuum, you get a lot of that from your company and from the people who work with you.”
Ultimately, growing your business and broaching new markets takes vision and a willingness to take calculated risks. But making those changes stick is a far less glamorous and far more mundane task. You need to connect with customers, serve their needs and ensure that everyone in the company is maintaining the discipline to do the same. Much like Thomas Edison’s often-referenced description of the invention process, it’s 1 percent inspiration and 99 percent perspiration.
“My job as the leader is to coalesce the vision, getting it approved by our board and developing that with our senior management,” Littlefair says. “I’m kind of the chief communication officer and the chief motivator. There are certain things I have to do that no one else has to do and vice versa. But I think what a good leader does is set the vision and the implementation, hold people accountable and make the adjustments necessary for that to happen.”
How to reach: Clean Energy Fuels Corp., (562) 493-2804 or www.cleanenergyfuels.com
The Littlefair file
History: I was born in Detroit, and we moved to California in 1963. I grew up in Torrance, Calif.
Education: B.A. in political science, University of Southern California
Littlefair on constructing a clear message: Like most companies, we have an annual strategic planning process. And we’re still small and entrepreneurial, so don’t confuse our process with what might happen at some place like IBM. But our managers gather information from well down in the organization, we have a series of one or two-day meetings, we started out with a larger group and break it down to a smaller group, cover a lot of areas, and we begin to sort new business opportunities, existing opportunities, reflect on past goals. It’s kind of a living process that goes on for a couple of months.
And through those several meetings, you ask people to embellish on their thoughts and different ideas, and what they think we need to pursue. As you develop a plan, and a lot of these things will end up being in the plan, that is part of communication, just the participation in the plan begins to bring everybody along. Of course, it doesn’t necessarily mean that everybody is together. When you finish the plan, they’re kind of 75 percent or 80 percent along the way, you need to make sure you have a plan to disseminate the goals, and you can’t do it too late in the year. You have to do it early and often, and you have to empower your team and managers to disseminate the plan, and if your company is small enough, you’ll try to do as much of that as you can personally.
Littlefair on developing a value proposition for customers: I think it is trying to stick to your knitting, understanding what it is you do well and what the proposition is that you have, and why you are better than others. Then stay damn focused on it, but realize that it sometimes takes longer that you think. One of the things I think as an entrepreneur or a business leader is that sometimes these things take longer than you think. Occasionally, you just have to kind of stick with it and through the thick and thin sometimes. That's the key, and that's what anybody really has to do in business.
From 2008 through 2011, some of our businesses — like many in America — experienced some form of slow down. But there are three key takeaways you can use to continue growing during uncertain economic times. During slow periods, carefully-examined expenditures and investments must continue to be made. One of two lenses should be used to make financial decisions.
The first lens is used to survive. Survival is a must in order to have a future. Business leaders can use this technique to consider every expense as essential to continue operating. However, I believe the more important lens is the one that helps you figure out how to minimize shrinking revenues and how to grow during and after the downturn cycle is over.
All economic cycles have a beginning and an end. While no business leader can predict the length of the cycle, what we all know is there is an end to all downward turns.
If you buy that premise, then the question becomes what investments and expenditures should or must be made to ensure minimal revenue loss? What will also help your company greet the end of the downturn with accelerated and even explosive growth?
The easiest expense to stop or shrink is marketing, and that is the one most businesses cut. I believe that marketing for new customers must never stop.
If other businesses in your niche cut back on their marketing efforts, this leaves the field wide open for your brand to be seen, and you won’t have to shout your message through the former clutter.
Molly Maid is our residential maid service franchise, and it’s the one most people thought would take a big hit through this recession. It did not. In fact, Molly Maid grew over the past three years and celebrated double-digit growth in 2011.
Why, did the company grow? We never quit marketing, and we increased our investments in new online approaches like search engine optimization, pay-per-click campaigns and social media.
This commitment to marketing yielded growth in tough times and has positioned us for significant growth now that there is an economic tailwind brewing.
Many businesses make a grave mistake and stop recruiting during a downturn.
Down times create a phenomenal opportunity to attract great candidates. As competitors in your field cut back on expenses, they conduct layoffs and lose top performers. The pool of top talent available for your business increases. The opportunity also grows for you to welcome new team members to help you grow and attract potential new customers to your business. At PuroClean, we invested hundreds of thousands of dollars in new training facilities, infrastructure and 30 percent more staff during the very bottom of the economic downturn in 2009 and 2010. I assure you, during this time, not many were hiring. This action resulted in assembling PuroClean’s “dream team” of executives. These executives were drawn to our brand because of the investments we were making, and like us, they too believed in the upside that this would create for our business in the future.
As a result, 2011 was the best year in PuroClean’s history.
