Business strategies are often created to solve a problem or to save time or money. But company strategies are often created by CEOs or business owners in a vacuum, with little input from the employees that the strategy will ultimately impact.
“If management doesn’t bring in people who are close to the problem, the strategy often doesn’t work,” says Brenda Harris, President and Chief Operating Officer of Talent Tree, a staffing company based in Houston. “You need buy-in from the people who are close to the problem if a business strategy is going to stick.”
Smart Business spoke with Harris about the benefits of bringing employees to the table to create business strategies that are consistent and solve problems.
Could you give an example of a typical business strategy that is directed from the top down, without input from employees?
Most of the business strategies that are issued from the top down are ones that save money or time, but the CEO or business owner who creates these new business strategies often fails to see how it will affect people on a day-to-day basis. It could be a simple change, such as giving out paychecks at a slightly later time on Friday, to convenience management to wholesale changes in company policy, such as reworking vacation or sick-time policies.
Why is it important to get input from employees?
Because oftentimes, changes in policy directly affect how employees do their jobs. Changes in policy issued from the top down, without any say by the workers themselves, can decrease productivity, create resentment and even negatively effect retention. And, CEOs also need to realize that they don’t have all the good ideas. Of course, there are some business decisions that can’t be put out there and are at the discretion of the CEO or business owner, but decisions that affect the way people do their jobs or feel about their jobs do need to be bounced off of employees in various departments.
How can a CEO or business owner get employee input?
The best strategy is to create a task force of key employees to look at the new business strategy. Create a time frame to allow the task force to find facts and come up with a recommendation or revisions to the strategy. This must be a very open process where dissenting opinions are heard and acknowledged. The task force can also make recommendations as to how the business strategy can best be implemented. This improves credibility with your workers and is an opportunity for employees to gain recognition once their ideas are implemented.
Could you give an example of how this might work?
We wanted to change from issuing paychecks to giving employees a pay card, which would be deposited with the appropriate funds every week. We wanted to do this for a number of reasons, including convenience and cost/time savings of printing and distributing checks. We also thought it would be a better alternative for our temporary employee staff who had to come into the office every week to get their checks. For us, in management, it made sense all around.
However, the idea was met with resistance among employees, perhaps because it was new and unknown. We decided to set up a task force consisting of employees who were for the idea as well as those who were against it. The task force’s job was to learn about the pay card system, explain it to employees, get their feedback and report back to management with the pros and cons of the new payment system. By the way, even the people who were dead set against it ended up seeing the positive aspects of the system, and it was adopted in our company.
What if the task force decides not to implement a business strategy?
Management, of course, does have the final say. But the task force has a chance to make a persuasive argument about the reasons why a business strategy would be a bad move for the company. In many cases, the task force is seeing things that management cannot.
However, there may be times that the CEO or business owner sees the bigger picture that the task force does not. For example, task force members might find that they do not want to make certain cost-cutting changes in their departments. But the CEO or business owner knows that those dollars add up to significant savings across the entire company at the end of the year. That is the advantage of having both the employees’ point of view as well as the CEO’s.
Born: Cameron, Texas
Education: Undergraduate degree, Baylor University; MBA, Michigan State University
History: McLane Co. Inc. was started in 1894 by McLane’s grandfather, Robert. McLane’s father, Drayton McLane Sr., joined the company in 1922. McLane Jr. joined the company full time in 1959, rising to president and CEO in 1978, a title he held until McLane Co. merged with Wal-Mart Stores Inc. in 1990. McLane assumed the titles of chairman of McLane Co. and vice chairman of Wal-Mart. He resigned both positions in 1993 to concentrate on running the McLane Group, founded in 1992, and running the Houston Astros, which he purchased in 1993.
What are some things only experience can teach a CEO?
The details of the business. You can learn business principles in school, but you need to dig into each industry and business to learn the details of how it best operates and what is important and critical to that business. You must also understand the people in your organization and what drives them to achieve their highest potential.
What traits or skills are essential for a business leader?
You should always work with integrity, honesty and vision while encouraging people as well as holding them accountable.
What is your definition of success?
Complete happiness in every part of your life your personal life, business life and your responsibility to society. Success in business to me is leading a growing business, making a profit, and rewarding employees and customers.
