It happens one day, every week at every facility in the company. Copart Inc. employees gather together, each one wearing the company’s color blue in some part of his or her wardrobe, to start the company’s “Blue Day” with a song and cheer.
“Old McCopart had a car, ee-aye-ee-aye-oh!” one department sings.
“Row, row, row your car, gently down the stream. Merrily, merrily, merrily, merrily, Copart’s but a dream!” another department answers.
Each department sings the cheer it has come up with for the week, and while the cheering and singing lasts just a few minutes, the effects last well into the day and build bonds between employees.
“It’s amazing how it takes sadness out of people’s lives in the morning,” says Willis Johnson, Copart’s founder, chairman and CEO. “They come in, and they might be having a bad day or a bad yesterday or a bad morning, and they have to sing a song with everybody clapping, and they realize the world has not come to an end. There’s still some cheer in the world. Then they walk away, and they may not be happy all day, but their attitude’s a little bit better.”
It’s this kind of focus on the employees that has helped Johnson post impressive growth numbers at Copart, which sells salvaged vehicles for insurance companies. Copart ended fiscal 2006 at $528.6 million in revenue, which was a 57.6 percent increase from fiscal 2003.
“Whatever kind of CEO you are, you should always have in your mind what’s best for your employee, not always what’s best for the shareholder,” Johnson says. “The shareholder comes and leaves. The employee is always there. If you have a happy employee, and the company is doing good, then by osmosis, the shareholder wins.”
Johnson’s keys to creating a winning organization are well-defined values, caring for people and building relationships with his 2,500 employees.
“You might spend a lot of time with your family, but you’re eight or nine hours with the other people in that company, and you like and you care about them,” Johnson says. “People who work together for a long time, they start caring about the company family, and if it benefits one, it’s going to benefit them all. I think if you get that culture going, they all want to move forward and do good.”
When Johnson and his team set out to create the values for the company, they held a brainstorming session to generate ideas. But then they dug deeper to see what was truly important and what they were unnecessarily getting hung up on. He says evaluating what’s good for the company is just like evaluating a person.
“When you look at somebody, you always go to the right side and put all their good points on the right side and all the bad ones on the left,” Johnson says. “When your good ones outweigh your bad ones 75 to 25, you’re looking at a pretty good person there because people have some bad problems, but they have a lot of good stuff too.
“Don’t let a few little bad things outweigh the good side. Is this really peanuts we’re talking about, or are we talking about something big? Sometimes people let peanuts ruin an entire relationship because they have a hang-up here.”
Leaders could spend their time nitpicking every detail about the business, but when those peanuts fill you up, you don’t have room for the filet mignon.
For example, Johnson says he has some employees who don’t dress well, but he points out that it doesn’t affect their work, so he lets them do their job well and doesn’t pay attention to how poorly they dress.
“If you let the small things bother you with employees or the people you work with or the customer you do business with, you’re never going to get anywhere in life, so you just have to say, ‘This is how they are,’ and you have to live with it,” Johnson says.
Once the values were agreed on, Copart did what many companies do and included the new decrees in employees’ paychecks and had plaques made for all its locations, but the company also took a different approach. Copart had fun with it.
“We had contests and said, ‘We’ll meet you in the hallway. Can you tell us the values of the company?’” Johnson says.
Johnson and his team made the values simple by giving each letter of the company name a value that started with that letter, so people could easily remember them commitment, ownership, profitability, adaptable, relationships and trust.
Employees didn’t get prizes or incentives for knowing the values but just the break from the day helps build excitement, and the desire to be verbally recognized helps employees learn about what’s important to the company.
“It was just awareness that you’re a part of the company,” Johnson says. “You don’t always have to give people stuff. You just have to give them attention.”
Caring for your people
Many of Copart’s values deal with how the company interacts with and treats employees, and Johnson says caring for his people is one of his top priorities.
One of the basic strategies is providing salaries that are above industry averages.
“I’m a real employee person,” he says. “I hate for employees to quit and leave because they got a better-paying job.”
But salary and benefits are just the starting point. Copart employees also have the opportunity twice a year to purchase company stock at a 15 percent discount. If the stock price stays the same, they make a 15 percent return, but more often than not, they earn a higher return, and they can sell it or keep it as they see fit.
