When Jon Silberman and his business partner bought NAI Houston in 1999, they quickly determined that they needed to overhaul the company’s culture if they were to succeed.
The key to making the major change work was the ability of Silberman and Randy Wilhelm, the company’s co-owners and co-managing partners, to clearly communicate their new plan to their employees.
“Explaining it and communicating what the game plan was and what the vision was, we did that regularly,” Silberman says. “People saw that there was a plan in place, and they understood that it wasn’t going to happen overnight but that there was a plan and there was a culture.”
The healthier culture has helped the 55-employee commercial real estate firm grow its revenue from $9 million in 2005 to $12.5 million in 2006.
Smart Business spoke with Silberman about the importance of having a plan and sticking to it.
Q: What is the best way to manage growth?
Have a plan. We have a planning retreat once a year where we sit down and spend two days going through our plan. What happened last year? What’s our plan for the next three years? How did we do?
That’s probably the most valuable thing that we do because it sets the direction every year. It sets the goals and objectives of the company as a whole. It gives us that map. It’s really helped us a lot to get everybody focused on that map and what they have to achieve during that year.
It has to be realistic and achievable. It has to be in steps. Little steps lead to big steps. Sometimes people try to accomplish too much in one year when they could accomplish 10 times that amount in five years. Execution is critical. You can plan all you want, but if you don’t execute, you’re not going to get there. It’s having the focus and motivation and discipline to focus on those things that are going to get you to where you want to go.
Q: What is an important lesson all leaders should keep in mind?
What you can accomplish in one year is very little. But what you can accomplish in five or 10 years can really blow your mind. We live in a culture where everybody wants everything yesterday, and they aren’t willing to be patient, and it makes it very difficult. If you’ve been through it before, experience, perspective and commitment (are key). Be willing to say, ‘I’m going to give this two or three years. I’m not going to quit. I’m going to stick to it.’
A lot of people fail because they quit too soon. It gets a little difficult, and they quit. They give themselves the latitude to quit versus saying, ‘You know what, I’m going to do this for three years. Maybe after three years, if I’m still flat broke and not generating any revenue, I might want to quit.’
Don’t give yourself a chance after a year to evaluate and quit because you didn’t get there as fast as you unrealistically thought you should.
Q: How do you approach the hiring process?
We’re very slow to hire. We take our time. We will interview at least three times. We look at references and talk to people. We look at their background and what they have accomplished in other jobs.
We’ll accept a little lower level of technical performance for somebody who just has the right attitude and is pleasant and helps out wherever they can. I’m not sure I would relate it to energy as much as attitude, enthusiasm, work ethic, reliability and dependability. Those all supersede the skill set.
We combine all those to determine if it’s the right fit. If we think we made a mistake, we’ll make a change very quickly. We won’t let the one bad apple ruin the rest of us.
Q: How do you help employees who want to move up?
You have to show a path. It depends a little on the position and the person. Some people are in a position they are very happy with, and they are not really interested in, ‘Where do I go next?’ For those people, they can just choose not to try to follow a path. The majority of the people want to know, ‘How do I get to the next level? How do I go from here to there? What do I have to do? What do I have to accomplish to get there?’
We have a very specific plan that is written and published that says exactly what you have to do. There is no mystery to it. A person knows, ‘If I do these things, I get this level, I get this promotion, I get this partnership.’ It’s very clear.
HOW TO REACH: NAI Houston, (713) 629-0500 or www.naihouston.com
Are you involved in any type of construction? Chances are good that you are, since there is a considerable amount of construction going on in the Houston area. Retail stores, warehouses, office buildings, factories, hotels, multi-use facilities, townhouses, apartments or single-family homes are going up all over the area.
With any construction there is risk. Have you thought about that? Have you done anything about it?
“Even though risk management can be a big line item on any project’s budget, it is too frequently a last-minute consideration for project managers,” says Jackie Whiting, account manager at Arthur J. Gallagher Risk Management Services, Inc.
“Owners, developers, managers and builders need to identify their exposure,” adds Jim Braniff, IV, senior vice president at Gallagher. “They need to determine how to mitigate their risks and transfer all the risk that they can.”
Smart Business talked with Braniff and Whiting for more insight into insuring property under construction.
At what stage in a project should the owner/developer consider insurance coverage?
They really should start to think about it at the very beginning of the initial project planning. That way they can make sure they are considering the right kind of coverage and have the right number in their budget for the project. It should be part of the due-diligence effort as a project is considered.
When they get into the project, they need to read and understand all contractual language before anything is signed. They need to, at a very minimum, have their experienced insurance broker review contracts and coverage offered by the builder to make sure the owner’s needs are met. They need to understand the significance of the risk management piece of their part of the project. Who is responsible under what situations? Who might be at fault? Where might there be gray areas? What about soft costs? What happens if the building contractor needs to be replaced? What happens if the builder doesn’t pay the subcon-tractors? The owner also needs to get his or her own insurance quote as a comparison before making a decision on accepting what the contractor offers.