What has been your favorite baseball moment as owner of the Astros?
So far, it was our sixth game against the Cardinals (in the 2005 National League Championship Series) when we had a four-run lead with two outs in the ninth inning. They hit a fly ball to Jason Lane for the third out, and we were on our way to the World Series.
What are the most pressing challenges facing your organization today? You want your business to prosper and grow. The more attention you pay to the right details, the better your chances are. How do you determine the most important areas on which to focus the most effort?
“It is important to regularly define what business you are in,” says Chuck Orrico, president and co-founder of Houston-based DYONYX. “Understand the key business drivers that fuel the business. Set your priorities based on these drivers to move the business forward to accomplish what you have set out to do.”
Smart Business talked with Orrico for his nsight into focusing on the right priorities.
What are the top business challenges facing executives in today’s business environment?
In talking with clients all over the U.S. and the U.K., they consistently identify their top five priorities as the following:
1) They want to sustain a steady top-line growth.
2) They want to grow their profits.
3) They seek speed and flexibility in dealing with customers’ needs in today’s business environment.
4) They want sound managerial talent.
5) They seek excellence in execution.
The top two are almost always the same, although they may be reversed from time to time. And, excellence in execution is almost always fifth or sixth.
Are these challenges prioritized correctly?
Excellence in execution should be the first priority. It is more difficult to achieve growth or increased profits without excellence in execution. It is how you execute your key business processes that determine the speed and flexibility with which key decisions are made.
You also need to know how you are going to gain any efficiencies from any processes you implement. Will these processes increase efficiency or provide more layers that detract from your core business?
What role does IT play in addressing these challenges?
IT should be an enabler to the business and not a disabler. In an effort to increase productivity and efficiency, one of the common mistakes made by most organizations is to allow technology to dictate the business units by focusing on emerging technologies that are advertised to streamline work functions. As a result, the business units are focused to re-engineer key business processes to accommodate the new technology. In many instances, the business unit suffers a productivity downturn, finds the technology difficult to use and views IT as an obstacle in achieving its stated business objectives. IT must have the mindset to understand the key business drivers and how these drivers generate profit and keep the company in business. Then IT must focus on the processes that support these business drivers and how best to optimize them. Once optimization occurs, IT can then implement technologies that will automate these processes, bringing an additional level of productivity improvement and efficiency to the business unit again, ultimately increasing its ability to properly execute.
What about outsourcing certain functions?
Productivity can be further increased by outsourcing commodity-type functions, such as network infrastructure and desktop and help desk support. This allows more time to focus on the key business functions.
What does continuous improvement (CI) really mean, and how can it help overcome challenges?
As the term implies, CI is a never-ending process. It is much more than specific activities, such as answering the phone by the third ring if you are in the service business. It is reducing variations. It’s eliminating situations that do not add value. It’s improving customer satisfaction. It is important to determine what causes situations to occur in the first place and focus on the causes rather than just fighting fires. When you engage in process improvement, you seek to learn what causes things to happen in the first place, and then you can use this knowledge to implement the correct solution.
Please explain process definition.
Building a task and event relationship is called process definition. Being able to define that process has several advantages. If you properly determine how processes and technology affect each other and what your customers are really looking for, you have a much better chance of supplying their needs in a timely, profitable manner. When you define any barriers to customer satisfaction, you can eliminate them. Examining a process can give you more insight into its pros and cons, allowing you to make adjustments that lead to improvement in your overall operation and customer satisfaction. Process accounts for 80 percent of all problems while people account for only 20 percent. If you have the right processes, your people can act more efficiently.
CHUCK ORRICO is president and co-founder of Houston-based DYONYX. Reach him at (713) 830-5603 or firstname.lastname@example.org.
When the Sarbanes Oxley Act of 2002 (SOX) was passed, it was intended to address systemic and structural weaknesses affecting the capital markets, ultimately for the purpose of protecting investors by improving the reliability and accuracy of corporate financial reporting and disclosures made by public companies pursuant to the securities laws.
However, the SOX act simply raised a host of questions and concerns, leaving companies wondering what to do, when to do it, and how to do it, not only among the public companies required to adhere to the provisions of the Act, but also among private companies who wondered whether SOX could or should apply to them.