Johnson also helps pay for employees to go back to school. He also started a foundation that provides scholarships to the children of any Copart employee who has been with the company for at least two years. If an employee’s child earned at least a 3.0 grade point average, he or she could apply for $4,500 in scholarship money, and as long as he or she maintained that average, the child could reapply every year.
“It’s helping their kids, and when you help people’s kids, it’s like helping them,” he says.
He also has a system to look at internal candidates first for open positions.
“We’ll look at them before we would ever hire someone from the outside,” Johnson says. “We would look within the company first to make sure they have that opportunity before anybody else because they have a love affair with the company.”
To facilitate this process, employees fill out a form that allows them to express which positions they would be interested in, should any openings arise. When an opening does arise, Johnson can go to that database and see who has an expressed interest.
“They may just want to go from a forklift driver to a dispatcher,” Johnson says. “You don’t have to jump way to the top because some people don’t want to move, or they don’t want to take on responsibility, but they want a little bit better-paying job, so they’ll put their name in.”
Many people change jobs because their company was unaware that they wanted another opportunity. This system helps make management aware of who is interested in what opportunities so the managers can keep their people, which creates consistency and grows the business.
“One day, I will retire, and I’ll keep a lot of my stock in this company,” Johnson says. “I’ll probably never sell it off, and the employees I bring up the ranks and the employees that work in the field, they’re the people who are going to keep my family and the long-term investors in the company in a good position because they were trained right, and they understand how the leadership of this company was started and founded and wants to go forward.”
Johnson says the key to creating better programs for employees lies in talking to other leaders. He regularly meets with the CEOs of companies that he doesn’t compete with to brainstorm and just talk to them about how they do things, and several of the programs he has at Copart came from hearing what these other leaders did within their businesses.
“You need to meet with other peers in your industry not to make money, just to brainstorm what’s good for them and what’s good for you because you never know what somebody’s going to dream up,” he says.
One of Johnson’s executives leaves a meeting in Chicago and now has to get to a 2 p.m. meeting at another facility. He calls human resources and discovers that tomorrow is one employee’s birthday, another recently got married and one’s mother is sick in the hospital. He makes special note of these three people so he can talk to them personally when he arrives.
When he gets there, he shakes hands with every employee, and specifically engages the three people he noted and talks to them about their lives.
Johnson calls these visits “executive drop-ins” and requires them of all his management team members whenever they’re near one of the 124 Copart facilities. The individual attention shows employees that leaders care about them, and it makes them feel valued.
During drop-ins, executives also give a short speech to update the employees on how the company is doing, so they feel informed and know how their jobs affect the business.
“Give them an insight into what the company is doing and where it’s going,” Johnson says.
Even employees at the lowest levels are interested in how a company is performing. They are depending on the company for their livelihood, and they want to know if the company is healthy.
“When an executive tells him, ‘Hey, we just bought seven (salvage) yards in England, and we got this going and this going,’” Johnson says. “They become part of the company, and that’s what you have to do make them part of the company.”
Johnson says employees don’t want to have to worry about where the money is going to come from for their house or college tuition, so that information helps ease their minds and make them feel connected.
“They have to know they’re secure in a company that thinks and knows that we survive because of the employees who run the company,” he says. “They have to know that. You can’t just assume that people know that.”
HOW TO REACH: Copart Inc., www.copart.com
Employees are more effective when they understand the business and how their individual performance contributes to achieving the company’s objectives. That’s the findings of a recently updated communication study conducted by Watson Wyatt Worldwide. The goal of the study was to identify which communication practices deliver the best return on investment (ROI). Among the 335 participants surveyed, 60 percent worked in global organizations. Given the trend toward globally diverse companies, executives must now communicate across a broad spectrum of culturally diverse employees to drive higher corporate returns.
“Organizations are more global than they have ever been,” says Lisa O’Driscoll, San Francisco’s communications practice leader with Watson Wyatt Worldwide. “The communication effectiveness of a global company is often dependent on the company’s ability to understand the different cultural contexts and reference points within the employee population.”
Smart Business spoke with O’Driscoll about how executives can communicate effectively across a culturally diverse staff.
How does executive communication play a role in engaging employees and driving ROI?
Despite conventional wisdom that immediate supervisors play a role in driving retention and engagement, strong senior leaders who communicate effectively and frequently are a more important factor. We’ve found that highly engaged employees receive communication from senior management far more frequently than less-engaged employees.
