Despite leading RAZOR to 750 percent growth in just three years, Tom Cole and Dave Kirwan won’t let themselves or their employees rest on their laurels. As co-presidents and managing principals of the $17 million custom-built retail marketing firm, they continue to develop their vision for growth and get their employees to buy in to it by sharing goals and measuring results.
Smart Business spoke with Cole about how communicating a company’s progress and financial standing helps employees buy in to a plan for phenomenal growth.
Q: How do you create a vision for growth?
We started with what’s happened in our marketplace. What are the trends in the marketplace, and what’s the opportunity that’s surfacing? We had a strong view on what clients are looking for that’s not being met.
It’s very important to have your plan and work your plan but also be prepared to chuck it aside and rewrite it as the situation changes because it can be limiting, as well. If you try to overprescribe how fast you’re going to grow and what you need to get there, it never happens that way. It’s a balancing act.
Q: How do you communicate your plan to employees?
Get everybody involved in where the company’s going not just what’s happening in their office day in and day out. We share our goals from a three-year standpoint with the entire staff. We share our annual goals, our financial numbers, then we ask each team leader to set their own goals in a bottom-up process.
We measure progress against those goals at least quarterly. We share financial performance of the company with the entire staff at least quarterly, often more than that. We have an internal newsletter and impromptu announcements anytime anything of note happens, and we have monthly staff meetings where we keep the staff up to date.
Q: Why are multiple methods of communication so important?
Because a sense of ownership is critical. The difference between a talented staff that’s energized or not is if they feel they understand where the company is going, how their job is connected to that, how they can contribute to the overall goals.
If you don’t communicate, I don’t think you’re fostering that sense of ownership.
Q: Why is it important to share financial information with employees?
Understanding that there’s a context and a reason for the decisions that we’re making. It’s important for them to understand the investment we’re making in growth and how we look at staffing levels. It’s all about adding the context of why does the company do what they do.
Once the staff understands that, there’s a lot more buy-in. They have that buy-in of, ‘I understand why the server room expansion is happening next quarter instead of this quarter.’ If the staff is disconnected from that, you run the risk of planting the seeds of, ‘I don’t know why they do this, but I sure wish that ...’ fill in the blank.
Set it as a goal or a cornerstone of how you want to lead your organization and commit to it.
Q: How do you prepare for growth?
Staffing is the most critical variable, and we try to hire a little bit ahead of the growth curve. We have a weekly meeting with our VPs that’s focused on staffing and staffing planning.
We also have a disciplined bottom-up process for forecasting the workload that’s coming from each of our clients, so we can project when we’re going to have needs.
Q: How do you hire during high-growth times?
Just make talent and finding the right people for your organization a top priority. It’s a time commitment to invest in screening, interviewing and bringing talent on board, but for every two hours you invest in finding the right person versus that second- or third-best person, you really save the company 200 hours in terms of lost productivity or the extra effort that’s spent by management having to go back and rehire somebody if you make the wrong hire.
Q: What inhibits companies from growing?
Not setting the right goals or aiming high enough. Coming off last year, where we were growing by over 40 percent, we set a similar growth goal for this year. It would have been easy for us to say, ‘Wow, coming off a year like that, let’s ratchet it back a little bit,’ but we’ve set those aggressive goals, and we’re ahead of those. If we had set them lower, we might be expecting less of ourselves and delivering less.
Also, not having the perspective and flexible plan of how are you going to get there. It’s one thing to say, ‘We’d like to grow 40 percent,’ but how much do you expect from your current business relationships, how much do you expect from new clients, and what kind of products or strategies are going to deliver that growth? If you haven’t thought that through, then you’re just hoping, and hope is not a strategy.
HOW TO REACH: RAZOR, www.razordriven.com or (972) 663-1100
Don’t hire rock-star personas. It is difficult when you’re interviewing and hiring to determine whether someone can work within that environment, or if they’re just going to be an arrogant ass. It comes down to, can that person admit when they’re wrong, can they see other points of view, and are they open to that?
When I bring someone in to interview, I ask the first-level people, ‘Did you talk to this person? What were they like? Were they polite? Did they treat everyone the same, or did they have the rock-star persona?’
It’s amazing how many times you find out when someone’s the arrogant ass; it comes out in their dealings with the (administrative) assistants, the receptionists, the guy who may pick them up in the car. You get into that level, and you find out who’s real and who’s putting on a fake show for you.
It has a twofold effect. I’ll ask the receptionist, ‘OK Pam, what did this person act like when they came in?’ One, she’s flattered that you would ask and that you value her opinion enough to have input. Two, it shows those people that how they treat everyone in the organization is critical. It’s one of those things that filters down the organization that you don’t even realize it does.
Take your time when hiring. I learn more from the questions they ask. Do they listen when you ask them a question, or are they in such a rush to get to the answer and talk about them that they don’t really understand what you’re asking for? A lot of it is, ‘Am I dying to get this person out of my office?’ or, ‘Boy, I could spend another couple hours here talking with them.’
I try to see that person in two or three different situations. I love Waffle House because it’s the only place you can get breakfast and get a show often. I’ll have them go to breakfast with me at Waffle House. Some people are like, ‘Oh man. I can’t believe you even eat here.’
I’ll have them come to the office at a different time of day, and then I’ll have dinner with them at a very nice restaurant and see how they handle themselves in all those situations and look for those small tells that get you somewhere.
They are difficult to detect, and in an interview process, people are selling themselves, which should be the product they know best, so they ought to be in a position to do that.
Reward people equally. A lot of companies have an incentive trip for their salespeople, but we have an incentive trip for the whole company. Our top salespeople can qualify to go, and then we have an equal number of people that are nominated and selected by their peers to go on that trip.
We make it peer-nominated because those people know who’s doing the work and who’s going above and beyond, so we don’t get the person who everyone in the company goes, ‘That person is just a kiss-ass, and they don’t get anything done.’