Why not just let the builder take care of the insurance and include it in the bid?
There are a number of reasons. It should be up to the owner to protect his or her own interests. Owners have more control over the project and risks if they consider all of the ramifications of their own insurance. They have more control if something happens. They have their own broker working for them in the event of a claim. If, for any reason, the builder on the project has to be replaced, the owner isn’t exposed with no insurance because the builder’s insurance was the only coverage. They have another set of eyes going over the contracts to see that all risks are transferred. Soft costs are usually not covered by the contractor’s insurance. If the owners rely on the contractor’s insurance, they will be sharing the limits of the master policy and be subject to the deductible set by the contractor, whether it fits their needs or not.
What do you mean by ‘soft costs’?
Soft costs include additional taxes, additional interest, professional fees, permits, lost rental income and additional insurance. Any of these costs can come up if the building burns down or is damaged in some other way during construction. New plans may have to be drawn so additional architect fees may be needed. New permits may be required or expired ones renewed. Soft costs are not usually covered by the builder’s policy.
Any other thoughts?
The owners/developers should obtain some idea of what property and liability insurance rates might be on an ongoing basis after the project is completed. This adds important information to the feasibility study at the start of the project.
Also, there can be many differences between insurers and policies, so the options presented should be compared and key points analyzed to make sure coverage is spelled out and not just assumed. There are also many different needs depending on circumstances. Insurance coverage is a process of negotiation. It is imperative that your coverage is negotiated by an insurance broker experienced in your business area and placed with an underwriter that understands the coverage.
JIM BRANIFF, IV, is senior vice president at Arthur J. Gallagher Risk Management Services, Inc. Reach him at Jim_Braniff4@ajg.com.
JACKIE WHITING is account manager at Gallagher. Reach her at Jackie_Whiting@ajg.com. Reach either at (713) 623-2330.
Alex López Negrete has proven he has the skills to develop a business and make it thrive. But that’s not always enough to ensure success in the corporate world, says the president, CEO and chief creative officer of Lopez Negrete Communications Inc.
Without a lot of passion and heart, the entrepreneurial skills of López Negrete and his wife and co-founder of the company, Cathy, would never have gotten the chance to shine.
“It was a leap,” López Negrete says. “We did not have a rich uncle or a line of credit. We poured every bit of our own personal savings into it. We literally put this company before our own needs. We fed our kids before we fed ourselves. It’s that fearlessness. You’re only an entrepreneur when you put yourself on the line.”
Their efforts have paid off as the marketing firm has grown to about 140 employees, with 2006 revenue of $21.3 million.
Smart Business spoke with López Negrete about how to turn passion into success.
Q: What makes a good leader?
You have to earn the right to lead every single day. Leading by example means giving them a clear idea of what we’re doing, why we’re doing it and what’s the higher calling of what we do. It’s really not the classic, ‘I’m going to lead. You’re going to follow.’ It’s more of a, ‘Thank you for letting me lead. Let’s go this way.’
I have to be on top of my game every day. The people that have put their careers in your hands trust you to know the big picture and to be in touch with the big picture. A leader who cannot inspire is not a leader. You’ve got to inspire people to do the very best that is in them and sometimes even better.
But you’ve got to do that by doing that yourself. Up the ante on yourself every single day.
Q: How do you inspire people to follow you?
People want to come to work to a place where they feel that they make a difference and where they feel they will grow. Growth comes in a better job, a better title and better money. Growth also comes in, ‘I am a better professional today than when I joined this company X months or X years ago.’
The onus goes on the management to make sure that you are always aware of people’s contributions and that you stay in touch. ‘Hey, so and so is kicking butt. Let’s give her a little bump, or let’s recognize her somehow. Let’s make sure it’s in her file so she knows it’s recognized and it’s not forgotten.’
Make sure that you are diligent about your reviews and that your reviews are thorough. Give your people constructive criticism, stuff that they can really use to make themselves better.
Q: How do you keep a business growing?
Be willing, if not completely focused, on bringing in people that are better than yourself. You really have to decide, ‘OK, what is it that I bring to the table best?’ In ‘Good to Great,’ by Jim Collins, he says, ‘Figure out where you bring the most value and focus on that.’
This is an exercise that I do on a regular basis. How relevant am I to the marketplace? Is what I do still relevant and needed? Is it still special? If you make pipe, are you just another company that makes pipe or are you a company that makes pipe, which happens to ‘dot, dot, dot, fill in the blank?’
In today’s age, you cannot afford to not have a unique selling proposition. People around here will hear me say, ‘Choose your horse and ride it well.’
