Early on in Kay A. Henze’s career, the then president and CEO of Verizon Wireless told her something she still remembers to this day: Good leaders say the same thing over and over and over again. When they get sick and tired of hearing themselves say it, they say it again.
“It really has helped me, especially in that first year when we became Verizon and were bringing all these different cultures together,” the president of the Houston/Gulf Coast region says.
With 1,800 people following her lead, Henze has to work extra hard to guarantee everyone is on the same page, which she does by being visible and staying in touch with employees and customers.
“In large organizations, especially as managers increase their level of responsibility, that becomes more and more of a challenge because the workload continues to grow,” she says. “But you always have to remember that in my business, it’s a very consumer-centric business, and the business really happens where the customers are and where most of your employees are. It doesn’t really happen in your office.”
That type of attitude is contributing to the company’s success.
From a customer loyalty perspective, Verizon Wireless has flourished. The second quarter of 2009 was the 19th consecutive quarter that the company, which serves 87.7 million customers, experienced the industry’s lowest customer turnover rate, and the organization continues to see year-over-year growth.
“I think it’s definitely benefited our organization, because it’s helped the company grow,” she says. “At the end of the day, it does come down to the results. At the end of the day, it does come down to what we produce and what we give back to the corporation. By being engaged and visible and committed, we help each other grow.”
Henze and her team were having trouble articulating the competitive advantages that Verizon Wireless had over its competitors. She and her team talked to some front-line employees at retail stores and found those employees could articulate very crisply and succinctly what they saw as competitive advantages.
She took the ideas, shared them with directors and formed a cross-functional small group of the employees. They drafted in their own words what they saw as the company’s competitive advantages in Houston, and those words were adopted nationally.
Without getting out and talking with employees, Henze and her team might still be looking for the best way to summarize the company’s competitive advantages.
“The more that you are out there, the more comfortable they become,” she says. “So, it’s not a big event, or it’s not a big deal that Kay just walked in my store.”
Making yourself available for employees and customers is key to being a great leader, but unfortunately, it is sometimes easier said than done.
“At the end of the day, you have to remember that you control your own calendar,” Henze says. “For me, that is really the biggest piece of it. I schedule time to be in front of my customers and in front of my employees all the time.”
Henze spends time with business customers and business sales representatives and tries to make announced and unannounced visits in retail stores once a week.
“You have to schedule it,” she says. “Through the years, if you set a goal that you’re just going to do it and don’t have the discipline around it, like any goal, it never really occurs.”
Don’t overdo it, though.
Scheduling visits once a week instead of once a day is much more realistic to achieve, and gives you time to work on problems or ideas you are hearing when you are out and about.
“I can’t think of a time that I haven’t spent time with our employees or our customers that it hasn’t resulted in work that needed to be done,” she says. “You have to allow yourself the time to go do that work. Because, otherwise, the employees lose faith.”
When making the rounds, be aware that you will run into all different types of employees. From the overachieving to the disinterested, you have to gauge the temperature of the room and be ready to interact with everyone you meet.
“Sometimes you’ll find an employee who is disgruntled and just doesn’t want to necessarily share for the betterment of themselves or the company,” she says. “Sometimes you’ll find an employee who feels, for whatever reason, that it’s inappropriate to share directly with a president as opposed to following the chain of command. Sometimes you’ll find, unfortunately, an employee who simply doesn’t care. You hate that, but it’s reality.”
When Henze runs into employees who feel uncomfortable going outside the chain of command, she will ask other people to step in.
“I might ask one of the HR consultants to go to the store and see if they are more willing to open up to HR, which sometimes they are and sometimes they’re not,” she says.
“But it’s always a sign to me, and I always just try to use other resources to get to what exactly is going on.”
A pitfall of being an engaged and available leader is the reality that you may undermine your managers. If you are making the rounds and speaking with your managers’ direct reports and employees, you could create a situation where a manager feels like you are micromanaging him or her or interfering with his or her leadership style.
To avoid that situation, Henze will give a new director some insight into what she does on trips.
“When I have a new director come into my organization, the first time that I go to visit their locations or work with their managers, I do it with that director,” she says. “They can see for themselves what I’m looking for, the questions I am asking and I can give real-time feedback with them right there with me. I can point things out, and then I think you can build from there. The employees also see you together, which is very important.”
You also need to report back what you learned on the visits almost immediately. Henze’s first call she makes after a stop is to the director of the location she just visited.
“Feedback to the next level is always provided,” she says. “It’s always in the spirit of improving the business and making sure that our employees have a good level of morale, that we are putting our customers first and that we are working together across all the layers to improve. So, my managers, my directors, when I leave a store they are usually the first phone call I make and the response that I always get is, ‘Thank you for the feedback.’”
The call will also let your managers know that you aren’t going behind their backs or keeping information you learn on the visit a secret.
“There is no hidden agenda,” she says. “Everybody is on the same page and because of that, (it) filters throughout the entire organization. It’s very transparent.”
Deal with trouble
About five years ago, when Henze was a director, she had a district manager who was uncomfortable with the visits she made. It turns out, the district manager was not guiding the business by the company’s core beliefs. Eventually, the manager resigned but the damage had already been done.
It took about two months from the start of the process to the resignation, which may not seem like much, but to the employees under that manager, it seemed like forever.
201C;It took many months before the employees really felt that they were moving in the right direction, and that they felt supported because they had not felt that way for a long period of time,” she says.
Either you or people whom you trust will have to stick around that location to make sure that everyone gets back on the same page and is buying in to the company’s beliefs.
“That’s what I call hand-holding,” she says. “Not micromanaging, but that’s a period of time that you really have to hand-hold the leadership in that organization as well as the employees in that organization.
“What I mean by that is making sure that if you are not there as the leader that there are other people there representing you that you trust and that are on message. You may infuse some additional leadership for an additional period of time.”
You might also move a more productive manager to the troubled locations to settle things down.