Landlords don’t want to lose good tenants. Even though our lease had two years left on it, we met with our landlord and were able to renegotiate a new lease with reduced rates and better terms netting us substantial savings without having to relocate offices.
Additionally, we reviewed all leases, contracts and other commitments we had, and as a result were able to significantly reduce our monthly obligations.
One of my favorite sayings recently is, “Don't let a good recession go to waste.”
I hope you haven’t let this one go to waste!
David McKinnon is the co-founder, chairman and CEO of Ann Arbor, Mich.-based Service Brands International, an umbrella organization that oversees home service brands, including Molly Maid, Mr. Handyman, 1-800-DryClean and ProTect Painters. McKinnon can be reached at email@example.com.
It’s no secret that some states are considered to be friendlier business environments than others. But are the advantages really worth uprooting your business’s headquarters and moving to take advantage of some of the tax, work force or cultural benefits?
Smart Business talked with William C. Lucia, CEO and president of HMS Holdings Corp., a company that provides coordination of benefits and program integrity services for health care payors, about his company’s decision to relocate.
HMS announced in July of last year that it was moving its corporate headquarters from New York City to Irving, Texas. What was the primary factor that drove your decision to relocate?
HMS has more than doubled its revenue since 2007 and we required a location that could support this rapid growth. In considering a move of our HMS, Inc. corporate headquarters, we had to determine both short- and long-term cost savings as well as other aspects related to the business climate in a chosen destination. HMS looked at all the different costs involved in running our business over a long period of time and we also factored in things like cost of living, all the different kinds of state and local credits, and money available for training and for building infrastructure. In that respect, and in many other areas of consideration, North Texas and Irving in particular stood apart.
What other factors were weighed in addition to the cost of doing business for HMS as you explored whether to relocate?
We looked at a number of factors that were critical to us. Chief among them were location and accessibility, a pro-business city, work force availability and quality of life. For our company, a location centrally located to serve our national client base with ease of travel from an outstanding international airport was very important. Of course, a company is only as good as its employees and with our rapid growth, we absolutely had to have access to a large skilled labor pool and a very high quality of life that would help our company recruit and retain a strong work force. We were very fortunate to find a pro-business city as well, with a Chamber of Commerce that has been a great resource in guiding us and helping us navigate everything from site selection to securing valuable incentives to the permit process.
Can you talk a little more about what makes a city pro-business?
Absolutely. It was important to us to have our headquarters in a pro-business city that is already home to a number of Fortune 500 global headquarters. We don’t underestimate the importance of a business-focused culture in a city that has the social maturity to assimilate corporate executives into the mainstream of the community and its social circles with opportunities to serve as advocates for economic development. From an infrastructure standpoint, Irving has among the lowest municipal property tax rates in the Dallas/Fort Worth Metroplex. And for qualifying new, relocating and expanding companies, the City of Irving offers incentives that can reduce property taxes by 30 percent or more for up to 10 years. To further support qualifying businesses, the city often takes a creative approach to structuring abatements. Incentive agreements can even be structured to allow a higher percentage of benefits early in the abatement period to offset moving and start-up costs. Those are the kinds of things that set Irving apart as being pro-business.
Was HMS able to take advantage of some incentives?
Yes, the state is investing $1.6 million through the Texas Enterprise Fund in our company to help us create 350 new jobs and generate an estimated $17.6 million in capital investment. To have that kind of support from the state as well as the City of Irving was obviously a huge factor in our decision. And the State of Texas is pro-business, exhibited by the significant job growth compared to other states, and is a great location to run a rapidly growing business.
How did your employees respond to the announcement?
We already had a major center in Irving with 500 employees so we had been moving in this direction for a while. It didn’t come as a shock to anyone, but our employees responded with all the questions you might expect: Where will I live? Where will my kids go to school? What can I do for fun when I’m not working? What kind of cultural opportunities are there? Being in Irving, in the heart of Dallas-Fort Worth, we have many great education and housing options as well as entertainment and cultural activities. So our move was overwhelmingly viewed as a positive development by our employees.
What advice would you give a company considering relocating?
My advice is to follow a structured process where you closely examine your company’s overall strategy and the needs of the headquarters operation. List the issues that exist at the current city and identify the opportunities and benefits from being in an ideal location. If at the end of the day it makes sense, don’t be afraid to go for it! HMS is one of many companies that have engaged in a headquarters relocation that has infused new energy, improved market positioning and driven growth and revenue. It’s a challenging initiative, but with a well-structured process, an effective plan and a committed team, the payout can be extremely high.
William C. Lucia is CEO and president of HMS Holdings Corp., which provides coordination of benefits and program integrity services for health care payors. He has more than 20 years of experience in health care reimbursement, information systems and large-scale insurance administration.