Ask yourself, have you defined a vision and a mission for your company, and do you live by it?
Q: What is the best advice you’ve ever received?
I had a great sales manager when I was in the radio business a long time ago. Every now and then, he’d sneak up behind me and he’d go, ‘No.’
And I’d go, ‘What do you mean, no?’ And he’d go, ‘No.’ He says, ‘That word sounds exactly the same coming from me as it does coming from Johnson & Johnson. So are you going to be more afraid of hearing no from them than from me?’
That taught me that you really have to lose your fear of the size of the door you are knocking on. If you believe in yourself and you believe you are unique and you believe you are relevant and you are living to your mission and your vision, you’ll have something to say regardless of how big that door might be.
Selling starts when you hear the word no. Otherwise, it’s taking an order. That’s not selling.
HOW TO REACH: Lopez Negrete Communications Inc., (713) 877-8777 or www.lopeznegrete.com
Not only is it good business to provide a safe workplace, it is a legal responsibility. Accidents do happen, no matter how many reasonable safety measures have been taken. To protect themselves from lawsuits, businesses must purchase, as a separate policy, insurance that provides medical care and compensation for lost income to employees hurt on the job. This applies whether they’re hurt on the workplace premises or elsewhere, or in auto accidents while on business. It also covers work-related illnesses.
“In many cases, worker’s compensation (WC) is the third largest expense in the budget after payroll and employee benefits,” says George L. Moody, licensed risk manager at Arthur J. Gallagher Risk Management Services Inc. “While many business owners feel they have no control over that cost, it is actually an area over which they can have the most control.”
Smart Business talked with Moody for more insight on how to save on WC insurance.
What are some ways to reduce the cost of WC?
There are four primary areas that should be monitored to assure business owners that they are paying no more than they should for WC. These areas are: experience modifiers, payroll audits, hiring and claims management/return to work.
How can hiring practices affect WC costs?
It is vitally important to make sure that you are hiring people who can do the job. Of course you must follow ADA guidelines, but provide a conditional offer of employment when you think you have the right person. The offer is contingent on them passing whatever physical and medical tests are necessary to determine if they can do the job. Have a detailed job description that outlines the requirements. Make sure that all your forms are reviewed by an experienced attorney to assure that they meet all legal requirements.
What should be included in payroll audits?
Monitor the premium audit closely, since most errors favor the insurance company. Make sure the premiums are accurate. Look closely for any clerical errors. Verify that payrolls are correct and that you are only including the correct amounts. The insurance company is entitled to a premium based on the actual work the employee is doing. Bonuses for ideas should not be included. In Texas, safety bonuses should not be included in salary figures used for the premium.
Each state has different rules, so make sure that you and your insurance adviser are up to date on your state’s laws. Contractors that are doing government work and must pay prevailing wages should look at that closely. There are ways to set aside the difference between normal wages and prevailing wages and only pay the premium on your normal wage. Severance pay is another item that should not be included in the premium calculation.
What are some experience modification strategies?
The experience modifier is calculated by comparing expected losses against actual claims. As long as actual claims are lower than the expected losses, the modifier will be less than 1.00. Check for any mistakes in the calculations, and when identified, bring them to the insurance company’s attention. In most states, large claims are capped and anything over that cap should not be included in the experience modifier rating. Again, it is vital that you work with someone who knows the state rules. Since claims are included in the calculation for a three-year period, any savings found are three-year savings.
What are some claims management/return to work strategies?
Have a package of information available so if an injury occurs the employee understands what to expect and how the company will help him or her. Set up a team of individuals to make sure an injured employee is getting the care he or she needs and making progress they should to get him or her back on the job ASAP. Communicate with physicians what the job entails so they understand and can help get the injured employee back on the job without undo delay. This reduces care costs and replacement worker costs, which translate into premium savings. This is important since, as a general rule, every claims dollar costs the employer about two dollars in additional premium. Continue to provide good communication so the employee knows you care, feels important and will do all he or she can to get back on the job.
Finally, take a risk management approach. Don’t just find a policy and pay the premium. Work with an experienced person who can help assure that you are getting the coverage and service for you and your employees without paying more than you should.
GEORGE L. MOODY, CIC, CWCA, CWCP is a licensed risk manager with Arthur J. Gallagher Risk Management Services Inc.
Reach him at (281) 655-6824 or George_Moody@AJG.com.
As the CEO of CITGO Petroleum Corp., one of the world’s largest oil companies, his job is affected by everything from market fluctuations to geopolitical strife, from technological advancements to natural disasters.
Through it all, Rodríguez is charged with keeping a company of more than 4,000 employees focused on a set of common goals that are small when compared to the global variables that influence the oil industry.
