When Jim Snow became president of Gold’s Gym International three years ago, he stepped into a tough challenge. The recession was in full swing, and retailers were closing left and right, leaving behind a glut of cheap, readily available retail space. This void presented a ripe opportunity for operators of tiny, low-overhead gyms offering super-low-priced monthly memberships.
The discount gyms were feasting on the opportunity, thereby cutting into the market share of many of GGI’s smaller gyms, in some cases deeply.
“It was pretty clear; when I arrived, I started holding meetings with all of my stakeholders to learn about the business environment, and this was one of the key threats to the business that everybody was searching for an answer to,” says Snow, who took the helm at Gold’s Gym International in 2009 after having worked for five years as regional vice president at Omni Hotels, a sister company of Gold’s.
In its many years of existence, Gold’s has carved out its territory as an operator and franchisor of full-service gyms: large facilities covering 40,000 to 60,000 square feet that offer a wide array of fitness services and amenities. The company, which has 700 gyms and more than 3 million members worldwide, has always fared well in the full-service segment of the fitness market.
In more recent times, GGI has also begun operating and franchising fitness-only gyms — midsize facilities covering 20,000 to 25,000 square feet that offer fewer services and amenities than the full-size gyms, at somewhat lower membership rates. These fitness-only facilities were the ones that were feeling the pinch from the rise of the discount microgyms when Snow came aboard.
“Our full-service gyms are really made up of two kinds of gyms,” Snow says. “We have the big full-service gyms with all the amenities: pools, basketball courts, group exercise programs, etc. And as we looked at the marketplace, we saw that these gyms continue to compete very well because they offer so much value.
“But then we have a segment of fitness-only gyms that are in that 25,000-square-foot range. They don’t have the basketball courts, the racquetball courts, the pools, those kinds of things. They were more susceptible to this new low-cost discount gym that was coming into the marketplace.”
The discount operators were opening scads of smaller gyms — 8,000 to 15,000 square feet — in areas near GGI’s fitness-only gyms. And because the microgyms operate on lower overhead and can therefore afford to offer super-low membership rates, they began luring Gold’s customers away.
“In those markets where they built the discount gyms, there was a lot of attrition,” Snow says. “We started feeling the effects of the low-cost gyms on our product. Sometimes it was as much as 25, 30 percent of the volume. That can be pretty significant to an operator, especially an independent operator or franchisee who’s got their entire life on the line and is personally guaranteed against everything.”
The proliferation of discount gyms had begun a couple of years before Snow joined GGI, and the company hadn’t taken any action to counter it.
“This started happening in ’07, ’08, and it grew from there,” Snow says. “I came in October of ’09, and it had not been addressed. So it was a pressing priority. It was critical that we resolve this problem.”
Weigh risks, benefits
Snow and his leadership team began looking at the idea of creating a new type of gym to compete directly with the discount microgyms that were cutting into Gold’s market share. There were pros and cons to be weighed. The weigh-in became a prolonged process. Eventually the pros prevailed.
“Once we decided to consider this opportunity, we pulled my team together,” Snow says. “My stakeholders in this were the GGI team, the senior executive team, the management team, the franchisees and the board of directors at our parent company, TRT Holdings.”
Adding a new product line to Gold’s traditional full-service line of gyms would be a major shift for a company that hadn’t changed its offerings much since its birth in Venice Beach, Calif., in 1965.
“Nothing had been added to our gym line in 45 years,” Snow says. “We’d been the same company offering the same product, basically, for a very long time. So this would be a major change in direction. We had to think it through: Should we compete in this low-cost, high-growth segment?”
There were significant risks to take into account.
“We had potential risks to GGI that we needed to work through and get everybody comfortable with, and I needed buy-in from the senior team here,” Snow says. “One of the major risks was possible damage to the brand. Not all line extensions work.
“So we went through a pretty long and arduous process of understanding this line extension before we jumped into it, because our brand is the most valuable asset we own. The Gold’s Gym brand has been around a long time. It’s a storied company. It has tremendous value, and you don’t want to damage that brand by making a mistake.”
The company also had to weigh whether it had the financial resources and manpower it would need to put a new brand into the marketplace.
“You don’t just go out and launch a brand,” Snow says. “It takes a tremendous amount of work from everybody and financial commitment. There were many questions that needed answers. Did we have the internal talent required to do it? Could we build these gyms? Could we put them up quickly? There were a lot of pieces to the puzzle when you start looking at launching a new brand like this. So we had got a lot going on here, because we’ve got a lot of divisions, and this would be a major undertaking by Gold’s if we decided to move forward with it.”
On the other side of the ledger, GGI’s leadership team also determined that the potential upside was significant.
“It seemed like an interesting opportunity,” Snow says. “As a full-service gym owner and operator, as well as a major franchiser, the low-cost gym seemed to provide a lot of advantages to our brand.”
Among those advantages: A new line of low-cost gyms would enable GGI to quickly increase its distribution of gyms across the country because the gyms could be built quickly. The gyms would be relatively easy to run, requiring only about half the management team that a full-service gym needs. In addition, they were projected to become profitable quickly.
“In the end we determined, after we’d gone through this process, that there were enough potential advantages and the risks were low enough that it warranted proceeding,” Snows says.
Lay out the plan
The next steps involved conducting consumer research studies, creating the new brand’s concept and image, creating financial models with best- and worst-case scenarios for the new line of gyms, getting the company’s franchisees on board with the new concept, and then, ultimately, presenting the idea to the company’s board of directors. It was a yearlong process in all.