“While a few provisions of SOX do affect private and nonprofit organizations, such as the provisions related to criminal liability for document destruction and protection for whistleblowers, other provisions only apply to public companies,” says Laura Freudenberger, an audit principal with Briggs & Veselka Co. “Still, there is no doubt that SOX is having an increasingly significant spillover impact on the private sector. ”
Smart Business learned more from Freudenberger about SOX and its affects on corporate governance for private and nonprofit organizations.
Why would a nonpublic company consider adopting corporate governance provisions similar to that of a public company?
Many nonpublic companies are starting to voluntarily adopt certain key provisions of SOX that are geared toward oversight of internal controls and the financial reporting process. They feel pressure from those outside the organization, such as donors, lenders, investors and insurers who evaluate corporate governance in assessing the cost and availability of capital, as well as pressure from independent auditors, who evaluate the quality of corporate governance in their client acceptance procedures. Plus, they face pressures within the organization.
In many cases, board members of nonprofit companies frequently serve on boards of public companies and, as such, view a SOX-like audit committee as being best practice for all companies and organizations, public and private alike. Not to mention that many states have adopted or are considering adopting SOX-like requirements for nonprofit organizations.
Should all private companies and organizations seek to implement SOX-like corporate governance?
The cost of assessing and adopting provisions of SOX can be formidable. For a small organization that doesn’t have the resources or the expertise, implementing SOX would probably not be very cost beneficial. Additionally, an organization that expends resources it does not have on implementing SOX-like controls and processes could lose credibility and suffer financially. Also, an organization that is unsuccessful in implementation or fails to adhere to its audit committee charter exposes itself to certain risk.
How should an organization assess which aspects of SOX should be adopted?
SOX contains a number of provisions designed to strengthen financial reporting, internal controls and audit committee oversight of the financial reporting process, including management and the internal and external auditors. Assessing which provisions, if any, should be adopted by a private or not-for-profit organization in an attempt to transition to more SOX-like corporate governance is a significant undertaking, but it can reap large benefits. It’s certainly not a one-size-fits-all approach.
An organization will want to look at the provisions of SOX and assess the cost and benefits by considering what external or internal pressures will be mitigated by implementing SOX-like provisions; whether the board and/or audit committee members possess the skills, time and commitment to carry out the provisions; what improvements to financial reporting and/or internal control processes are sought; and what resources may be required to achieve the desired objectives.
What are the benefits of implementing SOX-like provisions?
Successfully implementing procedures that improve oversight of financial reporting and internal control processes should gain efficiencies along with greater credibility with access to the organization’s donors, lenders, investors and others in the capital markets. It may put the organization ahead of its competitors in terms of quality of financial reporting and corporate governance, and in readiness for state SOX-like regulations, should they ultimately be mandated.
What resources are available to assist companies?
The AICPA has created an Audit Committee Effectiveness Center through its Web site, www.aicpa.org/audcommctr, where it offers guidance and tools to audit committees. The tool kits are available for corporate public companies, nonprofit organizations and governmental entities.
LAURA FREUDENBERGER is an audit principal with Briggs & Veselka Co. Reach her at email@example.com or (713) 667-9147.
Approximately 90 percent of the businesses in the United States are family-owned. However, studies show that two-thirds of closely held businesses fail to survive into the second generation. Many owners spend a lifetime building their businesses, but several ignore the planning that is needed to transfer ownership. This failure to adequately plan for this transition is a leading contributor to the low survival rate.
“A business valuation is a key first step to help family businesses figure out what planning steps they should take to ensure the company survives under second generation leadership or continues operating via the sale to key management or a third-party buyer,” says Mark R. Schaaf, a shareholder and the director of valuation services of Briggs & Veselka Co.
Smart Business spoke to Schaaf about business valuations and how they can help in succession planning and transferring ownership to the next generation.
What are the benefits of doing a valuation for helping in succession planning?
Going through a formal valuation process can be the cornerstone for determining what steps owners need to take to achieve their succession goals. It is good to get a valuation now to get that ‘home plate’ valuation to get an idea of what the business is worth to a third party.