“You might move one store manager to a different store and put the other store manager in the troubled store,” she says. “You really have to strategically ensure that you’ve got the right people there in the long-term permanent positions.”
Don’t put the new leader hired to replace the bad leader in the troubled location. Instead, start them out in a location that is doing well.
“Because then the new leader, if they are in another location and if they are in a store that is really getting it and they want to improve, they will feed off of their employees and they will feed off of that new environment,” she says.
“The other, trusted employee going into the troubled store — the employees will respond very quickly. You’ve got to kind of mix some things up sometimes to make sure people get the support they need.”
If you stay engaged, not only will the employees get that support, but you may be molding a future leader, while, at the same time, keeping the company heading in the right direction.
“We foster a growth and development culture within our organization, which helps us see what the customer sees and helps us hear what our employees are seeing and doing,” she says. “So, we are constantly building the future leaders of the company and we are constantly focused on how we can improve our results. For us, the good news is that it’s worked and that our results continue to be strong. We have the highest customer loyalty in the entire industry. So, I think that’s the benefit. The benefit of it is in the results and in the development of your people to become the next leaders to help carry the company forward.”
How to reach: Verizon Wireless, (800) 922-0204 or www.verizonwireless.com
Ed O’Brien has 35 years of experience in the public accounting industry, much of it in publicly traded businesses. Currently, he serves as the managing partner of Grant Thornton LLP’s Dallas office. In his career, he has worked with many business owners to evaluate wealth creation alternatives related to their investment in their companies, and he has been significantly involved in numerous transactions involving business formations, purchases and combinations.
Q. In a struggling economy, how can a business get the most from its relationship with an accountant?
An open line of communication between the company and the accounting firm is critical in order for us to help in an up or a down economy. The more we know about their business challenges, the more we know about some of the issues that they face as an organization, the more we can be of assistance, providing ideas and opportunities for change.
Q. How might a company be able to save money when it comes to accounting costs?
The more prepared they are, the quicker we can get in and out. I always advise the companies I work with to make sure their books are completely closed before we walk in the door. One area that small- or middle-market companies might consider is having some temporary help come in to really make sure their books and records are clean, because they can employ those people much more cheaply than they can my people when we come in to do the audit work. Our charges are significantly higher than they can get in the marketplace for good accounting talent.
Q. How can an accountant save money for a company?
In a private company, cash flow is the name of the game. Any way we can assist them in identifying ways they can improve their cash flow, whether that’s through renegotiating with their vendors, consolidating vendors, we will do that. In addition, tax minimization and tax credits, especially in today’s environment are critically important. The less they pay, the more they can keep in their business and, in some instances, stay in business. Arizona, for example, provided significant credits for green initiatives. You look for all those additional ways to create cash for the organization.
An impressive list for sure, but it wasn’t a commander in chief that most influenced the chairman and co-CEO of Stewart Information Services Corp.
When Morris was a senior in high school, he was responsible for chauffeuring evangelist Billy Graham to the dedication of Houston Baptist University.
The duo arrived late, but as they were walking toward the university, Graham wanted to take a detour.
About 70 or 80 yards away, the workers were finishing the landscaping, and Graham knelt down and thanked them for building the university.
“I said that is a humble person who recognizes the value of what somebody else is doing,” Morris says. “He told them what they are doing would be attracting the students that would one day be leading America.”
To Morris, that is still more impressive than any president he’s met, and it’s an attitude he tries to drive every day at the company, which provides title insurance and related services to the real estate and mortgage industries. He wants to be a trustworthy leader who puts the organization, which posted $1.5 billion in 2008 revenue, ahead of him and lead a company where the customer and employees come first.
“That’s the most important thing you can do,” he says. “I’ve seen too many organizations where the organization was about serving the leader rather than the leader serving the organization.”
An effective way he drives that point home is through the company’s open-door policy.
“What is interesting is to hear people talk about it in the field,” he says. “I may get one call in three years from a person and that same person is saying to their customers, to their team members etc., ‘You know, I have access and I can call the chairman of the board of the company and he knows me, and he’ll pick up my call anytime I call him.’
“But they don’t abuse that. Yet, it is a sense of pride to them that they do have that openness.”
Here’s how Morris uses an open-door philosophy to lead Stewart Information Services Corp. to new heights.
Set the example
Morris recalls visiting a company where the CEO was smoking cigars all the time. The CEO wasn’t alone.
“Every layer of management of the people trying to get ahead in the organization had a cigar in their mouth,” he says.
Morris isn’t saying that’s bad or good. The point is, your employees are watching you, and if you start doing something, it will spread throughout the organization. The same goes for something that you say you’re going to do, and then you do the opposite.
“People learn from your examples,” he says. “So, if you say one thing and do another, then you basically void your ability to earn that trust.”
Because Morris says he has an open-door policy, he has to live that day in and day out. Otherwise, people will not buy in to it and they will see it as lip service, which will hurt the amount of trust employees have in him.
“The main thing is you’ve got to practice that,” he says. “So, if somebody has got a major issue, you can’t tell them you don’t have time to deal with it. That has to become a priority. Deal with it the same day. Don’t put it off a week.”
Morris received a call from an employee a thousand miles away because her boss took another position and she was lost in the middle.
He took her call, spoke with the parties he needed to and got back to her in a couple of hours. He then followed it up with an e-mail with her and those taking care of it, thanking her for bringing it to his attention.
“It wasn’t anything that was an issue, but if a person gets something in their mind that it’s an issue, then it’s an issue with them,” he says.
That’s important to remember. It might not be a big deal to you, but if someone is taking the time and courage to approach the CEO, it means something to that person.
If you aren’t available when an employee contacts you, your assistant has to be the one to tell him or her that you are unavailable, but you have to realize it is an important matter.
Morris tries to leave some white space on the calendar between meetings so he can look into any issue brought to him while he was away. If it’s something he needs to handle immediately, he can at least start dealing with it in that 15-minute window or prepare for the next meeting.