“We presented it to the board of directors in the late fall of 2010,” Snow says. “We had a finance analyst who had completed a compelling set of financial models, and we presented those to the board. And the board, after quite a bit of discussion, agreed to fund the Gold’s Gym Express development on a beta-test basis. That gave us the funding mechanism we needed to move forward, to build between six and eight Express gyms.”
Over the next year, GGI wound up building six Express gyms in a variety of markets around the country to test the concept. The Express gyms offer Basic Memberships for $9.99 and Gold Memberships for $19.99 a month, as compared to the $30 to $50 monthly memberships at GGI’s full-sized gyms. All the Express gyms have performed well in their test markets.
“The beta-test gyms are performing much better than our original models projected,” Snow says. “One of the things we look at is upsell percentage: the percentage of customers who buy the Gold Membership instead of the Basic Membership because of the extra benefits that come with it, like tanning, massage, half-price drinks, and unlimited guest passes.
“Our models projected that these test gyms would have an upsell percentage of about 20 percent. We ended up with an upsell percentage over 50 percent — much higher, obviously, than we thought we would experience, and also much higher than the industry average.
“Our projections are at least a year ahead of schedule in terms of what we thought these test gyms would do. They break even much faster than we thought they would, and they’re growing to maturity very quickly, much quicker than we had projected in our pro formas. Also, they’re ranked right at the top of all of Gold’s Gyms in terms of service and customer satisfaction — and that’s coming right out of the chute.”
Based on these test-gym results, GGI decided this past spring to move forward full-throttle with development of the Gold’s Gym Express line of small, low-cost gyms.
“In the last couple of months, we made the financial commitment to move forward and to build up to 50 new Express gyms in 2013,” Snow says. “That’s where we’re at right now. We have 30 to 40 leases that we’re working on. My guess is we’ll build 10 in the first quarter of 2013 alone. And we’ve got a few gyms that will have leases done this year; we’ll probably get another six to eight done this year. Then we’ll probably get an additional 25 to 50 done next year. Our franchising division has about 30 gyms lined up right now for new franchisees.
“We’ll probably end up with between 50 and 100 Express gyms by the end of ’13, including those that will be in the pipeline. So we feel good about that. It’s right in line with our projections.”
Proceed with caution
Asked what advice he would give executives faced with similar challenges posed by low-cost competitors moving in and grabbing market share, Snow says it’s important to avoid the knee-jerk reaction of simply lowering your price and your standards to meet the competition head-on.
“Don’t jump to conclusions about discounting until you’ve researched and understood all the possibilities available to you,” Snow says. “Discounting is typically the first reaction that everybody has, and it’s typically one of the worst things you can do. Your services and your product line are based on certain things you did when you built the product to maintain certain margins.
“So just going and cutting your rates and allowing your product to stand as is, while this will probably drive some volume, will destroy your margins. And it will be very difficult to ever come back from that.”
Snow also recommends that if an executive is considering introducing a new product line that will affect the company’s overall brand, it’s crucial to avoid getting ahead of yourself and hurrying the process.
“There are times when you would like to move faster as a leader,” Snow says. “But it’s difficult to move fast until your internal teams have bought in. You can’t go forward without them. Now, not everybody is going to jump on board right away. But as long as they jump on board once the decision is made, you’ll be OK.”
In the end, as with most important tasks that businesses face, teamwork and group sacrifice were key elements that enabled Gold’s Gym International to successfully grapple with the tough competitive challenge it faced.
“There’s no problem that we would cross here in this company that any one person believes they have the perfect answer to,” Snow says. “We operate as a team. It’s a team environment. The team works together to help work through problems. We use the leadership and knowledge and expertise from all our people coming from different backgrounds to help us make the right decisions and move forward.”
HOW TO REACH: Gold’s Gym International, (972) 444-8527, www.goldsgym.com
THE SNOW FILE
Gold’s Gym International
Born: Manhattan, Kansas
Education: Bachelor’s degree in marketing, Kansas State University
What important business leadership lessons did you learn during your time in school that you use today?
My marketing classes helped me understand the value of consumer studies, customer focus and the need to drive top-line revenues. Today, my primary role is to balance revenues, customer service, and the owners’ priorities. And everything starts with revenue. You’ve got to look for it everywhere and drive it incessantly.
What was your first job, and what important business leadership lessons did you learn from it?
One of my first jobs coming out of college was with Marriott Corp. Marriott gave me an excellent basis of training for my future career. One of the things they taught is that they expect their managers to work hard and perform at a very high level. I took that credo and told myself I’m always going to be the hardest working person I know, and I’ve tried to do that throughout my career.
Do you have an overriding business philosophy that you use to guide you?
You’ve got to have a dynamic culture that supports your associates. And you’ve got to have an organization that takes the needs of the customers into account, and a mentality that doing those things will take care of your owner’s requirements.
What traits do you think are most important for an executive to have in order to be a successful leader?
You’ve got to be transparent. You’ve got to be courageous enough to go the uncomfortable route when you don’t have complete buy-in. You’ve got to be confident in your direction. You’ve got to think big. And you’ve got to be willing to swing the bat.
What’s the best advice anyone ever gave you?
Be aggressive and set the expectations very high for your company.
There’s an old saying that the best way to get yourself out of a hole is to stop digging.
The problem is that, too many times, you think there’s a treasure lurking just a few more shovelfuls down, so the digging continues. As the hole gets deeper, you keep at it because you’ve already put so much effort into it that it would be a waste to stop now.
There are many examples in business of these ever-deepening holes that eat up manpower, time and money. Sometimes, the elusive treasure is a product that’s sputtering along but just can’t quite get going like you had hoped. Other times, it is a person who has all the promise in the world but doesn’t have much to show for it other than a warm chair and a lot of frustration on your part. The “hole” might even be an entire division that is underperforming or a vendor that just isn’t meeting your needs.