While the figurative winds of conflict and the literal winds of tropical storms swirl around the fringes of the oil industry, always ready to deal a damaging blow, Rodríguez keeps his employees centered on the basic business concepts of customer service, innovation and community involvement by making sure they carry out his vision, valuing what he values: The ability to take an enormous corporate entity and make its strength the customer interface — in CITGO’s case, taking an oil company with approximately $32 billion in annual sales and turning it into its customers’ neighborhood pit stop, the place where they fill their gas tanks and pick up a snack for the road.
To make that happen, Rodríguez says it all starts with your employees. You must be able to relate to the communities where your customers live, and to do that, you must have a work force that is an active part of the communities it serves.
Your vision and expectations have to be communicated frequently through both words and actions, and you have to listen to feedback on how you can do things better.
Backing up your words
One of the most important things Rodríguez says a business leader can do is back his or her words with actions. He says words are hollow if employees and customers think management won’t follow them with actions.
He says it’s about creating the perception among those you serve that you are as good as your word, so that people will be more apt to believe you when you say something. And the only way you gain that level of trust is by having actions that repeatedly fall in line
with what you preach.
In 2005, Rodríguez’s community-centered platform was put to the test when the U.S. Gulf Coast — where many CITGO employees reside — was struck by hurricanes Katrina and Rita within weeks of each other.
“I went to New Orleans,” he says. “I saw the people living in and around the flood, water 1 or 2 feet or higher. They asked me why did I go there as president and CEO. I went there because CITGO has a refinery in Lake Charles (Louisiana) with a 400,000-barrel
capacity, and that was obviously important. But even more important to me was the people we had living in the area.”
Rodríguez says that as your company grows and its profile increases, your ability to appeal to employees, customers and communities on a personal level can become closely scrutinized. In the wake of the two major hurricanes the summer of 2005, Rodríguez says the first thing he acknowledged was that he not only had 4,000 direct employees of CITGO there, he had an additional 100,000 people who formed the majority of the company network through independently owned service stations. Though they weren’t all affected by Katrina and Rita, he says it helped put his level of responsibility in perspective.
With that in mind, Rodríguez helped establish a $5 million medical assistance program in Lake Charles in the immediate aftermath of the 2005 hurricanes.
Through CITGO’s humanitarian initiatives immediately following Rita and Katrina, Rodríguez says he wanted to reinforce throughout his company the concept of relating to people face-to-face and doing it through actions.
“What you say has to be what you practice,” he says. “This is a very important thing. People read the newspapers, they go to the Internet, they are into various forms of communication. There are many avenues you need to cover to clarify what the mission of your company is.”
Rodríguez says that if you show a commitment to those around you and do it consistently, you will eventually be rewarded with their trust. But it doesn’t happen overnight.
“For me, most importantly, I have to take care of these issues, to let them know what the intention is for the company,” he says. “For me, I try to focus on the core message and vision and try not to get distracted by all the background noise. I try to show the people in the company a commitment so they will show confidence in me and what kind of company we have.”
If a company leader isn’t clear and concise with his or her messages to employees, they will start to fill in the blanks themselves, which is how rumors start. Rodríguez says rumors can become like weeds that choke off productivity and can do long-lasting damage to employees’ — and, in turn, customers’ — confidence in a company if they are left unchecked.
He says people are generally inquisitive and want to know what is going on within a company, and to the best of your ability, you should strive to completely and truthfully answer the questions they have.
“I think any person wants things to be set so they know exactly what is meant when the CEO says something,” Rodríguez says. “You put people in place who ask more and more questions, and first of all, we need to communicate and share our ideas every day.”
In much the same way that Rodríguez wants to appeal to customers on their level, he also wants to appeal to employees where they work, be it at the gas station, the office or the refinery.
On the refinery level, CITGO holds daily operational meetings to brief employees on, among other things, safety and environmental protection policies. Monthly, the company’s leaders meet face-to-face with the managers of the marketing department to discuss ways to adjust marketing campaigns and communication strategies.
Rodríguez says the meetings are based on two-way dialogue, with CITGO’s leaders doing as much listening as speaking.
“We ask our employees what they need, what are they feeling about what is going on,” he says. “This is crucial. This gives us the framework for communicating every day around our vision.”
If an employee comes up with an idea in one of those meetings, Rodríguez says he and his senior leadership not only listen to it but quickly act on it.
Acting quickly on employees’ suggestions or concerns not only gives them a sense that their words are worth something, it also shows the entire organization that you are willing to effect change
when the situation calls for it.
“If somebody comes up with an idea, we act very quickly and understand why they want to do something,” he says. “We correspond with a plan in order to better find something that will benefit the organization.”
The analysis and revision of a new process or product involve many people at CITGO. Ideas are passed back and forth through groups, with each group adding its own tweak or addition until a consensus is reached.