Insights Economic Development is brought to you by Greater Irving-Las Colinas Chamber of Commerce
Back in 2003, the telecommunications industry was going through what Timothy Jenks describes as a “downturn and compression,” as large equipment manufacturing companies — his customers — increasingly consolidated and reduced their vendor base to manage costs. The result was that many companies in the telecommunications components industry, which NeoPhotonics Corp. occupied, were being put out of business.
“As a small technology company, clinically a start-up, it was difficult to gain mind share let alone market share at these very large companies as they consolidated their own operations,” says Jenks, the chairman, president and CEO of the San Jose, Calif.-based optical components supplier with approximately 3,000 global employees.
Jenks saw that the company needed to enhance its core value proposition in a way that would resonate with this core customer group and help it win its business. After spending a year looking at M&A opportunities, he and his management team soon found their solution in Photon Technology Co. Limited, China's largest supplier of active optical components at the time.
“It was complementary technology to our core technology and with an established customer base,” Jenks says. “We had both cash and technology and they had certain products, customer base and manufacturing capability. So together we felt that we would have all of the requisite elements to be an important supplier going forward in the industry.”
By acquiring Photon in 2005, the company now had the opportunity to become a global, one-stop shop for optical components, a value proposition that would click with the needs of its customers. But Jenks now had the task of taking the two companies with different languages and different cultures on different continents and creating one new entity consisting of 1,200 employees and more than 100 customers around the world.
Before they could align everyone directionally and operationally, Jenks and his leadership knew that they needed to spend time with the employees in China to initiate a comfort level of understanding between both teams.
“In order to do that with very strong differences in language, culture and location, it took an awful lot of personal time and attention to develop mutual understanding,” Jenks says. “With mutual understanding, we could get alignment. With alignment, we could execute on the goals. With the goals being clear, we could make good progress.”
While Jenks had a number of people on his team and several from China who were bilingual, there were still communication differences and cultural differences that needed to be addressed in the new company.
“You need to be compassionate, taking the time and effort to understand our global brethren and what are issues from their point of view?” Jenks says. “Everyone is not the same but everyone is important.”
In-person communication in the preliminary stages of the merger was helpful for both leaders, who needed to establish a plan for integration. For about a year and half, Jenks travelled to China for one week or more every month to meet with direct reports and develop an approach of how to provide a clear direction to the key managers in the combined company.
“The face to face matters not just because it’s face to face, but because it allows people on both sides of the table to jointly see momentum,” he says. “If they see you once a month or once occasionally, there just isn’t much momentum.”
The benefit of being face to face with employees who are being acquired is also being able to see the realities of how people operate and manage the ins and outs of daily business. Jenks says that in retrospect he would have moved to China during this time, now that he’s seen the value of this personal time.
“Living in each other’s shoes by being together causes you to understand the issues that you’re facing not on too high of a level but much more day to day, hour to hour, the real issues that we’re facing and how can we jointly solve them,” Jenks says. “My experience is when people have the opportunity to face challenges together and find solutions together, that is what defines successful integration.”
Build alignment on new goals
This first phase isn’t about getting everyone to agree, but cultivating a comfort level and understanding between your two companies so you make decisions easier.
“We spent a lot of time and effort to understand each other, but we didn’t make it the biggest priority to gain consensus on decisions,” Jenks says. “It was to gain consensus on understanding, not consensus in decisions. Decisions had to get made and we had to move forward.”
The next step was getting the two companies to act as one global company, with one set of goals, one vision and one mission moving forward. Getting this alignment involved eliminating all of the previous goals from the individual businesses and creating one set of goals for everyone.
“The company in China wanted to operate on the global stage and the company in the U.S. wanted to be successful and deploy its technology globally,” Jenks says. “So putting those two nuanced sets of personal goals into one set of company goals was a challenge.”
After a merger, there may be a tendency for employees from either company to hold on to the old way of doing things. Where problems arise is when people become so attached to their previous goals that they don’t focus their efforts on new business growth.
“We had a company in the U.S. that was used having objectives that were local objectives, and we had a company in China that was used to having objectives that were Chinese objectives,” Jenks says.
So part of the strategy to get buy-in was to do away with any past performance goals that distracted people from the new global strategy. All financial incentives for employees in the future would be tied to global instead of local performance.
“It was to eliminate and remove all of those objectives and any references to them and replace them with goals so that people in China have to help the global result,” Jenks says. “People in the U.S. had to help the global result. Then even though they understood it, if they weren’t willing to embrace it, there wasn’t a role for them.”
Jenks and his team collaborated with the leadership in China to develop the new set of objectives.
“We actually spent a lot of personal time to write goals to be one company, not to be two companies, and to express with our managers our values that we would embrace and how we would operate,” Jenks says. “That included people from East and West in the senior most management to share ideas, share understanding, share goals and execution plans.”