Corporate America is littered with decisions that seemed like a good idea at the time but that just didn’t work out. Remember New Coke? It was meant to replace the Coca-Cola that everyone grew up with, but it lasted only 77 days before the classic formula was reintroduced to the market.
The Coca-Cola Co. wisely made the tough decision that its reformulation didn’t pan out the way it had hoped and brought back the old formula. The result was that while New Coke may have failed, the company retained its top spot. It realized the hole was getting too deep with no return in sight, so it got out.
If you’re going to be successful, then you will have to make tough decisions. No matter how close to the buried treasure you think you are, at some point, you have to take your shovel and climb out of the hole and move on.
It’s called cutting your losses. Coke executives could have stuck to their decision because every bit of market research showed that people liked the taste of the new formula better, but it just wasn’t showing up in the sales figures. Maybe you’ve invested a lot of time and money into a product or a person, but there comes a point where you have to give up and focus your resources on more productive areas.
You can’t be afraid to make these tough decisions. It might be easier to justify further expense to keep going, but don’t wait any longer. Pull the plug.
Ending a project that’s bleeding money is an easy decision. The really tough choices come with the marginal performers — people included. To know when enough is enough, you need to set up accountability for projects and people so you can measure how well things are going compared to the standards you’ve set.
If something isn’t measuring up, get rid of it. In today’s business world, profit margins are too thin to waste money on unproductive portions of your business. You can’t afford to have a nonproductive anything — be it a person, division or product — weighing you down. Do everything you can to help the people affected move on, but make the decision and stick with it. These types of decisions are never easy. You never know how they will affect your business. It will always be easier to keep going after that elusive return on your investment, but you have to hold yourself accountable, as well. If it’s not working, it’s time to make a change.
So stop digging now before the hole gets so deep that you are unable to climb back out of it.
If you are interested in learning more about publishing a book, please contact our publisher, Dustin Klein, at firstname.lastname@example.org or (440) 250-7026.
Fred Koury is president and CEO of Smart Business Network Inc. Reach him with your comments at (800) 988-4726 or email@example.com.
In developing a strategy, creating a new business or launching a product line, intensive preplanning is what can make the difference between success and failure. This same principle applies to negotiating just about anything. No matter what you want to achieve, be it selling a new customer, buying a competitor or hiring a superstar, you must determine what is the end result you want before you put pen to paper or make that first introductory call.
We’ve all heard hundreds of time about the importance of “putting yourself in the other guy’s shoes” or showing some empathy. Good basic advice, but do you really follow these suggestions?
In many business relationships, if it becomes a win/lose transaction, at the end of the day, one side is going to be very unhappy and the other side, albeit temporarily satisfied, could ultimately lose, too. In most instances, both sides have alternatives. Unless you have found the Holy Grail that no one can live without, the other side always has choices. One of which can be to do nothing and take a hike.
Most negotiations begin with the thought, “What’s in it for me?” Instead, the first question should always be, “How can we enable the other side to win (or feel as though they have won)?” It’s all about looking at the objective through the other person’s eyes. This simply translates into giving the “opposition” something that they must have, even if they’ve yet to realize it, while meeting your own needs. Rather than start with figuring out how much can you make on the deal or the positive result that will accrue to you if you hire a particular superstar, ask yourself, “What can I do to make the other side feel like the winner?”
For your next initiative, start at the end and work toward the beginning. You might just be pleasantly surprised with the road map you construct using this technique. Here are a few examples.
You want to buy a competitor because it has a product that will enhance your offering, but you don’t need all of the other widgets that this target manufactures. The traditional strategy would be to make an offer knowing that, if you succeed, you’ll scuttle all of the company’s other operations, cherry-picking what you want from the carcass. This could work and might be the easiest way to achieve your goal, but this Machiavellian method of taking no prisoners likely won’t play well with the target company owner, who has spent years building it and is emotionally invested in the business and the organization’s employees. When you look at the situation through the lens of the founder, you determine that a different approach, such as paying a good price for the entire business, plucking the item you want from the company, and then selling the rest of the company back to the employees could be the ticket to getting discussions started. This way the owner gets his money, he is a hero with his employees, and you acquire the product you need to grow.
Let’s say you want to hire the best salesperson in your industry who, unfortunately, works for your competitor. Instead of just going in and offering a big salary and bonus, which he or she most likely has already been offered by someone else, try to determine, after doing your homework, what this superstar’s hot buttons are. Maybe he has made it known that he would like to work remotely from a desert island while continuing to build his book of business. Looking at it from his perspective, you figure out that you can buy him his piece of sand somewhere with a beautiful view, obtain highspeed Internet connectivity to his paradise and allow him to work six months per year in his dream location. Rather than just making a cash-rich offer, start the negotiations by providing a solution to your target’s fondest expectations.
Putting yourself in the other guy’s shoes is far from a new idea. However, too many executives forget that creating a win-win is preferable to having it only your way. Remember, many times, instead of just knowing the answers, you first have to figure out what questions to ask to ensure success.
Michael Feuer co-founded OfficeMax in 1988, starting with one store and $20,000 of his own money. During a 16-year span, Feuer, as CEO, grew the company to almost 1,000 stores worldwide with annual sales of approximately $5 billion before selling this retail giant for almost $1.5 billion in December 2003. In 2010, Feuer launched another retail concept, Max-Wellness, a first of its kind chain featuring more than 7,000 products for head-to-toe care. Feuer serves on a number of corporate and philanthropic boards and is a frequent speaker on business, marketing and building entrepreneurial enterprises. Reach him with comments at firstname.lastname@example.org.