It shows that everybody in the company is important, not just the salespeople, but also, we get our salespeople spending four days in a nice environment with our top people in other areas of the organization. We get a nice network effect of people talking to people they never talk to and understanding who our top performers and support are and making sure those people know each other.
Let people challenge you. There are a lot of people that say, ‘Hey, I make those decisions, and everyone falls in line.’ I’d like to think that I’m not that sharp. I’d rather hire people who are really sharp, and they’ll argue with you and tell you what they really think.
Part of it is making sure you have a culture that people know it’s OK and it’s expected that they challenge thinking.
Once we make a decision, we want a unified approach to aggressively accomplishing that, but while we’re getting there, show people that the free exchange of ideas and disagreement is all a part of the process.
One of the hardest things as a CEO is to get what people really think and what’s really going on not what they think you want to hear or what I call the sunshine pump everyone wants to tell the CEO good news. Build a culture in which people tell you the bad news and what’s really going on and on a regular basis, not just when they’re leaving the organization.
Make sure you tell them that’s what you want. Reinforce that behavior. After you have the discussion, send them a note or an e-mail and say, ‘I didn’t like hearing that, but that’s the kind of feedback we need.’
Humbly admit your mistakes. While you may be the CEO, nobody makes the right decision all the time. Show your team and your people that you’re vulnerable enough that you can admit that, ‘Hey, I think this is the wrong decision let’s go in a different direction.’
Figure out when you’ve made a bad decision and change it. That’s hard because the longer you’re in this job, the more people are telling you, ‘You’re the greatest! Everything’s great!’ You start thinking, ‘I am pretty good.’ That’s invariably when you make that bad decision, and you have to figure out how quickly you can reverse that and take that forward.
If you do that, your people have the confidence to say, ‘Look, we made this decision; I don’t think it was the right one.’
HOW TO REACH: Inovis Inc., (877) 4-INOVIS or www.inovis.com
Steve Demetriou is certainly familiar with successful growth as chairman and CEO of Aleris International Inc. Four acquisitions in 2005 doubled the aluminum company’s revenue to $2.4 billion, and last year, it posted revenue of $4.8 billion.
To fuel his growth, Demetriou assembled the best team possible. Instead of having just a few senior people, he has 17 direct reports, each with a similar chain of command below them.
“If I have 17 people reporting to me, then they have to be 17 great people,” Demetriou says. “If not, then I’d need three or four people in between them to cover their gaps. Leadership at the top — true leadership — it’s understanding that it’s not just being financially savvy and technological. It’s being communicative and empowering and motivating the people.”
Demetriou talks to his direct reports regularly and expects to hear specifically what they’ve done to communicate, empower and motivate their team.
“Show me how you not only empower your people, but how you motivate the organization — people get excited by working for you,” Demetriou says. “You could be the smartest guy in the world and have the most understanding of the technical aspects of the product or business, but if you demotivate your organization, you’re going to have lousy results.”
Demetriou looks for senior managers who complement his team and exemplify the characteristics needed to empower and motivate.
“At the top levels, the critical success factors are accountability, motivation, communication, vision and strategy,” he says. “As you get deeper into the organization ... that’s where you want deep experience and technical capability, but those people, in order to do their jobs correctly and win, have to have, at the top level, an understanding of what the vision and strategy is.”
When he’s hiring or consolidating leadership between companies, Demetriou listens to what and how a person communicates to understand whether or not that person would fit with Aleris.
“Do they know their numbers, and do they have passion?” Demetriou says. “... If they’re motivating me, then I’m thinking, ‘OK, they’re motivating their people.’ If they’re on top of their numbers, they know about accountability. If they’re sitting there, and I ask about their numbers, and they really don’t know their numbers, and they’re boring and demotivating or arrogant, it becomes pretty clear.”
Even if you have great leadership, it doesn’t help the company if those visionaries don’t communicate and work together. Demetriou holds business review meetings every month, over two days, with at least an hour dedicated to each facet of the business. The meeting attendees discuss goals and plans, how the previous month went and the upcoming challenges they face. It’s not a performance review or a time to hammer people for not making numbers, but instead, it’s a positive experience to remove growth barriers.
Demetriou also uses these meetings to get buy-in to goals because he doesn’t close the meetings to any of the company’s employees. He encourages anyone to come, and if the employee is outside of Cleveland, he or she can conference call in.
“A lot of people complain, ‘Oh, there’s a managers-only meeting, and I’m not included,’ so there’s an inclusiveness that, to me, is powerful,” Demetriou says. “When I was lower in the organization earlier in my career, these are meetings I wanted to be in, and now, everyone here has the opportunity to do that.”
People buy in to goals and plans when they can sit and hear the thought processes behind decisions. But Demetriou also solicits their feedback and ideas and encourages them to speak during meetings.
“This is an opportunity to create something special and personally get known, and people complain a lot of times that they don’t have opportunities in companies,” Demetriou says. “Well, here’s an opportunity to show yourself on a monthly basis that you don’t normally get.”
These monthly meetings also allow the management team to foresee problems before they fester and permeate throughout the organization.
“In many companies, you can make decisions, but sometimes, it takes months for them to surface and then months more for people to march into headquarters and make a big presentation,” Demetriou says. “Here, we like to say that almost every month we’re on top of the business, and we can surface these issues instantly and make quick decisions. It gets rid of frustration that can develop in the organization from a lack of decisiveness.”
HOW TO REACH: Aleris International Inc., (216) 910-3400 or www.aleris.com
Be decisive. Making a good decision and making progress is better than making the perfect decision and taking too long to make it.
E.L. Doctorow is a famous American novelist, and he once said that writing is like driving a car at night you only see as far as your headlights go, but you can make the whole trip that way. It’s a great visual that reminds me that you can make progress by capitalizing on the small amount of forward vision that’s exposed by your proverbial headlights.