Owners of small businesses cannot flip open the business section of their paper or look online to see the traded value of their company. An experienced valuation expert knows what questions to ask when analyzing a company to arrive at a fair market value of the business upon which sound succession or transition planning can be based. In addition, the best valuators understand the factors that create value. The valuation process can therefore frequently reveal such valuation drivers to the business owner in time to reposition the company for a higher sales price at some point in the future.
What other factors need to be considered?
Many times, the business owner has taken the annual profits each year and has become accustomed to a high level of cash flow annually. Selling the business means that this annual cash flow will go away, and then the big question becomes: ‘What value is sufficient to allow for a comfortable retirement or exit from the business?’
A fair market valuation gives those answers often leaving the owner to say: ‘I can work X number of years more and get that same cash.’ Thus, frequently it takes a major life event health issues, family issues, etc. to get owners to face the fact that time doesn’t go on forever and the economic value of the company is not dependent on some never-ending cash flow to them. In fact, that ongoing cash flow is what third-party buyers or subsequent owners pay for in a purchase.
Those factors above show why it is important to get a grasp of the current value, as well as potential steps that might be taken to improve the valuation over time.
What about selling to key management?
Frequently, the value of the business is a direct result of the efforts of a few key employees’ efforts. A valuation consultant can walk a business owner through the different ‘standards of value’ that may apply to a transfer. A fair market value would be based on the willing buyer/willing seller concept, and this value is often discounted for lack of marketability issues and other issues associated with the risk of ownership of the business. A fair value typically is a higher value and does not include such discounts. A valuation consultant can explain the differences in the two, what it means to the owner and the key employees, and help work out a value and a buyout plan that is executable and understandable to both sides.
How about transfer of ownership to family members?
Valuations can also help in transitioning the business within the family. A multiyear gifting plan can help accomplish this goal as well as selling to the second-generation family members or to trusts of the family to combine the goal of transferring the business along with achieving tax savings and implementing valuable estate-planning techniques.
What about selling to outsiders?
Among potential buyers for the business, independent third parties may present the highest multiples, but there is also the highest risk of failure and disclosure of confidential information. By planning ahead and using the guidance of an experienced professional, these risks can be minimized and key selling points emphasized.
MARK A. SCHAAF is a shareholder and the director of valuation services of Briggs & Veselka Co. Reach him at (713) 667-9147 or firstname.lastname@example.org.
Whether you are volunteering for a small not-for-profit organization or have been appointed to the board of one of the largest companies, you need to know about potential personal liability. You also need to know how to obtain protection from potential litigation in those positions.
“Whenever you are involved in making decisions that affect other people or organizations, it is important to recognize that those decisions expose you to litigation,” says James M. Fasone, division senior vice president at Arthur J. Gallagher Risk Management Services Inc. “Directors and officers (D&O) insurance is the best form of protection, after due diligence, against claims of omission or alleged misconduct.”
Why do the majority of organizations of any size buy D&O insurance?
Most buyers of this product are looking to protect their personal liability arising from their fiduciary duty to third parties as directors and officers. While most corporations allow for the indemnification of directors and officers, both the corporation and directors and officers appreciate the added security of insurance protection against personal litigation for any alleged mismanagement.
Many buyers merely look at the economics involved and the potential exposure to high-net-worth independent directors, and migrate to the lowest cost alternative. As this is a very personal protection, more savvy buyers look to benchmarking studies, peer review and complex limit analysis tools to support this important decision.
There are some limited publications available that provide generic data sets that can provide some guidelines. Many buyers rely on various third parties, including insurance brokerage specialists, that have expertise in the product line.
Who are some of the common litigants against directors and officers?
Though employees bring the majority of claims against private and not-for-profit companies, shareholders bring the most claims against publicly traded companies. Litigation can be brought from numerous other sources, including debt holders, customers, suppliers, competitors and regulatory agencies, to name a few.
What are the current market conditions for purchasing D&O insurance?
This is an excellent time to be a buyer for D&O liability insurance. Pricing has significantly softened the past few years. Increased capacity, more sophisticated underwriting tools and a recent decreasing trend in claims have all lead to more aggressive pricing for buyers.