How can executives communicate effectively across a global organization?
No matter what their location across the globe, committed employees are proud to work for their companies and motivated to help drive success. Commitment is essential to retaining high-quality employees and delivering long-term financial success, but commitment alone is not enough. Employees also need focus and direction, something that Watson Wyatt calls ‘line of sight.’ Simply stated, creating line of sight between executives and employees means communicating in ways that allow employees to understand the organization’s business goals, the steps that must be taken to achieve those goals and how they can contribute to achieving these goals.
How can CEOs create a line-of-sight communications plan?
For U.S. companies, communication is often northern-America-centric, so executives must adjust by starting the conversation with an employee value proposition tailored to all employees globally, not just those in the home country. Senior management and mid-management should trained on effective communication techniques and managing multicultural and multi-country teams. A global communication strategy should align the firm's business objectives with the employee value proposition while providing the platform for localization that reflect different cultures and local business conditions.
In all cases, companies need to develop a sustainable communications strategy that supports their mission, aligns employees with the business strategy and allows them to understand their role.
What elements comprise an effective line-of-sight communications plan?
First, no one strategy fits all companies, so each needs to decide what type of company it wants to be and how that supports its external brand and strategy. One company may be comfortable being a U.S.-based company with offices abroad, while another organization may want to be a true global organization with country heads running different business units.
In all cases, companies need to develop a communications strategy that supports their mission, is sustainable, aligns employees with the business strategy and allows them to understand their role.
What are the best tools for effective global communication?
Global communication requires the use of several tools. For example, many companies have a large dependence on e-mail. While e-mail is effective, it’s not the same as face-to-face communication between an executive and employees. In some cases, employees are receiving thousands of messages a day, so naturally it’s easy to see why e-mail can lose its effectiveness. It’s also hard to communicate a strong sense of leadership through e-mail. To maximize time and efficiency, new technology can help executives engage their employees through more personal communication. Blogs, podcasts, webcasts and teleconferences all have their place as part of an effective communication strategy. In considering tools, companies should consider company culture, local culture and, of course, the content of the communication.
What ROI increases can a CEO expect from establishing an effective communications plan?
Companies with highly effective communications plans had a 57 percent higher return to shareholders and a 19.4 percent overall increase in market premium during the five-year study period. During that same time, companies with effective communications plans were 20 percent more likely to report lower turnover rates than their competitors without a plan. Our statistics at Watson Wyatt show that the cost of turnover is roughly 48 percent to 61 percent of the annual wages for that position. Many companies brag about employee loyalty and their low turnover rates. Our study shows that committed employees actually drive shareholder return and take employee loyalty to a whole new level.
LISA O’DRISCOLL is the San Francisco communications practice leader at Watson Wyatt Worldwide. Reach her at (415) 733-4304 or email@example.com.
An employee in San Francisco needs to meet with a co-worker in Israel, but instead of hopping on a plane and spending a day flying halfway around the world, she grabs an empty conference room, signs out video-conferencing pieces and calls her colleague. He answers using the same technology, and the two converse, face to face, to discuss the issues they needed to work out for a major project.
This happens every day at Polycom Inc., a video and audio collaboration solutions company, and Bob Hagerty, chairman, president and CEO, relies on these technologies just as much as his customers do, so he constantly pushes his organization to be the best in the market.
This push for excellence has fueled the company’s growth in the last decade. Since he joined the business in 1997, Hagerty has grown Polycom through a combination of organic growth and acquisitions from about $50.4 million in revenue to $682.4 million in revenue last year. Whether growing organically or through acquisitions, Hagerty believes wholeheartedly that to grow a company, you have to have a plan, measure that plan, communicate with customers and stimulate innovation in your organization.
“Growth is hard,” Hagerty says. “It’s hard work. It requires real attention. It requires risk-taking. You have to really understand. You can’t just follow, and you have to have an organizational structure where it takes moderate risks and occasionally will fail.”
Creating a plan
You can’t book a flight for a business trip or vacation if you don’t know where you’re going. In the same sense, leaders can’t grow their company if they don’t know where to lead them.
“Each individual market has a different strategy,” he says. “You start with a strategy. What’s your value proposition to the customer, and how do you deliver that value proposition? Communicate that value proposition, and then build your plan top to bottom and measure, measure, measure, and keep an environment where you allow people to participate.”