“We might sometimes have a discussion with more than 100 people present when someone comes up with a new idea,” he says. “We have people discuss it at one table, and others discuss it at another table, and through the discussions, we form a new plan. That’s how we build a plan with employee participation from different viewpoints.”
Finding the right people
Forming a work force that follows your vision and embraces your values starts with communication from the top. But you also need to have the raw materials with which to work, and that means finding people who fit the corporate culture you are growing.
To drive your vision downward and outward throughout the company, Rodríguez says you need employees who are receptive to what you have to say — and that begins with their attitude.
He says he wants employees who feel motivated to make a difference both in the company and in the community, and a key component in motivating employees is enabling them to do their best.
At CITGO, Rodríguez enables management-level employees by maximizing their versatility, giving them training in multiple disciplines. He says he’s not asking a chemical engineer to become an operations guru, but he wants everyone on the same page when it comes to projects that require teamwork.
“It is important for employees to have familiarity with different processes,” he says. “For example, if you have an electrical project in a refinery, you might need to involve an electrical engineer and a mechanical engineer to work together on something.
“If the situation involves something in the community, you might need to involve someone who specializes in community relations so that you can know what is happening in the community, in case it impacts the community.”
Though an oil company can deal with economic and environmental issues that far outpace what companies in other industries might see, Rodríguez says the need for a work force that is in tune with customers and the community is nearly universal.
“Our Houston-Galveston refinery was operating when Houston had maybe a million people,” he says. “Now, Houston has more than 2.5 million people. So the people who run the refinery have to consider new equipment, new protection for the community, what
is happening with emissions, what is happening with the electrical set-up inside, what is happening with the law because now you have many more laws — environmental laws, employee laws, community laws.
“So you need to have the ability to work by team and involve different disciplines in one decision and make a plan as it pertains to the law, to engineering, to the community, to supplies. It can become very complex. You need to plan, and have people who can plan for risk on different fronts.”
HOW TO REACH: CITGO Petroleum Corp., www.citgo.com
Be decisive about change. We had some challenges back in 2000 and 2001 that required both me and my partner to get much more involved in the business.
We had to create a system that could function with checks and balances and not just a couple of key people that knew the business well that we would count on to always make the right decision.
It was tough for employees that had a lot of authority and now were being somewhat stripped of that authority. It’s tough to be given something and then have it taken away.
You can’t beat around the bush. You’ve got to say what it is. We’re all grown-ups. Deal with personal issues separately from business issues.
I would compare it to rebuilding highways. There’s two lanes going each way, and they tear it down and make it three lanes each way. Five years later, they’re tearing it down and making it four lanes.
Why don’t they just tear it down once and make it seven lanes each way and don’t hassle with it again? The changes we made were more like tearing the highway down and making it seven lanes.
It was a structure that we didn’t need at the time and was very much underutilized at the time in terms of capacity. But it’s allowed us to grow into it, and we still have plenty of room to grow.
Spread out authority. You can have a great product. But if you don’t have a good management team, good salespeople and good service to back it up, you’re not going to have the same success as someone with not as great a product that has the human capital, the relationships and the management skills to execute your plan.
Placing too much authority in any single individual, you really have to watch for that, including yourself. I jokingly tell our people, ‘If something comes up that you’re not supposed to do, just don’t do it.’
The flip side of that is placing too little trust or authority in your team members. Empower these individuals to make decisions. Give them the ability to make mistakes and to grow and to learn from those mistakes and really develop your human resource assets. The trick is finding that balance.
How do you empower your people to grow, make good decisions, collaborate, participate and contribute ideas? How do you set up the guidepost where they don’t get too far off track or have too much authority where they have the ability to cause damage to your business. In the long run, balancing the duties and skills and maximizing the employee abilities is how you build a good organization.
Train them to succeed. When they come to you for advice or a decision or an issue, ask them their opinion. As long as their opinion is not too far off base, encourage them that this is a decision they should be able to make and to go with it.
If they are comfortable with that, then you’re comfortable with it. Of course, if their suggestion is way out in left field and you think there might be a problem there, it’s your job as coach to give them feedback and let them know it might not be a good idea for these reasons.
Make sure the culture fits. A culture has got to be based on something that the leader feels from a personal standpoint. You can’t create a corporate culture in a company that is honest, fair and empathetic if you have a cutthroat leader or someone that is not honest with themselves or is deceitful.
To be consistent and really take hold and take shape and grow, it’s got to be consistent with that leader’s personal beliefs and personal actions.
Your business does have a personality, much like a family has a personality. The way that family interacts, it takes on a life of its own. A business does that too, maybe even more so because there are so many more moving parts to a business than there are to a family.
It bleeds into customer relationships, employee relationships and vendor relationships. It puts a face or a personality with your company. It allows your customers, vendors and employees to be a part of something and to feel a connection.