It is better to make decisions that require midcourse corrections, knowing it will require midcourse correction, than it is to not make a decision because you’re looking for all the facts so nobody looks over your shoulder and says, ‘Ooh, you made a mistake!’ I’m OK with making mistakes. I don’t know about the rest of you guys, but I’m human.
Small actions can be the steppingstones that eventually get you to where you want to go. Sometimes you need to be moving from one small milestone to another instead of trying to jump across the ocean.
Be guided by principles rather than just business goals. You give yourself more latitude to make mistakes because you’re still operating consistently with those values.
Fail intelligently. Encourage people to try new things and have intelligent failures. Some organizations are petrified to fail. It’s important to fail because it shows that you’re stepping out of the box and trying new things.
The definition of insanity is doing the same thing over again and expecting a different result. If you make a mistake, figure out what went wrong so you don’t make that mistake twice. Celebrate the breakdown. Let’s figure out what went wrong.
We’ll make plenty of other mistakes. We’re human, but let’s make sure we don’t make that same mistake again. That is not intelligent failure.
There’s stuff that you know, stuff you don’t know and stuff you didn’t realize you were going to learn along the way. When you try new things, you learn the things you otherwise wouldn’t learn, and when you do that, you create competitive advantages.
Lead change. As a leader, you can’t say, ‘We’ve been good in the past, therefore, we’re always going to be good.’ You’re not. Talk to people in your organization, get their ideas, create the burning platform, and then communicate with them often to keep them involved in the changes you’re contemplating making.
Years ago, we changed the comp plans. We were going to pay people more money if they performed well, but they freaked out. We could sit there until we were blue in the face talking about it, but they didn’t see it as a positive as much as they viewed it as a change. Even when people understand the current situation isn’t working, they hold on to the past because it’s more comfortable to deal with a known situation than an unknown.
Have a healthy degree of respect for the past, but you also have to drive change. Tony Blair has been quoted as saying, ‘I’m proud of my country’s past, but I don’t want to live in it.’
Hire for will instead of skill. The will is the passion to do something, the desire to do something, the motivation. The skill is the obvious piece the expertise.
If you lack the desire to put forth the effort to differentiate yourself and your company, you’re never going to be the best you can be, and the company will never be the best it can be. The technical stuff is the least important.
Ask a lot of questions when you’re doing reference checks. And not just the people that the individual says, ‘Call Billy Bob and Mary Sue, and they’ll tell you all about me.’ Call that person, but ask them who else did you work with? I’ll ask around in my network and see who else may know them. You’ll get the real scoop.
Never accept at face value what somebody’s referrals say. There’s a saying I’ve shared with my folks and it’s, ‘Don’t accept your dog’s admirations as conclusive evidence that you’re wonderful.’
Take your time hiring. It’s like getting married. The person you’re hiring, you hope will be in a long-term relationship with the company.
I’ve seen people say, ‘I have this opening. I have to get it filled.’ They quickly find candidates. They interview them. They pick the tallest dwarf, meaning they pick the best person on this sheet of candidates. Then, six months later, when the person isn’t performing, and they’re going through the brain damage of having to fire the person and start the process again, they’re going to end up in the same situation.
Take the time to go through the process the right way, and never hire someone unless you’re absolutely positive it’s the right person. If you don’t have the skills to do that, you’re better off raising your hand and asking for help from a leader in the organization who does have that skill set or going to (a staffing firm).
Make people care. Learn how to motivate other people. If a leader can connect people to the importance of what they do, then they’ll have passion. Then you’ll be able to accelerate whatever it is you ask them to do. It’s like adding rocket fuel to gasoline.
We showed a video of candidates talking about how Todays helped them find a job and now they can support their family. ... People said afterward, ‘I forgot what I do for a living. I don’t just fill jobs. I help people with their lives. I really do something important.’
Figure out the common cultural bond of the people, and that’s why they should do the things I’m asking them to do for our short- and long-term plans.
HOW TO REACH: Todays Staffing, (877) 586-3297 or www.todays.com
The batteries made by Exide Technologies eventually run out of power, and when Gordon A. Ulsh joined the company as president and CEO in April 2005, the company had also lost its juice.
It emerged from bankruptcy in May 2004 and went through a nine-month, lame-duck period following the previous CEO’s retirement announcement.
Management had no strategy and wasn’t making day-to-day decisions. The company, which produces and recycles lead-acid batteries, struggled to meet financial goals and had fallen short on capital, so it lacked the ability to buy new technologies. Many managers saw the writing on the wall and moved on to greener pastures, and replacements were hard to come by.
Ulsh says the company was idling. “The motor is running, but nothing’s going anywhere,” Ulsh says. He looked deep into the heart of the organization to get a better picture of what he had to work with.
“I saw ... a very strong level of very capable and committed people that really kept the business moving through very difficult times ... that I would describe as generally very loyal but dealing with classic low-level morale because of the public difficulties the company had had,” Ulsh says.
He also looked closely at the market to see if he even stood a chance. The big players, Exide included, were getting bigger through consolidation, creating a huge entry barrier, so new players weren’t a threat. Despite new automotive technologies, all the cars on the road still needed Exide’s products, so there was clearly long-term viability.
These factors gave him hope, so he developed a plan first to stabilize the organization and then to rebuild.
Extinguishing internal fires
Negativity from the outside world constantly hit Exide’s employees, creating the biggest barrier that Ulsh had to overcome.
“You had to listen to your competitor forecast your demise,” he says. “You had to listen to stories of the supplier who sold you product and didn’t get paid, or the supplier who wouldn’t sell you product because he was afraid he wouldn’t get paid. You had to listen to all those things, and people can begin to have an immense amount of self-doubt, and I believe the only thing that erases self-doubt is success.”