A unique new book with an unorthodox, yet proven approach to achieving extraordinary success.
What does it take to grow rapidly and effectively from mind to market?
This book offers an unconventional philosophy for starting and building a business that exceeds your own expectations.
Beating the competition is never easy. That’s why it requires a benevolent dictator.
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Also available wherever books and eBooks are sold, and from Smart Business Magazine and www.SBNOnline.com. Contact Dustin S. Klein of Smart Business at (800) 988-4726 for bulk order special pricing.
Scott Kirsner spent three years immersed in the movie industry in order to write a book called “Inventing the Movies: Hollywood’s Epic Battle Between Innovation and the Status Quo, from Thomas Edison to Steve Jobs.”
He talked with directors like Francis Ford Coppola and James Cameron, editors, cinematographers, studio chiefs, producers, tech companies that sell technology into Hollywood and even actors with an interest in new technology like Morgan Freeman.
He discovered that Hollywood serves as a great case study for how any long-established, successful and self-satisfied industry responds to new technologies and new ideas.
Even when a new idea seems to have obvious merit and even when its inventor can make a strong case for it, 95 percent of the people involved in the industry fight the new idea with all their energy for as long as they possibly can until they realize it has the potential to grow their business in surprising ways.
Case in point: Within a decade of Hollywood’s fight against the Betamax video recorder, which went all the way to the Supreme Court, the studios were earning more from home video business than they were from ticket sales.
Here are several movies — all of which you’ve likely seen — each with an important backstory that innovators can learn from.
Sometimes technology needs to be just good enough, not perfect. “The Jazz Singer” will forever be remembered as Hollywood’s first talkie — even though it wasn’t among the first dozen to try to sync up the pictures on the screen with a soundtrack. But the technology that Warner Bros. banked on, developed at AT&T’s Bell Labs, was better than what came before it. It was just good enough to turn “The Jazz Singer” into a hit — especially combined with a performance from Al Jolson that practically leapt off the screen. The system still relied on phonograph records that could scratch. If the film broke and needed to be spliced back together, the entire movie would veer out of sync. The Warner Bros./AT&T technology was just good enough to start the sound revolution in Hollywood, though it didn’t endure for very long as a standard. Five years after “The Jazz Singer,” even Warner Bros. had switched over to a technology that more reliably linked the audio with the visuals.
Innovators never underestimate the importance of allies. Shot in glorious Technicolor, “Gone with the Wind” won the Best Picture Oscar in 1939, marking the start of Hollywood’s transition from black-and-white to color. But Technicolor had been working on its technology for making color movies since 1915, developing new kinds of cameras and film-processing techniques.
Like most start-ups, the company nearly ran out of money several times and had to continually hunt for new investors and allies who’d make movies using Technicolor’s technology to show how it was improving. These allies included the swashbuckler Douglas Fairbanks and Walt Disney, who won one of his first Oscars for a short cartoon made in Technicolor. Technicolor co-founder Herb Kalmus met another key ally at the racetrack at Saratoga Springs: Jock Whitney, a rich playboy who used his money to option a novel by Margaret Mitchell and help turn it into a movie starring Clark Gable and Vivien Leigh.
Innovators spot market opportunities first and chase them relentlessly. Entrepreneur Andre Blay had no connection to Hollywood, but in the mid-1970s, he was among the first to realize that home video machines like Sony’s Betamax (which sold for about $1,000 at the time) presented the potential for a new business.
He sent “cold call” letters to most of the major Hollywood studios asking them for the right to sell their movies on videotape. Only one studio, 20th Century Fox, consented, offering movies like “Butch Cassidy and the Sundance Kid.” Blay’s first ad in “TV Guide” netted his company $140,000 in revenue, and within a year, Fox acquired his company for $7.2 million in cash.
Innovators find collaborators who share their vision, and they’re prepared for things to take longer than expected. Computer graphics pioneer Ed Catmull, while he was still a graduate student at the University of Utah, was one of the first people on the planet who believed that it’d be possible to make a full-length computer-animated movie that people actually would pay to see. As he marched toward that goal, he connected with two people who bought in to his vision: John Lasseter, an ex-Disney animator, and Steve Jobs, who purchased the fledgling Pixar from George Lucas and helped develop it into a company that could stand on its own two feet, selling hardware and software while also pursuing Catmull’s ambitious, audacious goal.
Catmull admits that he thought the goal of making Pixar’s first film would take a decade — it took two. Disney eventually bought Pixar in 2006 for $7.4 billion.
As a business owner, there are many lessons to learn about innovation from the movies.
Guy Kawasaki is the co-founder of Alltop.com, an “online magazine rack” of popular topics on the web, and a founding partner at Garage Technology Ventures. Previously, he was the chief evangelist of Apple. Kawasaki is the author of ten books including Enchantment, Reality Check, and The Art of the Start. He appears courtesy of a partnership with HVACR Business, where this column was originally published. Reach Kawasaki through www.guykawasaki.com or at email@example.com.
Left or right? Up or down? Yes or no? The human life is full of choices. We make them on a minute-by-minute, hour-by-hour, day-by-day basis. It’s what we do, how we live and move and have our being in the world.
Consider some choices you may have made in the last few years:
- What car should you buy?
- Should you ask her to marry you?
- Are you ready for another baby?
- Is this house right for you, or should you keep looking before you make an offer?
- Who should be let go in the next round of budget cuts?
- Will your department reach its goals this year?
- Should you ask for a raise?
- Is it time for your mom to enter a nursing home?
- What do I need to do to lose weight?