“If you don’t have an emergency, you have time to write down your thoughts about the meeting you’ve just completed as well as review what you want to review before you are going into your next meeting,” he says. “Then, if you do have an interruption, at least you’ve got some time where you can handle something.”
If you are available and someone is angry or upset, take his or her call, but let that person calm down before speaking.
“You never establish anything while somebody is ranting and raving,” he says. “It’s like throwing rocks back, and you are giving them ammunition. Pretty soon, they’ll run out of gas.
At that point, you can have a reasonable discussion.
“If they’ve got an issue that’s upset them, let them finish, state what you heard and ask them what they would see as the solution,” he says.
Don’t undermine managers
The employees at Stewart are given a very clear message when it comes to the company’s open-door policy.
“We encourage everybody to follow their report in management, but we also encourage our management to say to somebody under them, ‘If you disagree with my decision, I encourage you to appeal above me.’ So, that message gets out.”
Morris and his team obviously want people to come to them if they feel it necessary.
But, be careful. While that kind of an environment is effective and essential, it can create problems.
“That’s the kind of openness you have to have, yet you don’t want to manage around your leadership,” he says.
If an employee leapfrogs a manager and comes to you with an issue, get the manager involved, especially if something is going to be changed. You want to keep the manager in the loop so he or she isn’t blindsided.
“We (get) them involved,” he says. “If you are going to change some decision, then I think it’s important to go through the decision process with that manager and make sure you both are understanding the same facts.
“You go through how you analyze it, get the feedback of that manager on it, and you’re basically looking to get the buy-in of that manager as well as use it as a training opportunity. So if a situation came up again, perhaps that person has a little more insight into the decision process.”
Because the open-door policy is so strongly communicated to all employees, it keeps managers on their toes, which keeps the number of people coming to see Morris down.
“They don’t come in that often,” he says. “I think that is the magic of it in the organization. If people know that is available, I think your management all the way down the line is saying, ‘I really don’t want that call coming, so I am going to
do that job and I am really going to pay attention to what this person is saying.’
“It’s not that you aren’t getting any calls from an area. Getting some calls is good and it helps maybe to do things better in the company or plan some things better. But, if you are always getting bellyaches from an area, you know you’ve got a problem. You’re going to get those anyway. They are going to surface up through the organization.”
Just because you get a call from a disgruntled employee, don’t automatically assume the manager is wrong.
Part of forming a trusting and open-door environment is delegating and getting out of the way. Yes, you want employees to feel free to come to you if something isn’t right in their department. But, if you’ve delegated authority and responsibility to a manager, they may be doing something differently than you would, but that doesn’t mean it can’t be just as effective.
“Remember, what’s important is the end result and not the road to get there,” he says. “I can actually say Dallas is due north of Houston on a compass, but if I take a compass without reading the road signs, I’m going to wind up in a dead end somewhere in a cow pasture because I took the most northerly turn.”
Whether you use the scenic route or the interstate, you wind up in the same place, and that is what’s important.
If the manager is doing something wrong and not reaching the goal, you need to coach him or her instead of just taking the job back.
“If you sign the job out, don’t take it back,” he says. “If you’ve assigned the job out and you want the person to get to the goal, then let’s coach and mentor that person if they are having trouble getting there.
“Either you do that or you waste a lot of time and money and effort and potentially harm the reputation of that employee.”
Don’t just tell the manager what to do. Get him or her to participate in the process.
“In a time-constraint society, it’s a whole lot easier just to tell somebody, ‘Do this,’ especially if you’ve done it 50 times, and you know exactly what to tell them,” he says. “However, just like rearing your own children, if you tell them to do something they’re less likely to do it than if they learn why to do it.”
Those same managers will be able to learn faster if they feel more comfortable coming to you and asking for help, instead of never seeking advice.
It also makes a difference when you bring in new employees.
“We have had people who have come to our company from competitors and they say, ‘We never met the CEO of the company. We never were able to talk to them. They were very elusive. This is incredible.’ It takes very little time.”
How to reach: Stewart Information Services Corp., (800) 783-9278 or www.stewart.com
When Paul J. Sarvadi and his co-founder sat down to talk about what kind of company they wanted to become back in the mid-1980s, they really didn’t have any idea what they were doing.
But, one thing they did know is they wanted the company to be about people, corporate culture and freedom for employees to do their jobs.
“What’s interesting to me is that most people spend an incredible amount of time and effort to develop their financial plan or their sales plan or their operating plan, but very few people spend the amount of time and effort to develop their people plan,” says Sarvadi, co-founder, chairman and CEO of Administaff Inc. “What’s their people strategy? What is the culture they want in their company? What is their organization and leadership philosophy for the company? How do they want to award people? ... These are equally important issues but generally don’t get the attention. The funny part is, it’s the people that implement all those other strategies.”
With 1,900 employees and more than $1.7 billion in 2008 revenue, Sarvadi is far from those days when corporate culture wasn’t even a common term in business circles.
He still believes in leading by example and communicating the type of culture that will continue to help the professional employer organization succeed.
If it’s after 5 p.m. and Sarvadi sees someone still in the office, he doesn’t automatically think what a great worker he has on his hands. He wants to know why that person isn’t home with his or her family and if he or she needs help with whatever it is the person is working on.
“In our world, we want to have a good work-life balance,” he says. “That’s one of the things we value. I want your work life to be a benefit to your home life. I don’t want you to live to work; I want you to work to live. So, I would rather reward you for innovating so effectively that you could figure out how to do the job better from 8 to 5, than I would reward you for being there at 6 in the morning and 10 at night. What are we doing wrong that we can’t get it done within the work hours?”
It’s that type of caring that has helped shaped Administaff’s culture and working environment today.
“(Your culture) becomes how your company reacts to the things that happen to you, good or bad,” he says.
“Your culture … either enables everything you are trying to do or inhibits everything you are trying to do. In our particular case, it’s been a tremendous enabler.”
Lead by example
Sarvadi wants employees to know he cares about them and wants to create a trusting work environment around him. In order for the message of a trusting corporate culture to permeate through your organization, you have to lead the charge by not just words but also actions.