To create success, Ulsh first recruited key managers he had worked with in past turnarounds. He needed people who used similar communication and problem-solving methodologies to his to create unity. From there, he solicited employee input in evaluating the company’s issues. He asked what they thought Exide’s product strengths were, what they could do well within the market, and what challenges they were facing. Participation creates buy-in and squashes resistance, but it also helped Ulsh develop a plan.
“We developed the near-term strategy,” Ulsh says. “I’ve never been a big vision sort of person because it seems to imply that there’s an endgame.”
The first part of the strategy was clamping down on everything to get people’s attention.
“Until we knew what we had in the way of process and controls, we put the classic, somewhat onerous controls on everything,” Ulsh says. “If you’ve got a company that’s in trouble and not controlling money very well, you tighten the purse strings on everything.”
Ulsh issued a hiring freeze and became the sole person who had the authority to approve travel and capital expenditures. He also put controls on price quotes to ensure salespeople didn’t offer products and services at lower-than-necessary prices.
“Our theory was put a bunch of tight controls in place the equivalent of shooting up a flare so at least you got everyone’s attention and made them look up,” Ulsh says. “Then you could begin to work on the real issue. It was about trying to make sure they understood there was a different way of making decisions about the business, and you must comply.”
While the tight controls seemed drastic, Ulsh made sure his people knew the reasons behind the decisions.
“Part of what I believe in terms of communicating is the whole issue of transparency,” he says. “Tell them what you believe in, why you’re making the decision, and ask them to cooperate.”
Certainly, some didn’t cooperate, so he worked with, debated with and tried counseling them, but in the end, he changed the players if they didn’t comply.
From there, Ulsh looked at processes already in place. He relinquished some control if he thought a process could run well as long as it had a capable manager. As he made these changes, communication remained critical.
“Employees need to be told repeatedly because they have their future, their livelihood, invested in you,” Ulsh says.
He used town-hall meetings, teleconferences and newsletters to repeat his message and update employees on stability-creating initiatives. Even if people don’t buy in immediately, they will develop trust to at least tell you why, and you can use that trust to get participation.
“You start getting people to raise their hand and say, ‘I’ll work on that. I’ll do this. I’ll lead that challenge,’” Ulsh says. “As they get some wins, that’s what helps people to buy in.”
As leaders create positive momentum, they need to recognize employees, too.
“While you challenge people, when you have people that inevitably win or succeed or pass what you’re doing, you have to take some time to praise them,” Ulsh says. “People call it ‘celebrate success.’ You really have to thank people and praise them, and after just a little bit of celebration, you raise the bar so that we keep trying to get better the next time.”
Positive experiences and success will also change people’s attitudes.
“People see change like this and think, ‘Gee, it’s really drastic and aggressive,’” Ulsh says. “Then they begin to see the right decision-making methodology not only from myself but from other people in the organization, and they say, ‘You know, this is more like how a real company operates.’”
While the flames of bankruptcy and its aftermath left employees with first-degree burns, many of Exide’s customers and suppliers had suffered second- and third-degree burns, losing hundreds of thousands, or even millions of dollars.
“They have every reason to doubt you,” Ulsh says. “It’s awfully hard to just say to someone, ‘It’s going to be all right because I told you so.’ These people have been damaged by this Chapter 11. You need to tell them why you believe that the issues are the issues and what steps you’re going to take, and then tell them how you’re doing along the road.”
Ulsh talked to customers and suppliers, and he often got the same question.
“This company is sort of in shambles,” they started. “What did you see, Gordon, that led you to go take on this challenge and move yourself from Texas to Georgia and jump into the pool?”
He explained the things he saw in the market and within the organization that made him undertake the challenge, and sometimes, he poured his heart out.
“Look, I’ve been in these messes before,” he said to them. “Here’s the things that we’ve done, and here are the weaknesses we’ve seen, and here’s how guys like myself and other people that I’ve worked with have fixed this in the past, and it works at least give us some time.”
While some chose to give him a chance, often the wounds were too deep, and he didn’t win every battle. Despite the losses, he focused on communicating progress to the ones left standing with him and making sure he was completely transparent in his dealings with them to win back their trust. He also got consensus that he was working on the initiatives that mattered most to them, and then he repeated that process with them.
“It was a matter of being certain we believed we had the right story, getting people in place that believed in the story and telling it over and over and over,” Ulsh says. “It’s repetition so people get used to hearing it, and it’s repetition to the point where they can judge how we behave with what we said that was important. Employees are, in many ways, the best critics. Employees, suppliers and customers they’ll tell you whether or not they believe you’re behaving in line with what you said your priorities are.”
As suppliers and customers began to see improvements and decided to stick with the business, it created a newfound confidence for employees, too.
“As we began to demonstrate that we could make the right decisions, and we began to have some more wins in the marketplace, we began to solve some contractual relationships, and we had begun to get some more and even better business,” Ulsh says. “People began to get what I think is the miracle pill: They began to get confidence in the fact that our business could survive, that we could do well, that our customer could need and want us.”
With the flames extinguished and signs of life blooming, Ulsh has been able to focus on rebuilding, but to do that, he needed to improve Exide’s margin. So last year, he told employees they wouldn’t be getting raises.
To offset that, management created an incentive program. It set aside an amount equal to the average everyone would have received in raises. If employees met goals for the year, they would get that back, and if they exceeded those targets, they would get more.
“We had to stand in front of people and say, ‘Gee, we have this whiz-bang incentive program,’” Ulsh says. “‘You won’t know if it’s good for you for another year. And on top of that, we’re not going to give you a raise because we don’t have the cash, but trust us, this will be good for you.’
“That means we’ve got to be transparent. People have to see the way we behave, and we have to stand in front of people and take their questions, take the challenges, take the people that just don’t think it’s fair, listen to that and stand firm in our ground.”
After the first year, nearly everyone did better than they would have with just earning a raise, and the program will stay in place. On top of that, Exide will reinstate modest pay raises this year to become more competitive in the market.