- What will you eat for dinner tonight?
Decisions are usually easier when we are only faced with two choices. Blue or red car? Two-story or ranch-style home? Slim Fast or Weight Watchers diet plan? Our brains are somehow wired better to choose between two competing choices.
It’s when we have more options that we sometimes stall, flutter or downright choke.
- Three people from a team of eight in the department must be let go.
- Should we marry now, when we finish college or after we find secure jobs?
- In order to best reach our yearly goals, should we focus our attention on X, Y or Z, and how much of our remaining budget should we allocate to the project we choose?
Life is full of hard choices, and the bigger they are and the more options we have, the harder they get.
Through my years in working with individuals, groups, companies and organization, I have narrowed the questions we need to ask in order to make the right choices both in our life and in business.
Here are 3 of my best tips for making the right choice:
1. Analyze outcomes, not pros and cons.
Many of us have been taught somewhere along the way to take out a sheet of paper and divide it down the middle with a line. On one side we list the “pros” of a certain choice, on the other, the “cons.”
This old school way of making choices is time worn and tested, but I think there is a better focus: outcomes. In the end, the outcome of a choice made is what truly matters.
Working through a big decision can give us a kind of tunnel vision, where we get so focused on the immediate consequences of the decision at hand that we don’t think about the eventual outcomes we expect or desire.
When making a choice, then, it pays to take some time to consider the outcome you expect. Consider each option and ask the following questions:
- What is the probable outcome of this choice? (This is the list we should make.)
- What outcomes are highly unlikely? (This allows them less weight in the choice.)
- What are the likely outcomes of not choosing this one? (These are negative outcomes.)
- What would be the outcome of doing the exact opposite? (Play “devil’s advocate.”)
Our thinking should be in terms of long-term outcomes and not short-term pros and cons. And we should broaden our thinking to include negative outcomes. In doing so, we will find clarity and direction in making the right choice.
2. Ask why – five times.
The Five Whys are a problem-solving technique invented by Sakichi Toyoda, the founder of Toyota. When something goes wrong, you ask “why?” five times. By asking why something failed, over and over, you eventually get to the root cause.
Although developed as a problem-solving technique, the Five Whys can also help you determine whether a choice you’re considering is in line with your core values as a person and a business.
- Why should I take this job? It pays well and offers me a chance to grow.
- Why is that important? Because I want to build a career and not just have a string of meaningless jobs.
- Why? Because, I want my life to have meaning.
- Why? So I can be happy.
- Why? Because that’s what’s important in life.
We now see how the first two tips are interrelated. By asking the Five Whys, we learn that having meaning and being happy are desired outcomes that influence the choice made in asking the first question: Why should I take this job?
The continued relationship can be seen in revealing the third tips for making the right choice.
3. Follow your instincts.
This tip affords you the ability to work through the first two tips with a sense of personal confidence.
Because research shows that:
The conscious mind can only hold between five and nine distinct thoughts at any given time. That means that any complex problem with more than (on average) seven factors is going to overflow the conscious mind’s ability to function effectively, leading to poor choices.
Our unconscious mind is much better at juggling and working through complex problems. People who follow their instincts actually trust the work their unconscious mind has already done.
When we allow ourselves to focus on long-term outcomes rather than short-sighted pros and cons, take on the task of asking “Why?” five different times, and trust and follow our instincts, we put ourselves in a much better position to make the right choice in any given situation in life and business.
Like anything we go through as human beings, this process takes work. Get to work and let me know how it goes.
DeLores Pressley, motivational speaker and personal power expert, is one of the most respected and sought-after experts on success, motivation, confidence and personal power. She is an international keynote speaker, author, life coach and the founder of the Born Successful Institute and DeLores Pressley Worldwide. She helps individuals utilize personal power, increase confidence and live a life of significance. Her story has been touted in The Washington Post, Black Enterprise, First for Women, Essence, New York Daily News, Ebony and Marie Claire. She is a frequent media guest and has been interviewed on every major network – ABC, NBC, CBS and FOX – including America’s top rated shows OPRAH and Entertainment Tonight.
She is the author of “Oh Yes You Can,” “Clean Out the Closet of Your Life” and “Believe in the Power of You.” To book her as a speaker or coach, contact her office at 330.649.9809 or via email firstname.lastname@example.org or visit her website at www.delorespressley.com
The Division of Corporation Finance, a part of the Securities and Exchange Commission, has issued guidance on disclosure obligations related to cyber security risks and incidents. And although public companies aren’t yet required to disclose this information to shareholders, it’s just a matter of time, says Brittany Teare, IT advisory manager with Weaver.
“Right now, this is just guidance in the best interest for your shareholders, but that will likely change. It could become a requirement, probably sooner rather than later,” says Teare.
Just as the Senate headed for its August recess, efforts were made to pass cyber legislation. Although the bill didn’t pass, more regulation surrounding cyber risks and security is certainly coming.
Smart Business spoke with Teare about what the guidance entails and how businesses can measure and guard against cyber risks.
Have the SEC reporting requirements for cyber security changed with this guidance?
The new guidance takes the existing requirements that public companies follow and expands upon them. There’s no mandatory piece yet that results in a direct impact on a company if it doesn’t disclose information on cyber incidents.
Basically, the guidance states that if cyber security risks and cyber incidents have a material effect on your shareholders — if it could affect how financial information is reported — you have to report them.
How can you tell when cyber security risks are going to materially impact your company?
The guidance addresses some of the possible risks and whether they should be voluntarily reported to shareholders. If you don’t have cyber security controls around your key financial systems, for example, then the way you record or report your data can be easily manipulated or altered. Even if a cyber breach has not yet occurred, it is very likely.