Getting input from both teams is important, because it helps everyone embrace the new goals as their own, adding to the synergies in the combined company. Once your topmost leadership is aligned on the new corporate goals, you can proceed to build alignment throughout the organization.
“The key thing is that we did express a group of values to be one company and to focus on those global goals, which implicitly meant that staying on the fence was not an option,” Jenks says.
Again, talking with your people face to face to share the new strategies and goals is critical in getting everyone on the same page.
“It causes integration to happen faster, and people find energy in integration success that allows you to move to the next chapter together instead of moving to the next chapter staying individually who you used to be,” Jenks says.
Get the right people on board
Jenks knew that inevitably there were people in the U.S. operation that didn’t want to spend time working on business in China as well as people in China who preferred working for a Chinese company. There were some people who had the skills to succeed in the new environment but weren’t interested in the new direction.
“It was difficult for some people who are not necessarily comfortable living in a language that they don’t speak,” Jenks says. “Moreover, it may be uncomfortable for people who are linguistically gifted but then may have a larger burden because of their abilities.”
During a merger, you have to accept that there are people who will embrace the change and people who won’t. To an extent, the employees who won’t will self select.
“Ultimately, strong performers and people that were good at execution were strongly encouraged to come over to the one-company side of the fence,” Jenks says. “If they were unwilling to do that, they left. That was perfectly OK. If these are not the objectives that you want to work on then there’s no reason why you should work on them, but then you shouldn’t work here.”
In the course of this kind of transformation process there will likely be turnover. As long as you are very clear about the new goals and direction, then you can be fairly confident that people who aren’t excited about it probably don’t have a role in your new company anyway.
“We had to look beyond the level of turnover and say we’re operating to a larger goal and the goal was to be successful and competitive on a global basis,” Jenks says. “That was embraced by a large majority of the employees in both locations. So having that dedicated and engaged group of employees was a really important part.”
To further engage and motivate people, make it clear that with the new vision comes new opportunities for those who are willing to put in the work. That could be everything from more career opportunities, travel opportunities or selling opportunities. Jenks made sure that the Chinese company recognized it now had access to the U.S. R&D and technology and let U.S. employees know that they could enjoy larger manufacturing and a better cost structure. He also knew the added capabilities of the combined company would particularly appeal to sales people as they sought out new business.
“Sales people are always interested in a higher, broader, deeper value proposition to offer to their customers,” Jenks says. “So there was a natural affinity in terms of our customer facing efforts, meaning sales people, whether they were from East or West, suddenly had a broader group of products because they had the merger partner’s products. They had a better roadmap of what they might be able to offer in the future and they had a bigger story to promote with a customer.”
The employees who embrace change are the ones who will do what it takes to make it successful. “I think it’s been a great experience for all of the people who have stayed with the company over the last five or six years,” Jenks says.
Since the merger, the company has grown from approximately $35 million to $181 million in revenue for 2010. In 2011, it completed another acquisition to purchase San Francisco-based Santur Corp., a privately-held components manufacturer with approximately 150 employees.
“So the principles used back in 2005 and in some subsequent deals are being applied again to develop as one company moving forward and to work jointly on what our goals and objectives are,” Jenks says.
How to reach: NeoPhotonics Corp., (408) 232-9200 www.neophotonics.com
1. Gain understanding by getting face to face.
2. Build alignment around shared goals.
3. Encourage people to buy in or opt out.
The Jenks File
Chairman, president and CEO
Education: U.S. Naval Academy, B.S., Mechanical Engineering
Massachusetts Institute of Technology, S.M. Nuclear Engineering
Stanford University, Stanford, Calif., MBA
What is one part of your daily routine that you wouldn’t change?
A quiet morning moment for a cup of coffee alone with my wife
What do you to regroup on a tough day?
I like to have a brisk walk with my dog, but unfortunately most tough days don’t offer the opportunity to regroup. That’s why they are tough.
What do you like most about your job?
I like the global aspect of it. I have friends, colleagues, customers and suppliers all over the world and it really makes me feel like I live in a 21st century existence. My friends and family sometimes are astounded by the regularity in which I find myself dealing with other parts of the world, and it’s a fun thing. At the same time, realizing that what we do really makes a difference. The vast majority of the world does not yet have access to online content. There’s a lot left to do.
What’s the best business advice you’ve ever received?
Hire people you’d be willing to work for, because you may. If you’re picky who you work for and you only hire people that you’d be willing to work for, then you end up with good people.
And, build a business with good people. Good people tend to hire good people.
M&A tips for the next time around: One of the lessons that I learned is that if you’re going to spend an effort to try and merge two companies and you’re in a leadership role, the best thing you can do is move there. For example, doing a transaction with (San Francisco-based) Santur, the first thing that I did is I did take an office there.