“Leadership is always more communicated through example than it is through just discussion,” he says.
Which is where walking around after 5 p.m. to see who is still working comes into play. If he didn’t care about his employees and wanted them to fend for themselves, he’d walk right past the late-night worker, instead of inquiring if he or she needs help.
Or, he could chastise the worker for not finishing on time and bark orders. Neither would be effective in building a positive corporate culture.
“I just believe you get a lot more out of people when you lead out of authority instead of out of more of a power base liked you’d have in the military,” he says. “To me, the keys to being an effective leader are all about how you care about the people you are leading and how you develop that kind of influence. To me, it’s a set of skills that you learn and how to interact with people that develops that type of relationship.”
Sarvadi’s leadership style revolves around that kind of authority and developing relationships with people where they really want to follow and participate in whatever objectives have been set.
“That means that people are ready to storm the hill with you,” he says. “In order to get people in that kind of mode, what you have to do is develop personal influence with those people. The way you do that is develop a set of skills that involve how you connect to people. It’s really interpersonal skills — caring about people and respect for them as an individual and caring enough to tell them when they are doing things right and when they are doing things wrong. (It’s about) having the type of relationship that is trust-based where they learn over time that you really care about them and their success. When people know that, they participate at a different level.”
Sarvadi recommends thinking back to your past about someone to whom you gave over a significant level of authority.
“Power is something imposed on people, but authority is something people give you as a leader,” he says. “What you are looking for is situations where you said, ‘Hey, I am going to submit myself to that person’s authority.’ Then you answer the question ‘Why? Why was I willing to submit to that authority?’ What you are going to find out is those people in common had skills where they had developed personal influence with you.
“They were honest with you, they demonstrated they listened to you, they cared about you, they communicated with you in a way that was respectful and honest. Those are the things that make somebody really want to follow.”
Think about how those actions affected the level of personal influence that person had in your life and what made you want to follow that person up the mountain. Then, try to emulate those characteristics.
“It’s the little things,” he says. “Usually they are humble, they are kind, always respectful. They held you accountable but forgave you when you messed up. It was more of a learning thing. A lot of times, they were teaching you. They were willing to take the time to teach, not just correct.”
Don’t think about leadership as only getting up in front of people and talking. To build a trusting culture, the example you set is important.
“Although being able to communicate is really important, people are more about what you’re doing than what you’re saying,” he says. “It’s the integrity between what you say up there and what you are doing day-to-day that people pick up on and determine whether they could trust you or not.”
While leading by example will work its way down the organizational chart, so will your actions differing from your words. If you are preaching one thing and doing another, don’t fool yourself into thinking that no one is paying attention to you going through the motions. They are, and it’s hurting your credibility.
“Some of the things are as basic as listening skills,” he says. “But I always say listening is different than caring. A lot of times, people will listen just because that’s the polite thing to do. But, you know an individual can tell the difference between when you really care about what someone is saying and what their end objective is as opposed to just listening just to be polite.”
Administaff is in pretty good financial shape, even during this financial crisis. There is still money in the bank, working capital and no debt.
t the economy still affected the company, and Sarvadi had to make changes.
“Our customers are affected, therefore we’re affected,” he says. “We’ll still make money. We just won’t make as much money. But in this environment, even though we have that type of financial standing and capacity, it still made sense for us to take a conservative view of the next couple of years.”
Sarvadi gathered with his executive team and they walked through what a conservative approach would look like, and then communicated with the next level of management the new approach.
Making cutbacks when a company is doing well can send a wrong message and leave employees disgruntled.
“We made a bunch of decisions that are not popular,” he says. “We froze wages; we decided to not replace folks and allow attrition to take place. We cutback on the 401(k) match. We did a number of things that a lot of companies are doing these days just to be conservative and to make sure the company stays in good financial shape through the downturn.”
Decisions, especially unpopular ones, need to be explained if you want a positive culture where people are empowered. You can’t expect people to hear what you say, be happy and then just go back to work.
Instead of just sending out a memo explaining the changes, Sarvadi and his team took a whole company meeting to explain why they were scaling back.
“A lot of times leaders don’t take the time to explain why,” he says. “When people understand why, then they help figure out how more effectively than they would if they don’t understand the why.”
Not everyone is going to love the decision or even the reasons why, but that doesn’t mean you keep it a secret.
“But at least people say, ‘Hey, you know what. They have the guts to just tell us like it is, and we just have to live with it.’ But that’s better than people wondering what’s going on behind the curtain,” he says.
You shouldn’t wait for bad news to start communicating. Keep the lines of communication open at all times to engage employees and find out what’s on their minds by giving them the opportunity to ask questions.
Every month, Sarvadi has a meeting with the entire staff, and they broadcast it throughout the country. Employees can ask whatever questions they want anonymously. They submit them in advance and Sarvadi reviews them and answers as many questions as he can in the time allotted.
“What happens is many of these questions give an opportunity to answer the question in a way that supports and reinforces our leadership philosophy,” he says.
Aside from unpopular decisions, there may be other topics people want to know about. The more questions you see about a specific topic will give you a better idea of when you need to explain the reasons behind a decision.
“Part of it would be just when you are making a decision that impacts a broad number of people or when it’s a change to the strategy or direction or a change to a major objective,” he says. “Then, beyond that, it would just be things that kind of bubble up. You can have more of the same kind of questions bubbling up from two or three different parts in the organization.”
Using examples will also help in getting your point across. In Sarvadi’s case, when he announced some of the changes, he also told everyone that the off-site training sessions he normally has for his management team would no longer be off-site to save some money. It shows that management was serious about its decision but that it also wants to meet the company’s goals and objectives for the year.
“Really, it was amazing how people were able to apply that thinking in their own part of the business and have tremendous results and control of the expenses,” he says.
It also shows management leading by example. That, coupled with explaining yourself, will go a long way in creating a trusting corporate culture.