Cyber security itself is a gray area. Employers typically know that network and perimeter security, access and change controls should be in place, but executives may not consider disclosing vulnerabilities. CEOs and CFOs are used to looking at the balance sheet and seeing line items for hardware and other things they can touch. It can be challenging to consider the likelihood and risk that the organization could be breached and the ways it could happen. Addressing weaknesses is something that companies need to continue to do.
What is your advice to CEOs about quantifying data and seeing vulnerabilities?
A starting point is to designate a person or group of people responsible for cyber security. These people should not only understand where the SEC is at and where requirements are potentially heading with this guidance, but should also identify risks to the specific organization.
There is a central entry point in any network, but key people need to know where an attacker will head and what the most sensitive data is. If an attacker can get to the most sensitive data in a network, this could add up to a huge loss. If the company does not store much of this type of information, then an attack could involve a company’s reputation, which is much more difficult to value.
Another challenge is improving communication from the CIO or IT manager. Often, IT will say, ‘We need X dollars for new equipment, applications and hardware that are going to help make our organization more secure.’ It’s usually a considerable amount of money and can be millions of dollars in larger organizations. When management hears that number, they want to know what the return on that investment is going to be. IT typically struggles with quantifying that return.
A CIO needs to be able to tell other executives, ‘If this firewall, application or system is not installed, a breach would cost us X dollars, or the company could lose X dollars per day,’ for example. Not everything can be quantified, such as a company’s reputation, but this gives CIOs a place to start.
Is cyber security a big factor for investors?
Yes, and it is becoming more so as the public realizes the prevalence of cyber attacks. Shareholders and employers alike are justifiably concerned about this because some of the most secure companies in the world have been breached in the recent past. For example, RSA, which provides security management solutions such as strong two-factor authentication for many well-known organizations, was recently breached. If a large company that specializes in security can be breached, then small and mid-market businesses are susceptible.
What are some steps businesses should take to protect their data and reputation?
There are some key, high-level steps that companies should consider:
- Take inventory of the data systems and gain an understanding of where critical data is located. Then, work to ensure that there is an appropriate amount of security on those areas.
- Use complex, strong passwords to help protect the network, systems and data, and regularly change them. Have the system lock out users after a certain number of failed attempts and log all such activity.
- Most important, heavily monitor the networks and all systems. Check who is logging in and from where, who is successfully entering and who is failing. Then set a baseline to understand any abnormalities.
- Use the principle of least privilege, especially for critical accounts and functions. This ensures that no single employee has all access; instead, access is tailored to the job function. If there is a breach, it prevents those accounts from being abused for something they shouldn’t be used for in the first place.
These simple steps are often overlooked by many companies. There is much more that companies can do, but first take small steps to implement key, basic controls. Then, if a breach occurs, the business can more easily identify what and how it happened.
Brittany Teare is an IT advisory manager with Weaver. Reach her at (972) 448-9299 or email@example.com.
Insights Accounting is brought to you by Weaver
The ability to analyze and use data, often in real-time, is a growing and important driver behind providing a superior customer experience on the phone. Your contact center is a priceless resource that sustains and cultivates loyal customers.
"With our demographic and psychographic information, we can deliver superior customer service and a very strong ROI without seeing degradation in the audience size or the results," says Mike Herston, vice president of IT client services at InfoCision. "It's simple in our business to say, 'This person looks like my best donor or my best customer so we should always call or mail them.' Eventually they will fatigue. What we can do is expand that list with like-kind prospects so you don't call the same people over and over again."
Herston and InfoCision's Business Intelligence Group, a marriage of the marketing and IT departments, utilize data analytics, the process of reviewing raw data to draw conclusions from it. In addition to highlighting opportunities for greater ROI, this process provides the ability to efficiently connect with customers on the for-profit side, or donors on the nonprofit side.
"Budgets are tight for a lot of companies right now, given the economy," Herston says. "So they need to look for more effective ways to reach their customers, and they're looking to analytics to be able to do that. It's really about getting down and peeling the layers of the onion away so we can tailor a message to a particular customer. It's all about building that customer relationship and being able to anticipate the customer's needs."
In the last few years, the data analytics industry has become more procedure-driven rather than data-driven, Herston says. This is tied to the vast amounts of information available and decreasing timelines for deliverables. There's also a greater reliance on software to be the decision-maker on final outputs or results.
"Where InfoCision differentiates itself is that we're able to integrate sound business understanding with statistical modeling," Herston explains. "We certainly use up-to-date statistical analytics. But at the same time, we have an understanding of the day-to-day business of our clients and the audiences that they are trying to reach so we know what we're actually profiling or modeling. It also means we're not totally reliant on statistical software."
Equally important to obtaining data, is using it. For example, script-on-screen technology can take the data and tailor a message in real-time to the individual being called allowing for a very personalized conversation.
"What we're able to do is enhance the calling experience for that donor or that customer," Herston says. "We have the ability to model people and predict their propensity to say yes by scoring them in real-time. We can actually tailor a call treatment based on that person's information. We can tailor a script based on the fact that we know someone is male or female or if we know their age range. We can tailor a script to a household that has a presence of children. The whole idea is that it allows us to deliver a script that resonates with the person we're calling."
Companies need to strategically align themselves with partners that can help them leverage the growing amount of data available.
"We make a lot of calls, and that gives us a lot of past behaviors to model," Herston explains. "We can model internal data specific to a client, and break it down further to the specific audience depending on what the client's goal is. Let me put it this way, we don’t operate on the one-size-fits-all model."