After an off-site meeting where the strategic plan is created, Hagerty and his team start working on getting buy-in from the rest of the employees. He starts with a meeting at the beginning of the year, with all the managers, where the issues are explained and broken down into their basic elements. At this meeting, Hagerty and senior management explained the strategy for the year.
He then broke everyone up by natural work groups and had them evaluate the issues involved and the ways they can achieve the strategy. Each group presented its thoughts to the room, and others asked questions and challenged the group to create further thinking.
“The idea is then they go out and do the same thing with their groups and get everybody to buy in with the goals,” Hagerty says.
He follows up on the overall strategy with a quarterly business review, which allows everyone to bring up any concerns or problems along the way, and that’s where he makes adjustments if needed.
“The plan always stays because whatever adjustment you make, whether you’re going to spend more money in an area or less money in an area, it still needs to show the return, so we use the plan as our baseline,” Hagerty says.
Managers again facilitate their own communication with the people below them to keep a pulse on their areas, and so they know exactly what to report at the next quarterly meeting.
“The idea is that everybody has weekly staff meetings and regular one-on-ones with their people and is setting goals as this whole process continues to churn,” Hagerty says. “The issues we have with the senior executive staff are just a culmination of what they’re seeing at their level, and the staff they have reporting to them have challenges.”
As Polycom grows, Hagerty depends on measurements to ensure that these processes are still carried out and effective. He measures customer satisfaction, failure rates in the factories, marketing metrics, sales metrics and other leading indicators.
“Measurement is a cornerstone of how we drive the company forward and track where we are against our plan,” Hagerty says. “If you can’t measure it, it isn’t worth doing it. You are what you measure. People will resonate to what they’re measured on. If you don’t measure them, they don’t think you care, or nobody thinks it matters.”
While creating metrics for salespeople is often straightforward, management also needs to create metrics for other departments, so everyone has specific performances to work toward.
“Find things to proximate goodness,” Hagerty says. “If it’s marketing, you’re trying to track leads or impressions. If you’re in engineering, you’ve got milestones you’re trying to get through to get a product developed. There’s always something. It’s just setting a target, setting a plan and measuring your progress toward achieving those plans.”
Without having clear metrics and goals, a company remains stagnant.
“If you don’t have goals, I don’t know how you can go from Point A to Point B.”
A couple decades ago when Hagerty worked for another company, he met a major customer for lunch and excitedly explained to him what technology shift his company was going toward, but the customer just gave him a funny look.
“You don’t think that’s the way to go?” Hagerty asked.
“It’s technically the way to go, but it’s not going to happen,” the customer responded. “There’s not enough capital in the system to change over the equipment and make the shift to this different standard.”
This rocked Hagerty’s world, leaving him in shock as he pondered the customer’s perspective on a very long, thoughtful plane ride home.
That experience, while 22 years ago, has shaped Hagerty’s attitude toward customers. He realizes now how important it is to speak with them and know their concerns, challenges and thoughts on products, and he drives that every day at Polycom.
“Understand your customers,” Hagerty says. “Talk to your customers. Love your customers. Our first value is put customers first and profit will follow.”
Senior leaders have to get out into the field to talk to them. Hagerty spends 50 to 80 percent of his time with customers. He asks a lot of questions about what they think Polycom is doing well and what it struggles in. He also asks them what they need and what their problems are. Additionally, he runs new technologies by them to see how they like them, and he asks what kinds of additional technologies they would need.
He then takes the suggestions and ideas they give him back to his people for them to solve and implement in their technologies.
Hagerty’s commitment to putting customers first shines through when a customer calls with a problem. It may not be Polycom’s technology that’s the issue, but his people understand how the equipment is supposed to work more than the customer does, so they work with the network provider to fix the problem.
“We are one part of a big network environment,” Hagerty says. “Sometimes it’s not us, but it’s our brand on the product, and that’s what they’re trying to use, so we go fix it even if it’s beyond our scope.”
To ensure that employees stay focused on customers, he both hires and rewards people based on it. During interviews, he flat out asks them how they view customers.
“You challenge them on that,” Hagerty says. “Where does the customer fit in your process and your thinking? If they’re not saying the customer is first, then that’s a problem.”