The average cost of defense of litigation is about $600,000. While settlement amounts vary, employment-related claims can exceed $2 million and securities litigation settlements average over $18 million.
For privately held and not-for-profit organizations, the policy is purposely written in a broad fashion. Typically, directors and officers, employees, temporary staff, and the organization itself are protected under the policy. The policy can be negotiated to protect independent contractors, volunteers and even certain third parties in some instances.
Is any particular industry sector more at risk for D&O liability than others?
While underwriters look to assess the risk of each individual company on its own merits, some industry sectors have a higher risk profile and are prone to more litigation. Among these sectors are technology companies, energy-related corporations and those involved with the delivery of health care services. These particular sectors can have highly volatile financial results due to changing technology, shifting competitive landscape and unmanageable regulatory influence.
Does an initial public offering or the raising of public debt increase the potential liability of directors and officers?
Any public filing with the Securities and Exchange Commission, whether to raise debt or equity, significantly increases the potential for personal liability of those involved. The SEC Acts 33 and 34 have very specific provisions regarding the types of representations that can be made about the sale of securities to the general public. Any and all disclosures made to the public are often sited in misrepresentation cases to support securities litigation when a company fails to meet its financial projections. Securities litigation represents the single largest cost of claims to the insurance companies, making the cost of premiums for public companies significantly higher than their privately held peers. <<
JAMES M. FASONE, ARM RPLU, is division senior vice president at Arthur J. Gallagher Risk Management Services Inc. Reach him at (303) 889-2516 or at Jim_fasone@ajg.com.
Private equity funding is a transaction that can provide liquidity and growth capital to an owner who doesn’t want to sell the business, but does want to realize some of the benefits of a sale or merger.
“Private equity funding can benefit owners by giving them a significant portion of the value of the business in cash, while maintaining an ownership interest in the recapitalized company going forward,” says Bob McDonald, CPA, CM&AA, a principal with Briggs & Veselka Co.
“The transactions are usually conducted with a private equity group that contributes equity to recapitalize the company.”
Private equity funding can divide a company’s equity into two or more classes, with provisions to serve the objectives of the owners. The owners grow the business, while the financial partner provides assistance on financial, strategic and exit issues. At a later date, usually five to seven years, the company could either be sold to another firm, go public, or undertake another recapitalization.
Smart Business spoke with McDonald about private equity funding and how it can offer benefits to all parties involved.
For whom is private equity funding best suited?
Private equity funding allows owners to achieve personal liquidity without sacrificing the operating control of the company they built. Through a recapitalization, a portion of an owner’s equity is sold to the private equity group (either a minority or a majority interest), while maintaining operating and ownership control. This scenario is an alternative to total sale or regulatory scrutiny of a public offering. The owner is able to gain a financial partner to assist with strategic issues without interference in day-to-day operations. With its access to substantial financial resources, the financial partner supports the company in expansion plans and/or pursuing strategic acquisitions. By selling a portion of the company, the owner can eliminate personal guarantees on company debt, diversify net worth, and continue to run the company, if they choose. This newfound ability to grow increases the value of the owner’s retained equity position. Private equity funding is an excellent option to facilitate the owner’s estate planning and execute a succession plan to either the next generation or management.
What about retaining key employees?
Non Qualified Stock Options (NQSO) are great ways to help retain key employees. Even if a private equity group is not involved, NQSOs should be considered as part of an owner’s exit strategy. The goal of a private equity fund is to build value, therefore the investors expect a high rate of return on their acquisition. While they are very experienced in business, the private equity group does not typically have the operational experience needed to efficiently run the acquired business. For that reason, the investors generally retain the owner and key employees. In contrast, if an owner sold to a competitor, the new buyer may not want to retain these employees.
The company can grant NQSOs only to the employees it chooses. The options are not taxable to the employee until the option is exercised. At the time, the employee recognizes income equal to the fair market value of the vested amount, and the company receives a deduction for the amount. A good tool is to grant NQSO on a vested schedule. If, for example, an employee is to be granted 5 percent of the stock, vesting at 1 percent per year, the employee has an incentive to stay with the company for at least five years.
Why would I want to give ownership to my key employees?