Mike Herston is the vice president of IT client services at InfoCision. Reach him at Mike.firstname.lastname@example.org or (330) 668-1400.
In the past, a company’s employees were generally employees for life; there was little danger of them leaving, and if they did, the technology didn’t exist for them to take information with them.
Today, however, the average employee will hold eight to 10 jobs over his or her professional career, and if you don’t take the proper precautions, employees could take your data with them when they leave.
“Today’s ‘migrant worker’ is smarter and comes with strong skills sets, which necessitate more sophisticated data requirements regarding employee identity security,” says Steve Carter, president and CEO of ii2P.
Smart Business spoke with Carter about the importance of employee identity security and how to balance convenience and compliance.
Why should employers be concerned about employee identity security?
Businesses have three types of security needs: physical, data and employee identity. Physical security involves a company’s structure and its hard goods, data security relates to proprietary business or financial information and employee identity includes access to e-mails and network drives, and authorization to post information on the Internet. Employee identity security is just one leg of a three-legged stool that makes up corporate security.
Employee identity security is critical in today’s economy because of the changing face of the work force. This is the age of the ‘migrant worker.’ The employees who are working for you today will most likely be leaving your employment at some point for another opportunity. As a result, managing employee identity while those workers are with you is a fundamental protection that every company must have in place to reduce corporate vulnerability. Equally important is taking precautions to freeze employee identity when someone leaves your company so that he or she doesn’t take that to another job.
What specific challenges do small and medium-sized businesses face regarding employee identity security?
There is a fundamental balance to consider in terms of employee identity security relating to convenience versus compliance — convenience for the user versus compliance for the organization. Larger organizations are very good at forcing employees to comply with strict IT policies regarding identity security. However, this approach can backfire as users try to circumvent policies because adhering to them is inconvenient.
Conversely, with smaller to mid-sized organizations, there may be no one who is creating and monitoring policies. Without controls around necessary security policies in place, identity protection is left in the hands of individual employees, which can cause a litany of problems. Without protections in place, employees may decide that convenience is more important to them than compliance, resulting in the use of the same password for a company’s restricted database that contains sensitive financial information as for their individual social media accounts.
To deal with these concerns, small and medium-sized organizations often shift the responsibility of identity security to an outsourced IT vendor. In theory, this is a practical plan, as it puts someone in charge of security. However, this may not always turn out as planned. For example, if employees are working on a project after hours and are locked out of some critical system, they need their password reset quickly. And if the outsourced security provider is unavailable, employees may revert to using their personal passwords, putting weaker identity security back in the hands of the employees.
What is the cost for a small or medium-sized organization to invest in solid employee identity security?
Because of differences in size, complexity and requirements, there is no one right answer. Research has shown that enterprise investment in employee security costs the average company between $500 to $600 per user per year.
Many small or medium-sized organizations can’t afford this cost and, as a result, make no investment and expect employees to keep their own identity secure. However, this is a dangerous practice and is not a recommended approach, as it leaves companies vulnerable to security breaches.
What can small and medium-sized companies do to provide better employee identity security?
Start by standardizing security policies across the business infrastructure. Don’t have 10 different password management systems and 10 different login systems. This may sound like common sense, but it is a step that is often lacking in organizations.
The second step is to enable employees to manage their identities on their own but within the constraints of the standardized policies of the company. If employee identity is a rail system, then standardized policies represent the rails. Employees are allowed to throttle how fast they want to go and they can paint their train blue or red or green, but they must stay between the rails while maintaining their own identity. This provides employees with convenience but also ensures that they adhere to the company’s security policies.
How should employee identity security align with data security?
There is going to be turnover in your organization, so it is crucial to make certain that proper user authentication is aligned tightly with employee identity. Simply put, this means that while employees have the ability manage their personal identity, they only have access to pertinent information that is relevant to their job.
When an employee leaves, that person’s identity needs to be frozen and any access he or she had to corporate data must be shut off.
Steve Carter is president and CEO of ii2P. Reach him at (817) 442-9292 or email@example.com.
Insights Technology is brought to you by ii2P
For many companies, tax accounting is not a core competency. However, even if you don’t have qualified personnel on staff, keeping sufficient controls over your tax processes is of critical importance. Recently enacted laws have put more pressure on company executives to certify that their company’s accounting reports are accurate, says Tom Tyler, CPA, a partner with Crowe Horwath LLP in its Dallas office.
“One of the most common reported weaknesses is in the area of tax accounting,” Tyler says. “Partnering with a firm that has the resources and does this day in and day out can help a company avoid a material weakness.”
Smart Business spoke with Tyler about how partnering with an outside agency to handle tax functions can help you stay compliant and keep your business focused on what it does best.
Why are companies outsourcing their tax function?
The outsourcing of a company’s tax function is due first and foremost to the fact that tax management is increasingly complex, particularly if you are operating in multiple states or multiple countries. Also, considering the many types of taxes — income, payroll, property, sales and use, value-added, transfer taxes — it is important to have expertise in each of those areas, which is not often found under one roof.
Furthermore, outsourcing your tax function frees up time that allows employees to spend their energy on issues related to the business’s core competency. Those who handle tax management are typically responsible for other aspects of a business, as well, so taxes don’t get all of their attention. In addition, some companies don’t want to hire additional in-house staff for what some perceive as a compliance function.
Outsourcing often refers to a job function performed outside of a company’s home country. Is this the case with tax outsourcing?
While some might see tax outsourcing as moving the preparation of tax returns overseas, that’s not really the most common case. Although it is certainly one form of tax outsourcing, what is more often meant is engaging a competent third-party provider to perform three related functions or some part of those functions: accounting for income taxes, tax planning and annual tax compliance, or tax return preparation. All of those activities are done domestically, not overseas.