Ulsh was also able to raise more capital in September from existing shareholders, which he then invested in long-overdue, new technology. Exide also renewed many of its advertising initiatives, including its work with NASCAR. This gives employees something positive to talk about with people who have only seen the negatives.
“People are beginning to say they are part of a company that can survive and grow and be respected, and that puts that thing I call confidence back into the business,” Ulsh says.
Wall Street has also gained some confidence, as Exide’s market cap went from about $72 million at the end of March 2006 to about $500 million a year later.
Since emerging from bankruptcy in May 2004, revenue has grown more than 13 percent, to $2.82 billion in fiscal 2006. From May 2004 through March 2005, the company posted a net loss of $467 million; a year later, Ulsh had slashed that to $173 million.
With Exide building a stronger foundation every day, the company is almost to the point where Ulsh can focus solely on the next phase: growth.
“Our message all along is market share is not our first priority,” he says. “Creating a viable business for our folks to have a long-term place to be is important. Creating stability with our suppliers is important. Creating stability for our shareholders is important. And when we can do that, we’ll worry about growing.”
HOW TO REACH: Exide Technologies, (678) 566-9000 or www.exide.com
Set and measure goals. There are two types of goals new goals and improvement goals. What I mean by new goals is needs of the business things you’re not doing. Then there are improvement goals how are we going to get better in our processes?
In any business people say, ‘Our plan for next year is to make X amount of dollars.’ Well, whoop-de-do. How are you going to do it? What, specifically, is going to drive that performance?
Specifically identify what’s going to drive it. Don’t just say we’re going to make X amount more dollars next year. If you’re not measuring, you’re not doing the company or your shareholders a good service. Actually measure and track it. Otherwise, you’re not going to understand your business well.
Explain changes. Nothing beats face-to-face, candid dialogue. You have to explain the change.
When you’re presenting change to someone, they’re thinking, ‘What’s in it for me?’ You better have that answer, and you better be able to articulate why you’re making the change and what’s in it for you. Maybe what’s in it for them it doesn’t have to be all monetary is life’s going to be easier, these processes are going to lead to more profits, and if we have more profits, we can do more things. It’s a key thing you can’t lose sight of.
Any leader must make sure that the changes they’re implementing are sound business fundamentals. There’s always going to be people who resist change, but if your strategy is sound, the naysayer’s voice will be drowned out by all the positive momentum that the change brings.
Be repetitive. The change may take considerable time to implement, but a CEO’s job is they must be firm in their convictions to lead a positive change in the organization.
Make sure the message is clear and consistent and, above all, it has to be repetitive. That doesn’t sound exciting or sexy, but you cannot announce a bold change statement or vision statement and think it’s magically going to take root in your organization.
If you continue to be repetitive and reinforce the message, then it becomes part of your corporate DNA.
Get buy-in. Have cross-collaboration between departments. If we’re going to implement a new building design, there will be myself, operations, construction, franchising, because if I’m a franchisor, I want my input in terms of how I’m going to sell it well, I have to build it. You get collective buy-in, and the key thing is to communicate it so everyone understands why we’re doing it.
There’s always going to be some people that disagree. Sometimes you have to say, ‘This is how we’re proceeding,’ because as a CEO, you’re armed with a lot more intelligence no disrespect to anyone in the organization of the totality of everything that’s happening.
Recognize the best. Demonstrate how other people are being very successful. Sure, we always want to lift the bottom people up, but we focus on the top performers and give them rewards and showcase these people. We articulate how they got there and why they’re successful.
You have to make it a little painful for the people who aren’t performing. You put them on a path saying, ‘This is where you need to be, otherwise, things aren’t going to be proceeding according to plan.’
Give people tools to succeed. There can’t be any barriers. With my direct reports, if there are any barriers to doing your job, I want to know about it, and we take down that roadblock that same day.
Let’s be honest work is hard enough as it is. There’s always challenges we have to deal with day in and day out. There should not be challenges from Day One when you hire somebody, so you have to look and say, ‘Am I setting this person up for success?’
I’m not talking about computers, staplers and supplies all that stuff goes without saying but do they have the support of their management, do they know what’s expected of them, can they get access to the right personnel to do their job and be successful? We have a home office. I always tell these people, ‘In order for these stores ... to be successful, we have to be incredibly responsive to them.’ There’s going to be a certain amount of teamwork that’s needed to fulfill the goals of the organization.
Stay connected. Often the CEO is the last to know about things in the organization. It happens all the time don’t tell him, don’t tell him. You have to develop this unique ability to assess people and assess, maybe with very limited information, quickly what’s going on, recognizing the fact that sometimes you’re not going to get all the information you need.
It’s diligent follow-up as well. I’ve got plenty of people. I’m fully confident that they’re doing the right job for the business.
I don’t have to follow up with them, even though I do, and we measure results. If you have to tightly manage someone, you have the wrong person. Not to sound cold-hearted, but rather candid, fire them. It’s not worth the time and effort.
Be candid. It’s important for people to clearly know what’s expected and what’s going well, or what’s not going well. It’s the only way to run a business.
I’m to the point where it’s almost blunt, but I’d rather have it that way. You do people a disservice if you’re not candid with them.
HOW TO REACH: Huddle House Inc., www.huddlehouse.com or (770) 325-1300
David Pugh knows how to say “no,” and he’s taught his employees how to use that often-dreaded word as well.
He knows growth for growth’s sake does-n’t do any good, so he makes sure they do it the best way to benefit the company. As chairman and CEO of Applied Industrial Technologies, Pugh has helped take the company to the next level by empowering employees. He gives them the power to do their jobs, permission to run the business using their best judgment and the protection needed to assure they take risks in the organization. This allows the employees to know the company’s worth and to say no to deals that don’t benefit the organization. This outlook has changed the culture, and trusting his people exemplifies true signs of an entrepreneur.