We don’t want anyone to conduct business with us or have a relationship with us who isn’t thrilled to be in the relationship and who doesn’t choose to be in the relationship.
Learn to read your gut. In the interview or recruiting process in the past, I’ve sometimes ignored my gut. It’s usually turned out not in my favor.
A lot of times you see something on paper, or you’ll be recruiting someone, or you’ll be in the interview process, and on paper, things look great. But something just feels off. Maybe it’s a character flaw or something that you detect that might clash with your culture.
Everything on paper says this individual is a producer or a performer or would be an asset to the organization. You go with the facts, and you make the decision and you hire that person, and lo and behold, your gut instinct was right and there is a problem.
It may not be a problem with the skill set. It could just be a personality issue or a character issue.
I’ve made some hires of people that are still with us today that really had nothing to show on paper, but you just had a sense about this person. That’s turned out to be good.
It depends on how good your gut instincts are. I’m finding that relying on my gut from a recruiting standpoint is producing as good or better results than some evaluation.
HOW TO REACH: Amerisource Funding Inc., (800) 876-6639 or www.amerisourcefunding.com
Are you a good negotiator? Are you doing the best job of negotiating for yourself or your company? How might you improve your negotiation skills?
“Great negotiators are not born,” says Elizabeth Umphress, an assistant professor of management and Mays Research Fellow at Texas A&M University, “they become great through a combination of training and practice. They prepare and they know ‘the best deal’ and work to get it.”
Smart Business talked with Umphress for more insight on business negotiations.
What are the key points of negotiation?
Take time to prepare. Determine what you have and what you want. Do some serious thinking about it before you start negotiating. Determine your best alternative to a negotiated agreement (BATNA), which is your fallback option if the negotiation is not successful. Decide on your target or goal in the negotiation. Make sure you are dealing with the right person, one who has the power to negotiate with you and can make decisions.
Tell us more about BATNA.
You need to know what your alternatives are to the negotiated agreement in order to help determine your target. You should have a fallback if you can’t come to an agreement. After you look at all the alternatives, pick the best one, keeping it in mind at all times. The better BATNA you have, the better the potential outcome.
How do I set my target?
This will take a combination of knowledge and research. The target should be specific, difficult and realistic. It shouldn’t be easily attained. If you are selling, you want the price as high as possible without it being unrealistic or beyond the market. Too many people set their sights too low, try to make the sale too easy, and don’t gain nearly as much from the sale as they might have.
Besides too low a target, what are some other potential pitfalls in negotiation?
Negotiation should not be viewed as a sparring match. Your job is not to belittle or demean the other person. The best negotiated deal is going to satisfy some or all of the needs of both parties. Good business relationships become long-term relationships. If you only think of yourself and not the other person, they are not going to feel good about dealing with you in the future and you will have missed the opportunity for repeat business.
Don’t have a ‘satisfying’ target. If you have a mid-point and a higher target, you’re more likely to focus on the mid-point and miss out on the real target.
Do not allow the other party to change your BATNA or your target. If you have done your research, you know that your target is reasonable.
Never start negotiating with your target; leave room to negotiate.
Don’t negotiate with yourself. Once you have placed an offer on the table wait in patience and silence to allow the other person to counter or accept. You can clarify why your offer is fair, but if you counter your own offer, you make the other person’s job too easy.
What are some terms that should be avoided in negotiation?
‘Take it or leave it’ or ‘That’s my final offer’ unless you unequivocally mean it. If you say that and then accept something less, you lose your credibility.
Be wary to accept or offer to ‘split it down the middle.’ Your target and their offer may be too far apart and splitting it down the middle would not be fair to one of the parties.
What is the best way to negotiate?
Face-to-face is always the best. You can tell a lot about a person and how things are progressing by observing his or her body language. If things appear to be going in the wrong direction, you can make clarifications. Telephone is the next best option. While you can’t see the body language, you can receive signals by voice inflections.
E-mail negotiations should be avoided unless the parties know each other well and have an unwavering trust built in. Preparation is the key. You’ll win or lose based on how well you are prepared. You are prepared when you know what you want, have a good idea of what the other party wants, and do your best to negotiate an outcome that comes closest to satisfying both parties.
ELIZABETH UMPHRESS is an assistant professor of management and Mays Research Fellow for Texas A&M University’s Mays Business School in College Station. Reach her at (979) 845-4801 or firstname.lastname@example.org.
Smart Business talked with Martinez, who is Wells Fargo’s business banking manager and team leader of relationship managers, and Yates, vice president and senior relationship manager for Wells Fargo Houston Business Banking. The discussion centered around how nonprofit organizations can work more effectively with lending institution to apply for loans that will stretch their dollars.
What organizations are considered to be ‘nonprofit’?