Co-sourcing is another option in which specific tax areas are handled by a third-party provider, for example, sales and use taxes, or real and personal property taxes. Companies that have an in-house tax function, however robust, are often in a co-sourcing relationship for some piece of their tax planning or preparation.
Why would a company choose to outsource the accounting for income taxes?
For public companies, the answer can be found in the 2002 Sarbanes-Oxley Act. SOX requires both the CEO and CFO to certify that a company’s annual and quarterly reports filed with the Securities and Exchange Commission fully comply with certain requirements of the Securities Exchange Act of 1934 and that the reports fairly present the company’s financial condition and results of operations.
In addition, SOX requires companies to test their internal controls over financial reporting and correct any deficiencies or report them as material weaknesses. Tax accounting is an area most commonly reported as a weakness. To strengthen this area and ensure that your company remains in compliance, work with a firm that focuses on tax accounting as its primary business.
Privately owned companies can also benefit from outsourcing the accounting for income taxes. In the case of a growing business in which key employees need to focus their efforts on markets, product lines and other strategic issues, it makes sense to look externally for this expertise.
Accounting departments might be stretched thin and the CFO or controller is likely to wear many hats. The time that they can devote to the tax area may not be sufficient, and outsourcing can remove a time-consuming task, allowing efforts to be focused on the most strategic issues related to a company’s core competencies.
Turnover can cause a company to seek an outsourcing solution, particularly when the departing employee was the most qualified to handle this task. Temporary absences could also create gaps in expertise that could be filled by outsourcing.
When should a company consider outsourcing?
A company should consider outsourcing when it doesn’t have the technical skills or the resources to do the job in house, or when the costs to have a fully staffed tax function outweigh the benefits. In addition to salaries, consider the cost of benefits, software, hardware and training, among other things. The software costs alone might be prohibitive and at times can be as high as the cost of outsourcing.
Co-sourcing makes sense when a company doesn’t possess the specific skill for the function it wants to co-source. For example, a company that is acquisition minded might co-source the tax planning and compliance associated with acquisitions to a firm that has expertise in the mergers and acquisitions arena.
A company with personnel who possess the skills and technical knowledge regarding income taxes might not possess the skills to adequately comply with and plan for personal property taxes.
Tom Tyler, CPA, is a partner with Crowe Horwath LLP in the Dallas office. Reach him at (214) 777-5250 or firstname.lastname@example.org.
Insights Accounting is brought to you by Crowe Horwath LLP
There are many interdependencies between people and departments at most companies. At times, communication breakdowns or inabilities of processes can stymie the best intentions. It is often difficult to diagnose the issues. Just like many health issues of the body, sometimes we in business have to go back to our roots.
When done right, an organizational chart can be a tool of enormous benefit. Let’s look at a homeopathic approach to diagnosing and fixing problems within an organization using the organizational chart.
You may need to ask yourself the following questions if your company is experiencing inefficiencies, poor employee engagement, increased turnover, lack of responsibility for decisions, or bad communication.
- Who has too many direct reports?
- Where are the open positions?
- Which managers are using contractors, and where do they fit?
- Who has accountability?
- Are the right positions reporting to the right people?
An organizational chart is a visualization of the structure of your organization. When you can see information visually in the context of the structure of the organization, the understanding of that information can often be instantaneously clear and impactful.
Some organizations claim they don’t need or want an organizational chart because they work in teams. Unless all workflow for decision-making — expense reports, raises, promotions, disciplinary actions — are made across the entire team, then you likely have a hierarchy. Visualizing information about the reporting relationships in your organization can help you fix many issues.
There are a lot of issues that can come with the burden of too many direct reports. Managers can be stretched too thin to develop their direct reports, even if they can supervise that many people.
Your organizational chart should contain a roll-up of the headcounts. At a glance, you should be able to see how many direct reports and how many total reports a manager or executive has under his or her purview.
Companies often tout how flatly their organization is structured, but flatness can create painful consequences. Identify the span of control of your managers, and then analyze them for effectiveness.
When open positions are tracked inside of an organizational chart, a world of opportunity opens. This communication of open positions allows employees to see where there is potential for them to move into a new role.
Developmental moves that provide exposure to new experiences create better-qualified employees for promotions in the future.
Visible open positions allow employees to recommend people they know for the job. This is an enhancement to your culture because people are more engaged when they have friends working at the same company. Referrals also reduce the cost of hiring. So keep those open positions visible in the organizational chart and in front of the entire company. It will save you money and frustration.
Your workforce probably consists of more than employees. Most companies have some level of consultants and contractors. This is often a great way to expand your capabilities without making an employment commitment.
It is important to know where you are supplementing your staff with contractors. The use of contractors, often to work around rules and budgets established for hiring, could actually cost the company more money.
Using contractors can also create an employee engagement issue if prime experience is being blocked from employees due to contractors filling positions. Track your contractors in the organizational chart and hold your managers accountable for your plan in working with these resources alongside their developmental plans for their existing staff.
Who is accountable?
There is a reason that regulatory agencies often require an organizational chart. They need to be able to identify who was responsible for decisions. The organizational chart may not be the official map of communication trails, but it should represent who has authority, and thus accountability, for decisions within the organization.
It is also helpful inside an organization to identify where you can go for the authoritative assistance you might need.
When you are feeling pain within your organization, evaluate your real organizational chart. It may diagnosis the source of your symptoms and provide healing answers.
Lois Melbourne is co-founder and CEO of Aquire, a workforce planning and analytic solution company based in Irving, Texas. Visit www.aquire.com for more information.