Assuming the company is successful, it is probably in the 35 percent tax bracket. Since the company receives a deduction for the value of the NQSO, it is saving 35 percent of that value in taxes. The remaining 65 percent should be considered as an investment in the company. By giving ownership in the company, the employees will maximize their efforts to help the company grow and become more profitable; the owner’s return on his remaining ownership may far exceed the value of the stock granted. This is a decision that has to be carefully weighed, but can be a very good investment in your own company under the right circumstances. <<
BOB MCDONALD, CPA, CM&AA, is a principal for Briggs & Veselka Co. Reach him at (713) 667-9147 or bmcdonald@BVCCPA.com.
As a young man, George A. Pontikes Jr. was taught that it was best to learn business from the bottom up. So that’s what he did, working every job in the construction industry, from craftsman to superintendent, before founding Satterfield & Pontikes Construction Inc. with Tom Satterfield in 1989. Since that first year, Pontikes has grown the company from $1 million in revenue to an estimated $300 million in 2007. As president and CEO, Pontikes shares his expertise daily with his 500 employees, using his experience from previous jobs to help those in tough situations. He says doing so lets them know that he understands what they are dealing with because he has been in their shoes, and that creates a sense of unity. Smart Business spoke with Pontikes about why you have to put the client first in every situation.
Communicate and listen. Communication is key. Listen to your clients. They’re going to tell you their side, what’s going on and the way they see it. An employee can come and tell you that everything is rosy and everything’s going well, but if you’re not communicating with your client, you’re only hearing one side.
You may find that the client has a completely different understanding of your company than your employee does. I can’t tell you how many times somebody tells me that the client’s happy, and you go talk to the client, and they’ve got a different opinion.
A lot of people go out there and try to tell their clients what they want. You can’t do that. You’ve got to listen to what your clients tell you. If you’re not going to listen to your clients, you’re not going to get work.
If you’re not careful and don’t question, it’s easy for employees and clients to dance around questions. Pay attention to what they have to say and follow up with questions to try and dig deeper and see what you can find out.
It’s easy to dodge a tough question if you don’t want to provide an answer. Dig deeper to find out, and make sure that you’re not missing the true intent of their response.
Put the client first. Frequency of communication is key because things change. Your clients have to have trust and faith in you.
Work hard to do everything you can to let the client know that you’re working in their best interest. When a client loses confidence in you and doesn’t think that you’re putting their best interest in the front, then you’ve got a problem.
It’s hard to get that back. It’s not impossible, but it’s hard. Any time a client loses faith in you, it’s generally because they think you’re putting other interests in front of theirs, and you can’t do that. Try and demonstrate your good will at every opportunity.
Meet frequently with the owner and see what the owner’s feedback is. Meet with your clients; your clients will tell you what’s going on. Stay close to the client; he’ll tell you if he’s satisfied or if he’s not. If you know he’s not satisfied, you have an opportunity to correct the situation.
Don’t hide the truth, but be cautious.
Encourage your team to be open and realistic with clients. You’ve got to have realistic expectations. I encourage my employees to work hard, be tough but fair, and be open and communicate with their clients.
Be cautious of the expectations of your clients. You don’t want to oversell your capabilities, and you don’t want to under-sell. Be realistic with your clients. If a client has a request that’s unreasonable and you don’t diplomatically inform them that it’s not realistic, even if you do perform well, you’re going to have a problem down the line.
Recognize a job well done. Give employees responsibility, hold them accountable and provide strong support. You’ve got to create a positive environment for your employees, and then you’ve got to reward them if they do the right thing and if they meet your expectations. Let them know early on if you think they can do better, and if they continue to succeed, provide them with more and bigger opportunities.
Recognition goes a long way. Compensate them fairly, recognize their efforts publicly within the organization and encourage them to not be afraid to make mistakes.
You’re never going to have all of your employees reading the same sheet of music; you’ll always have a handful who are trying to prove you wrong and not following your direction. Do everything to try and reward the people that are on board, and get rid of the people that aren’t.
Face your mistakes. Don’t be afraid to encounter your vendors or your clients or your suppliers. You don’t want to express an opinion when you don’t know the topic, but don’t be afraid to tell somebody you don’t know the answer.