When those people come into the business, they see the different tools used to gauge customer satisfaction. Hagerty uses customer statistic measurements, has weekly sales meetings to discuss customers, and hosts quality sessions and customer response meetings. Polycom also has review meetings where Hagerty and his people review data about what the customer is feeling. From there, they make distinct decisions and follow up on them. Hagerty then financially rewards employees based on how well the company does.
“Bonuses are based on performance, and performance is based on how well you treat and deal with customers, because you don’t get there without customers,” Hagerty says. “They’re the only one who pays our bills.”
Companies don’t grow, and they certainly don’t lead their markets, if they don’t have the newest and most innovative products out there. Because of this, Hagerty strives to be what he calls the “best in breed,” and as a result, Polycom has more than 550 patents issued and pending. But this innovation can’t be forced on people.
“You don’t drive it,” Hagerty says. “You set a goal, stimulate people, give them time to think it through, challenge them and have the right people who really want to innovate. It’s not about just get in line and follow. It’s about let’s do something different. Let’s make a difference.”
Employees understand the difference they make in customers’ lives because they use the technologies every day to meet with people all over the world. They know the amount of time saved and how much more productive people are by having eight video conferences a day versus traveling and having maybe two. They know how much more effective a phone call is when they can see the other person.
Employees use their own experiences and customers’ problems to create the best solutions.
“Sometimes people offer solutions, and they’re great solutions,” Hagerty says. “Sometimes they’ll just be able to describe the problem, and what we need to do is come back and use our expertise to formulate where we should be going.”
He relies on his people to take those problems and voices as vague as they may be at times and research them to see how they can be solved and implemented.
“You have to decide from where the technology is going, what is achievable,” Hagerty says.
He has a full-time product management team to solve those problems and answer those questions. He also invests 14 percent of the company’s revenue in research and development and another 8 percent in marketing, but the outcome is worth the investment because it allows Polycom to remain at the front of the pack, and the longer it stays at the front, the more it will continue to grow.
“In our area, it makes sense because the dynamic of the market is fairly rapid, and the technology continues to improve,” Hagerty says. “Our strategy is to be best of breed. We have to be the leadership. We want to be. We are. We measure it, and we expect to be the leader in each space we’re in.”
HOW TO REACH: Polycom Inc., www.polycom.com or (800) 765-9266.
Competition runs rampant in the retirement services sector. Banks, mutual fund companies and insurance companies are all vying for a slice of 401(k) business.
However, not all retirement plan providers offer the same level of commitment when it comes to making sure employees are well-versed in eligible plans.
After all, getting employees to participate involves more than merely letting them know a plan is available. Education is an important component that providers should bring to the table.
“Commitment to the education process is key,” says Frank Ricchiuti, vice president and retirement plan consultant at Comerica Bank. “A successful 401(k) plan usually has good participation levels. Education is the driver to good participation.”
Smart Business spoke with Ricchiuti about what functions a retirement plan provider should be responsible for, how often a retirement plan should be reviewed and how service providers can assist in employee education.
What are some key factors to consider when looking for a retirement plan provider?
The wish list is obvious: competitive pricing, quality investments, efficient service and great technology. Unfortunately, this reads like every providers’ marketing brochure. Some plan sponsors know what they want; many know they have a problem but don’t know how to fix it; and some don’t know what they don’t know. So the combination of product marketing and not knowing enough to cut through the spam makes it very difficult for a plan sponsor to identify and evaluate those key factors.
What functions should a retirement plan provider be responsible for?
The three main components are record-keeping, administration and investments.
The less obvious but equally important issues are compliance oversight, ongoing due diligence of the investments and the level of commitment toward participant education (preferably live meetings). These services do not totally relieve the plan sponsor of fiduciary obligations, but they can certainly assist the employer to make prudent decisions in selecting a provider.
Once in place, how often should a retirement plan be reviewed?
This is a huge fiduciary liability issue, and many plans have now established investment policy statements for guidance in this regard. Investments move in and out of favor, so they should be reviewed at least annually.
Larger plans review their investments quarterly, which may be the result of a very specific investment policy. We also believe that plans should have an administrative review to measure the overall efficiency and competitiveness of the program in a fast moving industry. We find that many of our clients are not being offered these reviews by current service providers.
How can a company encourage its employees to participate in retirement plans?