Yates: Any organizations with designations 501(c) (3), (4), (5) or (6). These include human services and arts organizations, housing organizations, foundations, civic organizations, associations, business leagues, and religious organizations.
All of these organizations may qualify for a lending institution’s many products and services that serve the nonprofit sector.
What types of services are available to nonprofits?
Yates: Look for a full range of turnkey solutions, and look for an institution that is willing to work with you to find the best ways to serve you. Look for an institution that will actually get to know your organization, one that doesn’t just look at financials and make assumptions.
Of course most nonprofits have cycles of giving, so a good lender should be willing and able to analyze how your organization operates and how your cash flows.
Martinez: A good lending institution will help a nonprofit to stretch its dollars further and can assist it in uncovering other resources.
How does a nonprofit go about applying for a loan?
Yates: One of the biggest myths is that the lending requirements and/or documentation requirements are looser for nonprofits. While underwriting standards may vary from lender to lender, the nonprofit should still be prepared when applying for credit.
Before approaching a lender, the director of a nonprofit should have the organization’s financial documents professionally prepared, presented in a manner that is easy to follow and have a specific objective. The lender will want to know who the leaders are, so the director should provide the names, titles and experience of board members. All information presented should be clear, concise and well organized.
What are some of the factors that lenders look at to determine whether to lend to a nonprofit?
Yates: First, lenders examine whether the nonprofit is operating effectively and efficiently. Is it producing results? Does it have a reputable name in the community?
Who sits on the board?
Nonprofits must be well managed and supported by their boards. The board needs a good mix of people, including professional business people such as accountants, lawyers, architects and public relations representatives.
What other advice do you have for nonprofits that might be seeking a loan at some point?
Martinez: Create internal endowments something to generate funds to cover fixed costs and other expenses year after year. Educate yourself. Make the board strong and viable so you can obtain financial products and services and increase the lender’s confidence in your organization.
Yates: However, nonprofits cannot survive off endowments and donations alone. They must create revenue streams. They must view, run and manage their organizations like businesses.
Martinez: The nonprofit will struggle if it continues to depend on the same types of revenues. Events, federal budget shortfalls (for instance, when Congress redirects money or cuts it off) and other factors can have a negative impact on revenue, so it is helpful to create annuitized streams.
Directors of smaller nonprofits would do well to find a mentor from a bigger nonprofit. That guidance will be invaluable.
Educate yourself on how to run the organization like a business. There are many resources available to help, such as the University of Houston Small Business Development Center.
CARY YATES is vice president and senior relationship manager for Wells Fargo Houston Business Banking. Reach him at (713) 284-5556 or email@example.com.
OSCAR MARTINEZ is the Wells Fargo Houston business banking manager and team leader of relationship managers. Reach him at (713) 284-5561 or firstname.lastname@example.org.
“When you get high-performance people, egos get involved and that’s the beginning of poor leadership,” Elder says. “It’s not about you. It’s about the impact that you are having on the people that are around you that is really significant in this role.”
Elder has employed this thinking in his role as CEO to lead Legacy Energy Management Solutions to a 50 percent increase in 2006 revenue over 2005.
Smart Business spoke with Elder about the importance of respecting both your customers and your colleagues, and why it’s critical for a CEO to be humble.
Q: What contributes to a healthy culture?
Respect is a big piece. Respect for your customers in terms of how you are treating them, as well as respect for your peers within your organization. It really establishes a culture where people can grow and really enjoy where it is that they are working, which increases productivity and the success of the whole enterprise.
If you have a good, healthy work environment that is in a good place culturally, where people can just worry about the right things, their productivity is dramatically increased, as well as their job satisfaction.
We started out very early with making sure that the goals and objectives and the vision were established in terms of group meetings and taking the time to make sure that it became a part of the organization very early.
It’s always a part of the way that we all communicate. It’s very much an environment in which people are encouraged to look out for the best interest of each other and their customers.
Q: How can a leader cultivate a healthy culture?
Listen to other people’s ideas and do not be closed-minded or righteous to your own perspective on things at all times. Humbleness is incredibly important. It is what allows people to relate to you. People like to follow people that are real.
The head of the company is just another role. It is a key ingredient and it’s going to influence everyone. But once ego becomes a component of that role, it’s the beginning of a loss of effectiveness.
If you’re not willing to surround yourself with people that are being honest with you, then your effectiveness over the long term is going to be greatly limited.
Verbally communicate that that’s what you want to do. Tell them that you want to listen and you want to hear it. They have to see that in action. Then it becomes part of the culture and the expectations, and now you’ve got an environment that is really healthy from a leadership standpoint.
Q: How do you find employees that can work in this culture?