“I don’t think you can have a V.P. of corporate culture because everyone has to be the V.P. of corporate culture because anyone of us can create an environment that’s counter to the culture,” he says. “So, it’s a matter of everybody owning it. But, they can’t own it if they don’t know what it’s about. If you’ve never described it fully, if you’ve never explained why it’s important to you and the business, then why would anyone care?”
How to reach: Administaff Inc., (800) 465-3800 or www.administaff.com
Just a few short years ago, life as a commercial office building owner was good. Rates were at all-time highs, vacancies were at all-time lows, and office buildings were trading left and right at unheard of prices.
Fast-forward to the present, and the reality is a little gloomier.
“The office space market is experiencing negative absorption and rental rates are sliding,” says Trey Miller, a leasing advisor with Moody Rambin Interests. “Both lead to one of the most talked about words in office brokerage these days: the sublease.”
Subleasing, the act of an existing tenant leasing all or part of its space to another tenant, has become increasingly popular as the overall economy slows. When businesses are laying off employees in large numbers and otherwise trying to decrease operating costs, scaling back office space is a very sensible move. However, planning your strategy is the hard part, and if you don’t have the right mindset going in (and the right broker) you’re going to waste a lot of money.
Smart Business spoke with Miller about subleases and how to use one to your advantage.
Why are subleases attractive to the subtenant?
Typically, subtenants should expect at least a 25 percent discount compared to direct space since they’re offered the space as-is, i.e. there are usually no build-out dollars available, and the lease term is normally shorter than a direct lease term. And with more and more sublease space coming online almost daily, the increasingly strong buyer’s market is only gaining steam. Consequently, a company shopping for lease space should have landlords (and sublandlords) fighting for its deal. Furthermore, if your company is searching for a ‘plug and play’ solution, it is not difficult to find. Plenty of ‘A’ buildings have sublease space available with quality build-out (including furniture, telephone systems, etc.) offered at a substantial discount.
What benefits can the sublandlord see?
The principal notion when dealing with a sublease is ‘cutting your losses.’ If marketed properly, a sublease can help a tenant cut its real estate excesses quickly and recoup as much money as possible. Be prepared to take a financial hit vis a vis your overall liability, but, depending on the remaining term on your lease, you’ll see a long-term benefit when that extra space is off the books.
How does the subleasing process work contractually?
The key to subleasing — for both the sublessor and the subtenant — is credit. Logic dictates that the sublessor should be concerned with the credit of the subtenant, and that’s true. Often, the sublessor is generally much too eager to find a willing subtenant to scrutinize that company’s credit. It is equally important for a subtenant to look at the credit of the sublessor. It’s a three-party agreement, but there is no privity of contract between the subtenant and the master landlord. As a result, a subtenant has to make sure that the sublessor is reliable, and will not default under the master lease. To protect against that possibility, a subtenant should request to pay the master landlord directly (in addition to maintaining the right to cure any default by the sublessor).
What should the sublessor expect from the subleasing process?
Besides credit, the next biggest issue to a potential sublessor is expectations. Again, remember that you’re cutting losses, not trying to turn a profit. It’s easy to have sticker shock if you’re paying, say, $30 per square foot for an office and have someone advise you to market it for $15 per square foot. However, that is the type of upfront conversation that a good broker will have with a client.
Subleasing can be painful, but how painful depends on keeping expectations in check. You have to weigh the economic pros and cons of getting a deal done quickly at a reduced rate versus trying to maximize your rental rate and potentially having the process drag on longer than necessary. Remember that an empty office is like an empty hotel room; every passing day is a missed opportunity to recoup part of your investment. It’s possible that the perfect subtenant will come along and you’ll get $25 per square foot on your $30 per square foot lease, but that’s unlikely. For most, the days of making money off of a sublease are long over, particularly those who signed leases at the height of the market in 2007 and 2008.
Who should a company turn to for assistance when looking to sublease?
You have to find a quality broker who knows your submarket and knows how to make your product stand out from the myriad of options available. In the past, a broker would simply send out an e-mail blast to the brokerage community and wait for the phone to ring. Now that the market is so inundated with space, brokers barely read these e-mails anymore. Believe it or not, better results are achieved by using good old-fashioned ‘snail mail.’ Additionally, sublease listing brokers need to be much more proactive in searching for possible subtenants in the existing building as well as the surrounding submarket. If you’re lucky, there may be an opportunity right under your nose.
Trey Miller is a leasing advisor with Moody Rambin Interests. Reach him at (713) 773-5584 or TMiller@moodyrambinint.com.
Unexpected events can pop up at any time often with a hefty price tag. But having appropriate risk management strategies in place can prevent a bump in the road from becoming a detrimental blow to your bottom line.
With today’s shaky economy, it’s likely your budget is slimmer than ever. You’re not alone. According to the Aon 2009 Global Risk Management Survey, 57 percent of those surveyed reported suffering losses due to the economic slowdown. With less cash in your line items, you may be tempted to skimp on insurance to cut costs. But implementing a prevention program and carrying the right amount of coverage can actually save you money in the long run.
“With the economic downturn and everything that’s affecting businesses from every different angle, it’s more important than ever for a business to determine what risks it faces,” says Jim Loucks, managing director, Aon Risk Services Southwest Inc.
It’s likely your business already has at least basic insurance policies in place. But risk management goes beyond paying workers’ compensation premiums. A few basic pre-emptive measures now could prevent a costly incident from ever occurring and can save you the hassle of dealing with a startling loss.Determine your risk
Before you settle on what policies and strategies to implement, you must first determine which areas pose the greatest threats to your company’s livelihood. A thorough examination of all aspects of your operation, known as enterprise risk management, will uncover vulnerabilities.
“In order to determine their risk, (company leaders have) to look at their business holistically and they need to come together internally to share with various sectors within their company beyond the traditional risk managers,” Loucks says.