This varies by employer. A high-tech company or a law firm does not have the same issues educating participants as a manufacturing company has.
Employers concerned by productivity and thin profitability margins are often reluctant to make 401(k) plan enrollment meetings mandatory. We also see successful 401(k) plans where enrollment meetings are presented in other languages (e.g. Spanish) with enrollment materials to match.
The new Pensions Protection Act brings a potential solution to the problem automatic enrollment and auto deferral increase options we expect plan sponsors to consider in the future.
How should employees be educated about retirement plans?
Ultimately, it is the fiduciary responsibility of the employer to provide that information. The employer achieves this by partnering with effective resources.
Those resources can be the actual service provider and/or a good broker or consultant who will focus on developing and driving an effective ongoing action plan. Multiple tools are available now with more being developed all the time. We’re seeing live workshops with worksheets and pencils in hand (even PDAs); seminars to existing participants on different investment-related topics; Webinars; Internet-based education and financial planning models; and user-friendly investment options that promote asset allocation through target retirement date funds. The key is choosing the right team, because a dedicated retirement plan consultant can make all the difference.
FRANK RICCHIUTI is vice president and retirement plan consultant at Comerica Bank. For a no-obligation assessment of your current retirement plan, reach him at (714) 433-3235 or firstname.lastname@example.org.
Born: Ithaca, New York
Education: MBA, Stanford; bachelor’s degree, economics, Dartmouth
First job: When I was 11, I worked in the print room at Gensler. When I was 16, I created a company called Rough and Ready Beef Jerky Distributing Co. A friend and I sold beef jerky wholesale to grocery stores.
What is the biggest business challenge you’ve faced?
The guy who recruited me said it was time for me to join the firm. I was the CFO of another company. I was about to take this company public, and I said it’s not the right time.
He spent about three months trying to convince me it was the right time, and I decided to take the leap. We agreed it would be better if I didn’t start [in San Francisco] in Art’s shadow, so I went down to L.A. For six years, I helped build our consulting practice.
Then I got an opportunity to go to London. I took my whole family with me. We stayed for three years. That experience of taking four young kids and my wife to London, and learning how to lead the design practice of an office and learning how to understand a new culture, and all the differences between Europe and America, that was one of the most exciting, challenging and rewarding experiences of my professional and personal life.
When I arrived, it was about 140 people, and when I left, it was about 325 people. I got to know what it’s like to lead people in a very personal and exciting way.
What is the best business lesson you’ve learned?
It’s hard to do something great, and if you don’t have the stomach for it, don’t take it on. The mantle of leadership in an organization is heavy, and if you really want to do something great, it takes a huge commitment.
It costs money to borrow money. But a lesser-known tactic called trade cycle financing may allow companies to save on the cost of money.
If your company’s borrowing base is not large enough to provide the money you need now, you can fund each stage of a trade transaction in exactly the amount required for that stage, rather than the amount your borrowing base allows. This same model is used the world over to fund international transactions.
“Most companies may not know about trade cycle financing,” says Glenn Colville, senior vice president and group manager, Western Market, International Trade Finance for Comerica Bank.
“Trade cycle financing a type of transactional financing allows for more than traditional availability of financing against inventory.”
Smart Business talked to Colville to get more specifics about trade cycle financing and its benefits.
What exactly is trade cycle financing?
It’s a form of transactional financing that provides a company with financing from the beginning to the end of a sales transaction from the time a customer places its order until the receivable is liquidated.
Commercial banks generally lend against a collateral pool of inventory and accounts receivable, say, up to 40 percent on inventory and up to 80 percent on accounts receivable. With trade cycle financing, the bank examines the deal on an order-by-order basis. A company is not limited to the traditional borrowing base percentages against a pool of collateral.
Typically, banks are looking to finance transactions that complete the trade cycle within 180 days. In some scenarios, a bank might be willing to go longer than that, but the nature of the company’s business has to justify the longer finance period.
What kind of companies can apply for trade cycle financing?
Traditionally, it’s seen more in an import/export situation. But it can be brought onshore within the U.S. where there’s need for larger-than-typical advances against inventory.
Because you’re looking at transactional financing as opposed to a traditional collateral pool, the banker has to be really comfortable with the company applying for the loan having been successful for a number of years. The banker has to know that the product is marketable and that there’s a market for it because that’s where the liquidation value lies. Additionally, the company must be mature enough to have experience with its vendors and its customers.