A lot of times, you’ll see people try and bluff their way through a difficult situation. You’re better off being truly open. Clients are going to have more than one issue, and you answer the ones you know the answer to and go out, research and do whatever you have to do to resolve the other problems. Just don’t try and bluff your way through.
Don’t be afraid to make mistakes. You can fix mistakes. Inaction is the worst thing that you can do. Just jump in there; just go do it.
You’ve got to make your own brand, but you’ve got to work through the process. Don’t be timid, make your move, make your brand, you’ll do fine.
If you’re in a situation where it’s not exactly like another problem you’ve dealt with, or it’s one you’ve never dealt with, research the problem and make the practical recommendations. Use associates, peers, outside consultants, employees in other areas to chase down an answer. Most questions have a practical answer.
HOW TO REACH: Satterfield & Pontikes Construction Inc., (713) 996-1300 or www.satpon.com
Bill Schrom refers to his job as trying to “stay in touch with my insanity.”
“You’ve got to like what you’re doing,” says Schrom, CEO of Geotrace Technologies Inc., a provider of sub-surface imaging solutions. “If you don’t really enjoy it or if you’re not willing to live it and give up sleep for it, you’re probably not going to be successful. I spend a lot of time on the business. It intrudes into my personal life, but I try to keep a balance.”
By tapping into the talents of others and soliciting feedback from customers and vendors, Schrom has found that balance to lead Geotrace through a global expansion, growing 2006 revenue to $41 million, with anticipated 2007 revenue of $54 million.
Smart Business spoke with Schrom about how patience and a love of coffee can be valuable traits in global business success.
Q: What are some keys to successful global expansion?
You have to have people who are willing to travel and adapt to other cultures. There is not a lot of glamour in business travel. I remember having this one young lady towing along behind me on a rainy evening in Oslo, Norway, giving me a death stare. If you’re high-strung and believe the whole world revolves around Texas, you’re probably not going to be able to do it.
You need someone who is willing to learn about how another culture works. What you find is you go into the Middle East, you’re going to go have coffee with somebody 15 times before you’re going to talk business with them. You have to understand if you’re pushy, you’re not going to make it.
Q: How do you assess whether you have people who are able to adapt?
I will go, or one of the other guys who has traveled a lot will go, with somebody the first couple of trips just to see how they do. Sometimes people think it will be fun or a great time, and they find out it’s a lot of work. Your body is jet-lagged and your sleeping habits go all haywire, and they just can’t take it.
You can gauge it and think this person can do it, but until you go on the road for a couple of trips, you really can’t say for sure. That represents a cost to the company, but it’s a good investment. If you’re going to rely on this person, you really have to feel comfortable that they can work in the new area.
We always touch base with clients and find out what they are thinking and what they have to say about the operation. Get a third-party perspective on what the operation is doing and what it looks like.
Q: What is the CEO’s role in successful growth?
Get out and talk to your people. Listen to them, and if you tell somebody you are going to do something, deliver on it.
Get out and see your clients. At times, you can get locked in being in the forest and forget what your clients think about you and believe about you. Stay in touch with your vendors because your vendors can help you with new ideas and different approaches.
There is a whole group of people looking at your business from a different perspective, and they tend to think outside the box that you have established for yourself.
Q: How do you get yourself out of that box?
It’s really getting out and not hiding in an office. It’s getting out and visiting with people and pushing it down so the people that report to me do the same thing and the people that report to them do the same thing.
I have an open-door policy, so anybody can walk in. It causes interruptions and changes the things I can get accomplished sometimes, but it’s very valuable. I go out and walk around and look over their shoulders and ask what they are doing.
Q: How do you define success?
We can have 500 different metrics to run the beast, but if it’s not making money, we have nothing. (Employees) know that’s what we’re all about. Either through generating revenue or cutting cost or looking at ways to do things more efficiently, the people are pretty well set that we have to be making money.
It works because people want to be part of an organization that is making money. People want to make money. If we’re working in a place where they are not interested in the company making money or in them making money, we’ve got a big problem.
That is the goal. We have to make money. By understanding that, they kind of watch our back. They make sure expenses don’t run over, and they treat it as their money.