With peril lurking around every turn, you may feel overwhelmed. Your insurance broker or carrier can help you analyze how to best prevent disaster. You’re already paying for his or her service through premiums, so including your broker in risk planning is a cost-effective way to bring an expert to your side of the table.
“One of our priorities is to guide our clients through this process on whether to make a product, bid on a project or get into a new market based on amount of risk it presents to the organization,” says Art Flanagan, senior vice president, HUB International Rigg.
The slumping economy has exaggerated the market for some risks. Strapped with smaller budgets, many CEOs are reducing staff and facing the hazards that come with such measures. Wrongful termination lawsuits can soar during layoffs, and employees who fear they’re next on the chopping block could suddenly fall victim to a fabricated injury.
To protect your business from frivolous claims, consult with your insurance agent and attorney to ensure you are properly covered through employment practices liability and workers’ compensation insurance and that the actions you intend to take are legal. Directors and officers coverage may also be valuable during these times, as executives are forced to make tough decisions that deeply affect the company.
Additionally, you may be interested in credit insurance to keep your business running if your receivables are late. If you have a coastline property, you may also be interested in a policy that protects you from windstorm damage. However, the popularity of such coverage makes it an expensive, or even impossible, proposition for most companies.
“Most organizations are having to bite the bullet this year and buy less windstorm coverage than in the past,” Flanagan says. “Hopefully, we won’t have a hurricane strike this year and gradually insurance companies will get back into the business of providing windstorm coverage.”
For each risk area, map out worst-case scenarios to determine which exposures you can tolerate and which components will require more in-depth attention. Once you have pinpointed the most dangerous aspects, you can begin examining insurance policies and preventive measures.Save money
If you’re concerned about the cost of managing risk, there may be good news on the horizon. A recent survey by the Risk and Insurance Management Society found that the average total cost of risk which is composed of insurance premiums, retained losses and risk administrative costs fell 9.4 percent per $1,000 of revenue in 2008.
Still, you can’t afford to pay for coverage you don’t need, so it is imperative to create a risk management plan that works for your company. If you’re willing to put in the time to calculate your options, it’s likely you can save money on premiums and avoid loss events altogether.
While some minimum levels of insurance may be mandated by your state, it is up to you to decide how much additional coverage you require. By bulking up your policy in areas that are most prone to loss and by peeling back your insurance on more stable items, you can devise a plan that optimizes coverage and minimizes your out-of-pocket cost.
However, if you choose to reduce your premiums or take on higher deductibles, you must ensure you have accounted for the potential gaps in your budget should the loss occur.
“When a company’s optimizing their transfer and risk retention, the results all drop to the bottom line,” Loucks says.
A common way to reduce risk exposure is to transfer the obligation to a third party, such as requiring tenants to provide their own insurance. You may also want to consider implementing safety measures in your business plan, such as employee workshops. These actions can improve your risk profile and make you more attractive to a carrier and more apt to get a better rate.
“A sophisticated company will take on as much risk as they can, transfer as little as they can, and nine times out of 10, they will do better by structuring a risk management program that way,” Loucks says.
To ensure you have the proper coverage in the adequate amounts, you should step back and review your strategies at least once a year. It’s recommended that you reanalyze your plan each time a major change occurs, such as a new acquisition or new product.
And don’t hesitate to reach out to your agent or carrier any time you have questions or concerns. Regular discussions help build a meaningful relationship that ensures the broker has your best interests in mind.
“We are in constant communication, and you really have to establish that consistent dialogue in order to learn about changing products that our clients have,” Flanagan says.
In the long run, maintaining a stable partnership with your insurance provider makes sense for both sides: You benefit from receiving better service and pricing, and the broker is saved the time and effort of cultivating new clients.
“The more business you have with a particular insurance company, the better the rates you’ll get from them,” Flanagan says.
Born: Beit Ur, Jerusalem
What was your first job?
Teaching English as a second language in Jerusalem
What has been your most difficult leadership challenge, and how did you overcome it?
Fast growth by hiring the best people I can find
If you couldn’t have your current job, what job would you want?
The president of the United States of America; the country would be the richest country in the world. We would not be in debt.
What would you do as president?
I would encourage business. I will stop this importation and bring jobs back … and give incentives to every company that brings the jobs back to the United States of America.
Shami on innovation: Whatever the system is, break the system and improve the system. Make it more efficient. That’s innovation to me. You have to have a vision to see where we are going. You’ve got to know where you are and where you are going. That’s really where you get inspired. You’ll have the vision for that. Vision should always be innovating something.
Shami on ideas: I don’t think there are bad ideas. Always think, ‘Is it time for it?’ Sometimes the idea is good, but it’s just not time for it. All ideas are good in my opinion. Even if the idea is not practical, it’s a good idea we know does not work.
With less money to spend and smaller marketing departments, it’s time to rethink the way you look at marketing.
“The challenge is that the number of marketing tools available are increasing exponentially,” says Bo Bothe, president and chief creative officer of BrandExtract. “With so many options available, CEOs need to stop thinking about the way they’ve always done things and start thinking about how to market more effectively and efficiently.”
Smart Business spoke with Bothe about how to get more marketing impact today for less money.
How can you begin to market more effectively?
Start over. Start thinking strategically instead of tactically — force yourself to rethink what you’re doing. Companies waste far too many resources on tactical solutions, before they get their brand position and messaging in order. Right now, you should be asking yourself, ‘If I can only have one marketing goal this year, what would I do to achieve it? What would move the needle most?’ Then work backward from there.
The business landscape has obviously changed in the last 18 months, and a company that doesn’t take the time to re-examine whether or not their marketing and messaging is in line with their customer needs will be left behind as business continues to improve. Talk to the key stakeholders in your company — sales, marketing, customer service, distribution — and find out what they need to do their job more effectively. You may be surprised to find out that it isn’t a brochure or flashy Web site. Then, talk to your customers to find out what really matters to them today; they need you to convince them why they should be interested in you.
What is the most important step you can take to market more effectively?