All these factors dictate lending to a company that has demonstrated a successful business model for a number of years, not one that is less than tried-and-true.
What rate can a company expect to pay for the money it’s borrowing?
Banks create a specific advance for a specific period of time. The rate could be based on prime, LIBOR or Banker’s Acceptance, which is another form of fixed-rate, short-term financing. Banker’s Acceptance rates can be considerably less than prime, which means a lower cost of funds to the company.
How can a company benefit from this type of financing?
As I just said, there’s the possibility of lower-cost funding. In an environment with a high potential for rising interest rates, the ability to use fixed-rate, short-term financing is an advantage.
The other real benefit is the additional financing against inventory. Trade cycle financing allows up to 100 percent advances against inventory as opposed to 20 percent to 40 percent against other methods of financing.
What are the risks associated with this kind of borrowing?
It’s neither more nor less risky than other forms of financing. The fundamental risk when any company borrows money is that it might not be able to repay it. And if it can’t, the larger implications are that something is failing in its business.
What type of insurance is included for the shipped product?
When you’re financing a whole series of transactions from start to finish, collateral protection against loss is important, so cargo insurance is a key. Credit or accounts-receivable insurance can be purchased by the company taking out the loan. For the bank, an insurance product is available that provides it with risk-of-loss insurance.
Are commercial banks the only institutions where a company can apply for trade cycle financing?
To my knowledge, the players are mostly commercial banks and commercial finance entities or intermediaries.
If this concept piques your interest, talk to your relationship manager and/or trade finance specialist at your bank.
GLENN COLVILLE is senior vice president and group manager, Western Market, International Trade Finance for Comerica Bank. Reach him at email@example.com or (925) 941-1931.
Born: Lancaster, Calif.
Education: I went to high school, and I did not complete college.
Biggest business challenge: The biggest challenge in business was deciding when to leave a company. The last company I left because I felt it was just going in the wrong direction. It’s always difficult to leave a place that you work because you typically love those you work with, and making that decision absent additional opportunities. That was the most difficult decision I had to make was leaving the people I loved to work with. I’ve become a better leader because I think I understand that when you decide the direction to take a company, there will be people that disagree with you. The penalty may be they leave. You have to understand what motivates people and that when the company changes direction, there will be people that disagree with it that will either be demotivated or will leave.
Most important business lesson learned: Never run out of cash. If you do that, you’re OK.
Whom do you admire most in life?
The leader I admire most in history is [Abraham] Lincoln because I’ve read a lot about the tremendous adversity he faced and how he was able to effectively be a great manager during a time of incredible difficulty. I think the mark of a good leader is not someone who can be successful in an easy environment or easy market it’s who can be successful when it’s really tough, and he had a really tough assignment.
What’s your favorite board game and why?
Chess, because you have to think many moves ahead and I think a good business leader plays chess, not checkers.
Monson on technology: Any business, regardless of what you do, you better be thinking about technology, because often, that will make the difference long term between winning and losing. It plays a crucial part of any company. You can either be a leader or a follower in technology, and I believe if you look at companies, typically the ones that are more successful than others have improved technology faster.
“Holistic service can also be termed full balance sheet advice and guidance,” says Sandro Rossini, senior vice president and regional manager of Wealth & Institutional Management for Comerica Bank in San Francisco.
Smart Business talked to Rossini about how to select holistic wealth managers.
What capabilities are required to support holistic services?
Your provider should have the expertise and the product offering to address both your debt and credit needs as well as your liquid cash and investment needs. You need to get both investment expertise and traditional banking expertise in one house and, in some cases, from one person.
Take, for instance, a successful business owner who has his net worth tied to commercial and residential real estate, company-sponsored plans and investment accounts. He’s extremely busy, so he needs someone who understands his overall circumstances and who can identify any gaps in his personal finances very quickly. That involves understanding both sides of the balance sheet, how his debts and investments work and how to add value.
How many people typically support that one big client?
While a multitude of people may be required to support the complex needs of a client, everything should be orchestrated by a relationship manager. He or she may call on the support of a portfolio manager to manage the investments, an insurance specialist to support insurance needs, and a financial planner to assess a retirement goal. A trust and estate expert can determine the most tax-efficient way to transfer his or her wealth to beneficiaries or a charity of choice. A good holistic wealth manager can partner with several dozen investment houses and ask them to manage a certain portion of the client’s money.