HOW TO REACH: Geotrace Technologies Inc., (281) 497-8440 or www.geotrace.com
Jerry Winchester likes his employees to do things on their own. The president and CEO of Boots & Coots International Well Control Inc., an emergency response company that offers prevention, response and restoration capabilities to the gas and oil industries, says that in his work experience, his greatest bosses gave him an assignment and the freedom to accomplish it, something he does today with his 400 employees. Empowered employees help companies reach their goals, Winchester says, and last year, Boots & Coots hit revenue of $97 million. Smart Business spoke with Winchester about how to play to your employees’ strengths and empower those who are willing to be empowered.
Empower those who want to be empowered. It’s important to understand the dynamic of your company. Look at where people’s strengths are. Assign certain tasks, stand back and observe. Those strengths will then surface quickly.
We have employees who thrive on being empowered and those who are scared of it. When you have people who are capable of doing and achieving more, giving them the ability to go do these things, not getting in the way and empowering them to make decisions on behalf of the company can have a positive effect, especially when you are developing people and want to see how they will react in certain situations.
You’re talking about people you can develop and see how comfortable they are going out on a limb. Do they believe in themselves? Do they believe in what they’re saying? Are they confident enough in their abilities to take a risk? That’s one of the things that as a leader you are always looking for people who are aggressively moving ahead so that you’re not constantly trying to prod them into a situation, but you’re out there trying to rein them in some.
It’s like athletics; you can’t coach desire. When you’ve got people who have desire, empowering them is just the fuel to move them forward. When you can get that mix together, you’ve got somebody who can go do some strong things.
Work with those you can’t empower. If you’ve got somebody who’s great at taking direction and doing exactly what they’re told, and they pride themselves on following the rules, then trying to move them out of their comfort zone into this aura of empowerment sometimes is the wrong thing to do.
If you’ve got a person who is an introvert and you’re expecting them to be in a job where they have to be an extrovert, they spend all their time supplying the energy to be extroverted instead of spending their time doing other things. It’s counterproductive. It’s difficult on them because they are not as happy in their position.
If an employee is good at following processes and implementing established rules, then you want him in a job that allows him to do that, that works well both within the way his personality is, the way he makes decisions and the way he is comfortable working. It would be a lot better to try and define his strengths and make sure that his job is aligned with that or allow him to work within the dynamic of a team where his diversity helps the team dynamic rather than hurts it.
Align company and personal goals and objectives. You can’t imagine how much smoother it is when everyone is moving in the same direction, so you’re not constantly dealing with conflict within your organization about the direction in which you are headed or how to resolve something. It’s a whole lot easier to manage and communicate within a company whose goals are aligned from top to bottom.
Clearly communicate what the company’s goals are and empower senior management with the flexibility and right tools to effectively manage employees’ expectations.
For certain employees, even though they think they don’t affect share price or overall financial performance of the company, they absolutely do, so you’ve got to set goals and objectives for them so that they align with the same goals and objectives that you’re working on.
If someone was struggling with either aligning or understanding the goals, sit them down and ask them what the issue seems to be and listen to them. If they’ve got a problem or some preconceived notion of what the problem is, hear that and deal with it rather than just telling them over and over again and trying to make them understand what you’re saying because obviously you’re not connecting.
Reward employees. Set goals and objectives for employees and deal with that monetarily or whatever manner is the best. We look at people who have been successful or have done a good job and want to give them the opportunity for advancement.
We’re looking for the next group that can step up. Not only can they measure success by saying, ‘I’ve been rewarded well for this,’ or, ‘I got a promotion,’ but, at the same time, they can see that the company has done well, and they’ve left a legacy, and they’ve helped build a program that they can look back and say, ‘I did these things; I accomplished this stuff.’
For the people that are driven to do that, those are the kinds of things they’re looking for. Somebody that’s in the mode of ‘I like a more comfortable job here and don’t have to make any decisions,’ success for them is that they get through the day without getting nicked up or running afoul of the rules.
For other folks, success for them is measured in a different way. It’s looking at the individual and what they think. Some of them want to see the tangible effects of their work, and some are happy just knowing that the ship is still moving along and the company’s still afloat.
HOW TO REACH: Boots & Coots International Well Control Inc., (281) 931-8884 or www.bootsandcoots.com