It is also important to Pugh that he understands the needs of his customers and not just those of his vendors. During the dotcom era, analysts challenged management about the lack of spending on e-commerce, but Pugh hired college graduates and imbedded them at the company’s customers to understand their needs so that Applied Industrial Technologies’ e-commerce capabilities were just the right size to meet its customers’ needs.
As a result of all his efforts, the company finished fiscal 2006 with 15 straight quarters of year-over-year earnings per share increases of 20 percent or more.
On top of his business commitments, Pugh is dedicated to helping the community by fighting hunger and encouraging education. He served as the co-chair for the 2005 and 2006 Harvest for Hunger campaign. He also serves on the regional advisory board for the March of Dimes and serves as the Midwest Region national trustee for the Boys & Girls Clubs. His dedication to community service sets an example for all of Applied Industrial Technologies’ employees, and he hopes that his dedication to philanthropy will inspire his employees to get involved with their own causes. And that’s all the recognition Pugh wants for his efforts.
HOW TO REACH: Applied Industrial Technologies, (216) 426-4443 or www.applied.com
Hire honest people. I hope they’re pretty smart. I hope they have a strong experience level in what they’re doing, and they’ve been successful in other places. I want someone who will be open and honest.
There is no test. You just get a feel over time, and when we interview people, we generally get input from more than one person. We have two, three, four, five people, and if questions come up, then you begin to dig a little deeper.
If you have three, four, five people talk to someone, and they all feel pretty consistently about that person either positively or negatively you feel pretty comfortable that you’ve got somebody or you don’t have somebody.
Value your people. I got a plaque awhile ago, and my name was on it. My name may be on this, but if the company wasn’t doing well, my name wouldn’t be on it.
The reason the company is doing well is not because of me. Believe me, there are always enough setbacks that something happens that makes you think, ‘Well, I screwed up on this one.’ Generally, they’re not big ones, though.
I’ve got 40-some people, and I can’t do all the jobs in this place. The success is because of the team that accomplishes things. That’s the important thing building a strong team of people who enjoy what they do, are competent in what they do, and you give them enough learning and backing to allow them to accomplish their job.
You’re pretty selective when you hire, and you build from there. I’ve never met anybody smart enough. I’ve got friends who are CEOs and presidents who get a little egotistical about what they’ve done. Well, darn, they couldn’t do it without a great group around them.
Make employees feel comfortable. If somebody came in and my response is, ‘What the hell are you doing in here?’ they probably wouldn’t come back. On the other hand, if they come in and say something, and I mention, ‘What a good idea’ or, ‘I’ll look into it’ or, ‘Thanks for responding’ or, ‘If you come up with anything else, let me know,’ it opens the door. It’s how the interaction develops over time to make people feel comfortable or not feel comfortable.
Get out of the office. Getting out into the field is really important. Lots of senior people tend to just migrate toward the corporate headquarters and don’t go anywhere.
Obviously, you don’t make any money at the corporate headquarters. You spend all the money. All the money is made out somewhere else.
Getting out to those people and understanding what they’re doing, and their trials and tribulations and the things they need makes you a more effective person than sitting in the corporate headquarters. You only get a slanted viewpoint if you don’t see it for yourself.
Balance short- and long-term goals. Most of our goals and bonuses come out of how close we are to meeting or beating the EBIDTA that the investors have agreed with us is reasonable for next year.
On the other hand, we try to not make all decisions strictly on that EBIDTA number. For example, one of the things we’ve talked about is selling a franchise system to a master franchisee in another country, where they pay a huge lump sum upfront. It will make your EBIDTA look great this year, but then somebody else controls your system and has your name over the door, but you don’t have much to do with it.
We aren’t going to do something like that because we don’t want short-term gains for the long-term viability of the company. It’s a combination of trying to ensure you get earnings increases every year but that you don’t do dumb things along the way that will harm you in the future. Realize what it’s going to have on the longer term.
I have a friend who became CEO of Levi Strauss, and he took the company public. I remember him telling me, ‘Jim, I’m making good decisions for the short-term because of all the pressures we get for short-term earnings growth with the stock price, and yet I know we’re making bad decisions for the longer term.’ He ultimately took the company private again.
Sometimes the pressures you have on you from a board of directors or an investor group, since they own the company, overwhelm you and your ability to do what’s best for the company. When you set goals for the company, it ought to be something that’s mutually agreed on both by senior management as well as the board of directors or an investor group. By running the company the way it ought to be run, we ought to be able to meet the goals that they set for us.
Love Mondays. I remember someone telling me when I was fairly young that I ought to look for a job where I was a heck of a lot more excited about Monday mornings than I was about Friday afternoons.
I really think that’s important to find someplace where you enjoy what you’re doing, and you think about what you’re doing not because, ‘God, I’ve got to get up and go to it again,’ but, ‘Boy, we really accomplished something and I can’t wait to get back to it.’
That’s going to be different for different people different by industry, by function, by personality and characteristics but try to find something where you think you can make a contribution and you enjoy what you’re doing, and it isn’t a burden. If it is a burden, boy, it becomes tougher and tougher to get up.
HOW TO REACH: Wingstop Restaurants Inc., (972) 686-6500 or www.wingstop.com
The second year, he wanted to win again, just to prove that the first year wasn’t a fluke. But after he won for the third straight year, he decided he and his 75 employees were going to have to bust their butts to keep their streak going. “You get that third award, you’re driven,” the president and CEO says. “There’s no way you want to lower your bar. You want to maintain that recognition that we’re the best out there.”
Doores continues to push his people to be the best, which helped his company grow its revenue to about $14 million in 2006, up about 40 percent over 2005.
Smart Business spoke with Doores about how he creates reoccurring revenue to keep the company growing.
Q: How do you grow a company?