The biggest mistake leaders make is not engaging their employees. Companies come up with mission, vision and value statements, but they often don’t communicate with employees about how to talk about them and what makes them valuable to the customer. Whether you have 20 employees or 20,000, imagine if every one of them had a clear understanding of the value the company provides — they would all become an extension of your sales force. Now think about the media channels they have at their disposal today. Your sales efforts can be much more effective if your whole employee base is on message.
Engaging your employees to sell is done most effectively through constant and consistent communication. It’s not just posters and newsletters. It’s town-hall meetings and training managers to train their people — not only about what you want them to say but why it is important. You need to set the strategy and make sure it is communicated to leadership and that leadership is communicating it to management and that management is communicating it to employees. This ensures that your employees are educated about what’s going on and that everyone knows where you’re headed and why it’s valuable for both them and for the customer. If you do that, they’ll be able to bridge the gap for you and make your marketing efforts more efficient.
How can you better target potential clients?
Profile your customers. What does your best customer look like? If you know that, then you know where to most effectively focus your marketing and sales efforts.
You also have to know what you’re good at and focus on it. That doesn’t mean you stop marketing or reduce your investments, it just allows you to invest in the right things. Cost-effective marketing is about knowing your audience, knowing what you want to get from that audience and focusing on the best people to get it from. That allows you to reduce inefficiency and become more cost-effective because it doesn’t have you running down the wrong path. You also need to talk to your customers. I don’t mean polling, I mean actually talking to your customers to find out whether or not they have a clear understanding of your company, the range of products and/or services you offer and what differentiates you from the competition.
What do you need to beware of when considering your marketing options?
Be wary of shiny objects. Remember that all of these new media choices are additional tools (just like a brochure or Web site) and, whatever you do, make sure you have a strategy to make them work for you. Just because everyone’s on Twitter doesn’t mean you should be doing it. Focus on what can move your brand forward, as opposed to doing something just because everyone else is doing it.
How do you measure results?
It comes down to understanding what matters most. Is it increasing order size, growing the client base, driving more people to the Web site or something else? You need to define what is going to make a difference and ask how much, if any of it, is moving the needle. Approaching your marketing efforts with specific goals in mind increases your chance of success and provides a foundation that enables you to make decisions about your marketing spend. Marketing needs to be thought of as a revenue generator, not an expense. If you don’t have an internal system of measurement, you don’t know what’s working and what’s not, so everything becomes important. And we all know that approach is a very costly proposition.
Bo Bothe is the president and chief creative officer of BrandExtract, an integrated branding and communications firm that guides growing companies by providing strategic branding solutions, marketing communications, advertising, print and interactive services. Reach him at firstname.lastname@example.org or (713) 942-7959 or visit www.brandextract.com.
Chances are you’re feeling the pinch of today’s economy in ways you never expected. With the recent banking crisis, you may be hesitant to share your worries with your bank for fear that it may see you as a risk. And your concern may be well-founded, as more than 40 percent of banks reported a reduction in credit lines to small businesses, according to a survey by the Federal Reserve.
But now, more than ever, is the best time to buddy up with your banker to develop a strong relationship that can help pull you through hard times and can ultimately save you money.
Forming a partnership with your banker makes sense, as you both share a common goal: the financial strength of your business. By talking candidly with your banker about all aspects of your business, you bring a financial expert to your inner circle of decision-making. Along with your accountant and attorney, your banker can help you streamline efficiency and keep you on the track to financial soundness.
“In a down economy, it’s more important than ever to have a lot of contact with your banker,” says Paul Murphy, CEO, Amegy Bank of Texas.
When you make time to talk with your banker regularly, you ensure that you receive the best services possible as well as the advice you need to keep your company running smoothly even when the economy is bumpy.Keep communicating
Communication is key during any climate, but keeping the lines of communication open becomes of utmost importance during downtimes.
“You really can’t overcommunicate with your bank,” Murphy says.
Like in any new relationship, those first discussions can feel a bit awkward. But each time you sit down with your banker whether during a quarterly meeting or through a monthly phone call it becomes more of a friendship. The most basic way to begin building the relationship is by inviting your banker to visit your business, so that he or she can visualize your passion. When a banker takes the time to see your business, he or she conveys to you that he or she is committed to helping you succeed and are willing to put in the time to learn your business.
From the onset, you must convey to your banker a sense of openness and eagerness to discuss the various aspects of your company. Additionally, there should be an understanding that both sides are in it for the long haul.
“For many customers, we’re their only source of capital,” Murphy says. “They can see that we’re consistent, we’re steady and reliable.”
You should also take advantage of networking opportunities presented by your bank.
“It makes sense for companies to attend monthly luncheons where banks are talking about risks and issues and changes in the market,” Murphy says.
These programs can provide valuable business information as well as an additional opportunity for some face time with your bank.
Discussing a vast amount of information will help your banker understand that you respect the partnership and are looking to the future.
While it’s easy to share positive news, such as unexpected revenue, some executives may find their heart racing when they think about telling their banker that a major account is hovering near bankruptcy. However, discussing matters quickly and honestly can pave the road to an amicable solution.
“If a good company has one bad quarter, we’re not going to overreact,” Murphy says.
Bankers detest surprises, so ensuring that you are their first line of communication is paramount.
“If you delay the distribution of bad news, then you could torch the relationship entirely,” Murphy says. “It’s better for bad news to travel fast.”
While a banker may not be thrilled to hear of financial shortcomings, he or she will ultimately respect a client who does not hesitate to share important information.Maximize the relationship
With a trusted adviser on your side, you can work together to develop a plan to prosper. To make the most of the partnership, go over your business plan together and discuss how to improve efficiency. Even if your company is thriving, you can always benefit from the sound advice of a financial professional who can help you look to tomorrow.
As a CEO, it’s your job to update the bank on any changes in your industry. Your banker can then help you plan your next best step, whether it be trimming costs or planning an expansion. It’s also a good idea to ask for your banker’s opinion on how you can take advantage of the low interest rates offered today. Refinancing may lessen your payments and free up cash for other investments.