We’re looking for flexibility. They have to have the core competencies that you are looking for in terms of skills. But as important is will they fit in culturally in a high-performance environment in terms of working with the others in the manner that is demanded? The desire behind the individual is what is going to dictate how far they can go in our environment.
Q: How do you ensure that growth doesn’t spin out of control?
It’s all about communication. It’s something that has got to constantly be emphasized, or you’ll lose those battles.
The mechanics of how processes should work are always getting changed because a lot of other people have better ideas and improvements on my ideas. From a cultural standpoint, that gets to be my domain. That is the highest impact area that I can possibly have. That is a stake in the ground that is not changing. All the processes around it and how we deliver goods and products and services, those are all things that are constantly evolving based on lots of input.
It’s a constant journey in terms of communicating as much as you need to, trying to do it at the appropriate times and recognizing it’s not going to be perfect. Make sure that your people know your goals and objectives. They have to have a lot of trust in you that when they don’t understand what’s going on, or until they understand what’s going on, it’s all OK.
Q: What behaviors can stop a company from growing?
Arrogance and lack of humility, especially when you start to have some successes and you think you are a lot smarter than you actually are.
Don’t get too enamored with your title. It just means that you’re ultimately responsible for everything. Stay humble through the journey and keep a sense of humor, because you’re going to need it.
HOW TO REACH: Legacy Energy Management Solutions, (713) 524-0250 or www.legacyenergysolutions.com
The property insurance market was pretty easy to navigate in the Houston area until 2006. It didn’t require any special treatment from the insurance industry. Hurricanes Rita and Katrina have changed that. Now the area is considered on par with the coastal areas and has most of the concerns that go along with that distinction.
“The two main changes have been that premiums have increased by two or three times and deductibles now generally range from 2 percent to 5 percent of value,” says Rich Clark, managing director of Gallagher Hospitality Niche, Arthur J. Gallagher & Co. “Our crisis mode does not rival Florida’s. While premiums and deductibles have jumped, at least we haven’t seen the instances of coverage not being available.”
Smart Business talked with Clark for more information on the property insurance outlook in the Houston area.
What do you see on the property insurance horizon in the Houston area?
In general, property owners should budget for about the same property insurance costs as they paid in 2006 because the market is leveling off.
The exception to that would be for those whose premiums come due in the first quarter of the year. If they paid their premium in the first quarter of 2006, they probably got by without much of an increase. They will have to deal with a hefty increase this year.
Besides the premiums, property owners need to be aware of the potential exposure due to higher deductibles.
What can property owners do to alleviate some of the costs?
First of all, it is important to have a market-knowledgeable agent or broker. He or she needs to have experience in placing coverage on the type of asset you own to provide the best advice.
Secondly, ask your agent or broker to have a Probable Maximum Loss (PML) study done. Most lenders require that full replacement coverage be maintained.
Insurance companies want their premium based on full replacement cost. The PML study will show what the potential loss would be under various scenarios. It gives you a tool to negotiate with. Let’s say you have $100 million worth of property and the study shows that your maximum total loss would be $20 million from wind or flood damage. Then, if your lender agrees, you might only have to purchase insurance at the higher rate for wind or flood damage on $20 million and lower rates for $80 million coverage for fire, theft or other damages.
Is an appraisal necessary to determine coverage requirements?
As long as you can show the carriers that replacement costs are in line with industry standards, an appraisal should not be necessary.
With newer buildings, it is fairly easy to review various standards to come up with fair replacement values. With older buildings especially those with historical significance or those built before many of the current laws and codes were in effect higher replacement costs need to be considered.
You may have much higher costs to replace a building using today’s building codes. In these cases, be sure to talk to your agent about law and ordinance coverage.
What about flood insurance?
Houston has been remapped, so flood zones have changed. Flood insurance can be purchased through the National Flood Insurance Pool (NFIP). You can purchase this insurance whether you are in a flood plain or not. It is quite inexpensive, so it is usually recommended that property owners buy what NFIP insurance they can and then purchase supplemental commercial insurance to cover what isn’t covered by NFIP.
What is the most important aspect of a property owner’s insurance program?
People tend to look at the price of their coverage, but it is most important to review your coverage with your agent or broker. Make sure you understand what coverage you have and don’t have. This is another reason to deal with an agent or broker who specializes in your industry and understands your coverage needs. Only such a specialist is able to point out things that you do or don’t need to have covered and how best to obtain the coverage at a fair price.
Any other advice?
Be prepared. Every property owner should have a relationship with a first responder in the event of a major claim or catastrophe.
Also, identify a forensic accountant. Have your team in place before a catastrophe is imminent. When something happens, everyone should know who is going to do what, and when.
RICH CLARK is managing director of Gallagher Hospitality Niche, Arthur J. Gallagher & Co. Reach him at (713) 358-5930 or Rich_Clark@ajg.com.