The company always lives within its means, and its means are defined as what our reoccurring revenue stream is. We wanted to make sure that we created a reoccurring income so we don’t have to wake up every day and kill something to eat.
Now, we never grow this company past what our reoccurring revenue stream can pay for. Then, we grow the company from the profits on our sales, and what we share amongst our owners is out of the sales.
Now our reoccurring revenue stream is probably two-thirds of our annual income. If we do $15 million, almost $10 million of that is reoccurring. Even when we have a bad month, that cash flow is always there, and you can weather those kinds of storms.
Q: How did you create a reoccurring revenue stream?
We made it a major focus in our pricing and approach to our market. We’ve lowered our upfront prices and sometimes make the sale quicker, but at the same time creating a reoccurring revenue stream, where that person continues to pay us for support and upgrades and enhancement.
Q: How can other people create a reoccurring revenue stream?
Wake up every day saying, ‘What can I do to increase my monthly income?’ Not, ‘What can I go sell today so I can make payroll?’ You don’t ever want to be in that predicament, and fortunately, we’ve never been in that situation.
Everybody, since they started to get into business, knows that cash flow is king. It’s critical. Create a reoccurring revenue stream that you can count on month in and month out, and do your accounting.
Most companies don’t want to do their accounting because they don’t want to know the truth. Do it effectively and efficiently because the government is the worst person to borrow money from.
Q: How do you adapt to growth?
As you grow, you have to work hard at internal controls. Everyone says, ‘You’re going through growth pains it always happens when you grow.’
You can’t just accept those comments as OK. Constantly work on improving your policies and procedures. You don’t want to restrict people, but you want to keep everybody on the same page, and you want to keep them on the pavement.
Every once in awhile when they start going down the dirt road, you have to get them back up on the pavement. I say, ‘I know it may seem shorter and easier to get there that way, but in the long run, we’re all better if we’re keeping on the same page and we keep headed in the same direction.’
Have a little bit of vision, but at the same time have some discipline to make sure your policies and procedures keep up with your growth. Otherwise that leads to frustration and people getting upset with each other, and that becomes counterproductive.
Q: How do you stay on top of internal controls?
You do that by keeping your mind open and looking for solutions all the time thinking outside the box and looking for silly ideas and looking for technology. When we have a problem, the first thing we look for is a procedure to solve the problem.
The second thing we look for is technology to solve the problem. The last resort is to hire somebody to solve the problems. Sometimes you just ignore the problem and see if it goes away on its own, as silly as that sounds.
Manage a company by trying to resolve problems and issues. You can’t always have a strategic plan that always works. You have to be willing to change, make some compromises and try to work through certain things.
HOW TO REACH: AudioTel Corp., (972) 239-4486 or www.audiotel.com
When these companies started developing products themselves, EFI’s services weren’t needed anymore. Revenue dipped from $588.5 million in 2000 down to $350.2 million in 2002. And while EFI, a digital imaging and print management solutions company, was still profitable, Gecht knew he needed to change its game plan to increase revenue and maintain profitability.
He initially brought in outside consulting companies to help identify problems and offer solutions, but just a short time into that process, he discovered that the existing managers knew the better questions to ask.
He engaged his management team in in-depth self-review, lengthy discussions and evaluations. And they met with customers to find out where they thought the company’s strengths and weaknesses were. “The key thing is to be brutally honest with yourself and figure out where you’re strong and where you’re weak,” says Gecht.
The company also surveyed employees to get their thoughts.
“Though we encourage open dialogue always, we made the survey anonymous to ensure that we’d receive the most candid responses,” says Gecht.
At the end of these sessions, they decided to change their business strategy and then look toward acquisitions to diversify and strengthen EFI. While changing a company’s DNA doesn’t happen overnight, it does start with one step.
Avoiding the commodity trap
Gecht’s team first decided to become more of the Lexus or Mercedes of the industry.
“We didn’t try to compete too much on price,” Gecht says. “We said, ‘You know what? We’ll leave the price battle to some other people. We’re going to stay higher-end in our value and appeal to people that want better systems and are willing to pay a little bit more.” EFI was very upfront with customers about its prices, most of whom were knowledgeable professionals not needing as much prodding as the average consumer.
“Our message is, we’re not the cheapest solution out there,” Gecht says. “If you want something that costs less, you can certainly find it somewhere else. We are here to give you the best technology for your business to make you successful. If that’s what you’re looking for, we can show you why our product is better.”
Competing on quality meant Gecht had to ensure that his products were, indeed, the best. He focused the company on innovation by partially tying each vice president’s bonus plan to innovation so they would drive it down the ranks. “It’s not only just in engineering,” Gecht says. “There’s a lot of innovation happening in every single department. If you make it part of the routine and the culture and communication, it happens by itself. We call it the voice from the top.”
To measure quarterly progress, Gecht and his team tracked one metric gross margin.
Driving innovation also involves a financial commitment, so EFI invested about 30 percent of its revenue in research and development so it could remain competitive and received heavy criticism for doing so. “We’re a technology company,” Gecht says. “We bring the best technology to the market. That’s the strategy we have. We’re always going to be the best in what we do. We need to have the brightest and best people around here.”
Gecht assured employees that as long as they performed well, they didn’t need to worry about losing their jobs.
“We didn’t want to go to the easy solution of, ‘Let’s just fire a bunch of people, and then the numbers are going to look good and we’re going to feel good in achieving numbers,’” Gecht says. “It’s not really going to help our customers or long-term viability.”
Instead, he tightened expenses in other areas and turned to employees to generate ideas. They came up with everything from eliminating aspects of paperwork to having team members check in with customers periodically. A nonexecutive team of people chose the best two ideas every quarter, and the employees who submitted them received prizes, which changed quarterly and ranged from iPods to dinner for two at a nice restaurant.