Some questions you may want to ask include: How can I make my company financially stronger? How can I streamline my payroll process? What are others in my industry experiencing?
“Bankers are very comfortable talking about issues with their clients,” Murphy says. “We’re getting a lot of questions these days, and bankers would be very comfortable with the concept of that.”
Once you have a relationship with a bank, it may be tempting to shop around for additional services. However, remaining loyal to one bank for a variety of products even when you could get a slightly cheaper price elsewhere may actually save money in the long run. When a company has a variety of services throughout different departments of the bank, that company becomes a household name inside the bank and may be considered for special offers.
“The most important thing a business can do is to spend time,” Murphy says. “Attend bank-sponsored luncheons; go to lunch and sit down over a cup of coffee. Work to establish a personal relationship with the people at the bank”Find the right products
Banks today offer more services than ever before, and tackling the list on your own can be overwhelming. Once your banker understands your company, he or she can assist you in selecting products and services that can streamline your workday and improve your bottom line.
A popular item for businesses is remote check depositing, which allows an employee to scan an image of a check and deposit it instantly to its account from the comfort of the office.
Though some services have a fee, the benefits can outweigh the costs. For example, compared to traditional check depositing, remote deposits can save time and money by eliminating the need for an employee to drive to the bank.
In today’s market, cash is king. Products are available that can maximize your cash flow. Your banker can also provide advice on the best use for additional money such as investments or paying down loans.
With the nature of banking constantly evolving, a business must trust its banker to match the business with appropriate products. A company should review its banking products annually to stay fresh on the offerings.
In today’s tight credit market, even well managed, profitable businesses find themselves with limited options for financing growth. In order to combat that, these businesses should explore alternatives to traditional capital/financing sources.
Mezzanine financing, according to Sheila A. Enriquez, a senior audit manager with Briggs & Veselka Co., could be the answer.
Mezzanine debt is a hybrid instrument that falls between pure debt and pure equity. It is designed to fill the gap between the amount a senior lender will provide and the amount of equity capital the owners or buyers are willing to commit. Mezzanine financing is typically issued in the form of subordinated debt, and almost always includes “equity participation” or “equity kickers” in the form of warrants to purchase equity or conversion rights to common stock.
The debt has an amortization period, typically 5 to 7 years, earns an interest rate a few points higher than senior debt, and contains terms and conditions — which resemble bank covenants — and some equity conditions.
Smart Business spoke with Enriquez about mezzanine financing and what sets it apart from other capital options.
What are the advantages and disadvantages of mezzanine financing?
It offers more flexibility to structure coupon, amortization and covenants to accommodate the specific cash flow requirements of a business. It’s also a cheaper alternative than additional equity capital, and requires only interest payments for relatively long periods. Mezzanine financing does not require any type of management control or voting position; even though the owner loses some independence, he or she rarely loses complete control of the company or its direction. Mezzanine financing also increases the value of stock held by existing shareholders, even though they will not have as great an ownership stake. Most importantly, mezzanine financing provides business owners with the capital they need to acquire another business or expand into other areas.
As for disadvantages, the owner will have to relinquish some measure of control over the company, and lenders of mezzanine funds will typically have significant abilities to take action if the company does not meet its financial projections. Also, mezzanine financing is more expensive than traditional or senior debt arrangements.
Since mezzanine lenders usually do not have any direct security interest in the assets of the borrower, they typically incorporate restrictive covenants into loans by which the borrower must abide. They also include agreements by the lender not to borrow more money, refinance senior debt from traditional loans, or create additional security interests in the assets. The borrower must also meet various financial ratios.
Business owners who agree to mezzanine financing may be forced to accept restrictions in spending in certain areas, such as compensation of important personnel. Business owners may also be asked to take pay cuts themselves and/or limit dividend payouts.
What sets mezzanine financing apart from other capital options?
Mezzanine financing increases the range of financing options available to companies. For example, companies with a good credit rating, but whose funding requirements are not large enough for financing on the capital markets, can use this option to meet capital needs. Further, lenders of mezzanine financers are not really interested in the company unless there is a default. Traditional equity investors usually want to take control. With mezzanine financing, it can be guaranteed that financers will make a way for you to pay off the debt without opting for default. This funding comes in a form of stand-alone subordinate and equity transactions.
How does the financing process compare to traditional bank loans?
Traditional senior debt financing offered by banks and financial institutions are oriented towards collateral because of the regulatory environment and a bank’s financing structure. Consequently, a bank providing a loan will always be looking to secure it with mortgages or pledges of receivables and inventory.
Mezzanine funds are yield-oriented providers of risk capital who want to participate in the growth of the enterprise value. The risk of mezzanine finance is not covered by collateral but generally by financial covenants. Thus, mezzanine funds tend to be more liberal when it comes to tailoring the investment to meet the needs of the borrower.
However, because of the absence of collateral, the criteria companies must meet to qualify for mezzanine funding are also considerably more stringent than those for loan financing. The company’s ability to generate cash flow is often the most important consideration. Lenders also examine ownership flexibility, company history, growth strategy and acquisition targets (when applicable).
What are some key terms and negotiating points?
The key questions that businesses must be aware of when negotiating with mezzanine lenders include: Does the mezzanine lender require the same covenant package as a bank deal? Will the lender want to put people on your board? After the loan is issued, how closely will the lender scrutinize your financial statements? If the debt cannot be repaid, how will the lender handle it? Will it agree to restructure or refinance? What percentage of warrants will be required, and when can they be claimed? What are the relevant put (investor’s right to be paid in full) and call (company’s right to buy back the investment) provisions and how will the investment be valued at that time?
Business owners in need of capital should do some comparison-shopping when selecting a source of mezzanine financing. The ideal investor is one that understands the business and will respond consistently and appropriately in the event best laid plans go awry.
Sheila A. Enriquez, CPA, JD, is a senior audit manager with Briggs & Veselka Co. Reach her at email@example.com or (713) 667-9147.