Building with acquisitions
With EFI’s business plan tweaked to emphasize quality over quantity, Gecht then started looking at acquisitions both to grow the company and to diversify it more. “Innovation is our cornerstone as a technology company,” says Gecht. “It’s our ability to out-innovate the competition that keeps EFI in the position of industry leader. That said, we are also constantly looking outside our core competencies at acquisitions that support our objective of providing best-in-breed solutions to the professional print market.”
Studying the industry and having dialogue with customers helps Gecht know what areas he needs to improve through acquisitions, but acquisitions hadn’t been part of the company’s DNA. To make up for that, he hired an acquisition specialist and a team of people in 2001 that excelled on the integration side of the equation to lead EFI’s efforts. “The price for the acquisition is a small factor in the end,” Gecht says. “There’s a lot of things you need to think about ahead of time. There is a reason why the statistics show that most acquisitions fail.”
The first aspect Gecht looks at is cultural fit to ensure that the people at the potential acquisition would mesh well as part of EFI. He then looks at leadership both in the people and products. “We want to make sure that either we’re acquiring some technology that has leadership or people that have leadership in the industry or reputation that we can build on that will add to the leadership of the company,” Gecht says. “We don’t want to buy something that won’t be as strong as EFI, that will drag down our reputation and relationship with customers.”
While it’s important to investigate the products’ strength, it’s equally crucial to look at the people, but many leaders think of them as afterthoughts. “The people part is a very important part of the equation because when you buy a company with 100 people, essentially you’re deciding to hire 100 people to be part of your team.”
To make sure those people have that ability to innovate, he spends a lot of time asking them questions about their products and customers and about where they get ideas. He also talks to the company’s customers to see how it treats them.
Then the simple but most important question is, “Do you want to be part of us?” If the answer is, “No,” then he moves on, but if the answer is, “Yes,” then he sets to work making it happen.
When the deal closes, the work doesn’t end. The new piece now needs to be integrated. While smaller acquisitions typically require shorter integration periods, large ones need tending to for a while.
In early 2005, EFI made a $280 million acquisition, which management has successfully spent the past two years working to integrate instead of chasing more acquisitions. Success requires communication and sometimes difficult decisions.
Often, Gecht needs to move EFI management to the new company or vice versa. During one deal, the products overlapped, so his team decided to kill its own product and proceed full steam ahead with the acquired one. “Sit in the room and talk about the facts,” he says. “Don’t be biased. Think about it, and after awhile, you get used to doing it. You don’t think what it means to you you think what it means to the customers. “It’s all coming down to, you just focus on looking at the company from the eyes of the customer. What do they like to see? Do they like to see Product A or Product B? Do they like to see Person A running this group or Person B? Why is it good for them? If you get yourself trained like that, it gets easier and easier.”
The next step is sitting down with management from both sides of the acquisition and collectively brainstorming where the company should be in one year and two years, and then challenging them. “If you come in and say, ‘Within 60 days, we want to A, B and C,’ you will get resistance,” Gecht says. “If you say, ‘Let’s think about where we want to be in a year and two years,’ and everybody draws nice ideas because it looks very far off, then we’ll say, ‘OK, we’ll do it faster.’ They’ll say, ‘OK, at the end of the day, if that’s where we want to be, why not do it faster?’”
If something was outlined for a year, he’d ask them to do it 60 to 90 days. If it needed two years, he challenged them to do it in a year. Quickly integrating also helps eliminate unnecessary confusion for customers, who often get the runaround during transition times. “If you move faster on integration, it’s actually working better,” Gecht says. “In many cases, there is a temptation not to touch or not to change the name or not to integrate or not to have a unified sales force, and while it’s an easy solution and doesn’t offend anybody, after awhile. there is a ‘they’ and ‘us’ environment and inefficiencies.”
Throughout major changes, it’s important to get buy-in from people. While having both sides of management work together to create a plan helps with the executive ranks, leaders can’t overlook customers and employees. “If you’re winning the hearts of customers and you’re winning the hearts of employees, you’re going to win the acquisition,” Gecht says.
To help reassure customers, Gecht visits them and also sends communication explaining how service will either remain the same or get even better and outlining the benefits that EFI brings.
During transitions, EFI team members are at the new company weekly to answer questions and help employees adjust, but those employees also need to hear information from the top. Communicating with employees often requires a different style and needs to have genuine substance the meat and potatoes of the meal instead of just the salad. “A lot of people, they don’t care to hear too much about big statements and mission statements and high-level strategy,” Gecht says. “They want to know what it means for the company, for them, for their perspective, for the customer’s perspective.”
He emphasizes being honest and answering all questions. Whenever he communicates with employees, he takes questions both from the floor and from prior submissions that allow people to ask questions anonymously if they feel uncomfortable asking in person. He also responds to e-mails personally, even if it’s to say, “The better person to answer this is so-and-so talk to them.” “You’re hiring great people, and you ask them to work hard and deliver results and stay with the company,” Gecht says. “Our commitment to them is that we’ll take them seriously.”
After the transition period ends, Gecht’s team does a post-mortem to see where it moved too slowly, too fast and just right. They use their conclusions during the next one to help ensure further success.
Gecht’s strategy has paid off in recent years, as EFI posted revenue of $563.7 million in 2006, an increase of nearly 61 percent over 2002. Gecht recognizes that EFI has improved a lot, but it still has to do the small things to keep growing. “There’s no one big huge idea that changed the company,” Gecht says. “It’s all a combination of many good ideas that made us slightly better and slightly better, and we ended up becoming a lot better company with all those marginal improvements. ... As long as you make smaller progress every day, you’re going to make big progress at some point. “Even when things are going very well, never be complacent. Know that you can always do better. Keep a critical eye and constantly challenge yourself and your employees to improve your business. Stay hands-on and close to the battlefield, talking frequently with your customers, investors, engineers, salespeople and marketing.”
HOW TO REACH: Electronics for Imaging Inc., (650) 357-3500 or www.efi.com