This is all run through a relationship manager so the client doesn’t have to pick up the phone and call 15 departments.
Where does a holistic financial adviser start?
A financial plan is the first step. This is your financial road map and you want it unbiased. Your adviser should collect and understand all components of your finances put together in a comprehensive way. Then he must prioritize according to your identified needs and your concerns.
For instance, your investments can be highly over-weighted in technology, which could cause your portfolio to drop significantly should the markets pull back. Your adviser has to recommend an appropriate allocation to match your tolerance for risk as well as your time frame for investing. Many people are not as diversified as they believe. For example, investments such as mutual funds may have many of the same stock or bond holdings. Deep analysis should uncover any over-concentration. An over-concentration means greater risk.
Or you may need a line of credit and the adviser will suggest you liquidate a particular holding instead of borrowing. Understanding which route to take means understanding the intricacies of investments and lending, and analyzing the pros and cons of each option as well as your priorities.
A good adviser cannot operate without a broad understanding of financial options.
How does someone choose such an adviser?
The first area is trust, which is an enormous component best built over time.
The second is capabilities. Can you go to one organization, one contact person, for the bulk of the services, understanding that the relationship manager may call on a variety of experts to support your needs?
Number three concerns the credentials of the individual relationship manager. You don’t need an expert in every single discipline, but he or she needs a good working knowledge of the important financial components like credit, cash management and investments.
Your other advisers might know what various organizations can bring to the table. Generally, you may rely on your CPAs, attorneys or even a staff financial planner for direction.
What if I’m not a $100-million-dollar man?
Middle-market clients or business owners don’t have a lot of liquidity. Money is tied up in the business, as it should be. That’s the time to start planning and protecting yourself with things like key-man insurance. What happens if you or one of your key partners disappears? How’s the business going to continue? How about succession? Have you considered a plan to pass the business’s assets to your next generation with the least disturbance to the company and impact on taxes?
Test-drive your financial institutions. They may provide you with research, support and salaried expertise and not make a dime on you today in order to win you as a client down the road, when you want to buy a house or sell the business or have a big liquidity event.
SANDRO ROSSINI is a senior vice president and regional manager of Wealth & Institutional Management for Comerica Bank, San Francisco. Reach him at firstname.lastname@example.org or (415) 477-3212.
Education: Bachelor of science degree, master of science degree and Ph.D., electrical engineering Purdue; MBA, University of Chicago
Greatest business challenge: It seems every job I’ve had, I wasn’t quite ready for it. You don’t always know it at the time.
I can remember my days at Applied Materials, and I always wanted more, and I was ready and I’d do it. I look back and I say, ‘What were those guys thinking?’ Being able to do that with people here at Asyst is one of the greatest lessons. I continue to learn how to stretch people to allow them to do what they’re capable to do, even if they’re not quite ready.
Whom do you admire most in business and why?
I had a chance to work at Applied Materials with Jim Morgan. He was always a steady hand who managed a complicated business out far enough in front of it that he always had the company going the right kind of place. I remember a conversation asking about his challenges. Applied Materials was suddenly out in front of everybody, him describing the challenges now were that nobody had ever been where they were before. The decisions they made were going to impact not just Applied Materials but the rest of the industry. He took those challenges like he did any other just a really strong leader with great vision and really good balance in life, work and everything.
Favorite board game: I like Scrabble. It’s really humbling, and I can never win, you never know what you’re going to get, and you have to deal with it in seconds.
One answer to the problem is to keep your money and let the client walk out. Another answer is to make the product or service right, which might mean actually losing money on this particular transaction but retaining the client in the long run. Of course, even if you make it right, there’s no guarantee that the client will ever avail himself of your product or services again. So there appears no definitive answer to this vexing question. But wait ...
Smart Business talked with Holli Hammarquist, an assistant director of client services for International Profit Associates, about how business owners can most efficiently handle these types of issues.
What should business owners do to handle the above situation?
First, take a step back and determine where we stand by developing a risk-strategy system. This includes knowing our true costs. What is each product or service worth in time, materials and other costs? What is the break-even point for the individual products or services? As a client service representative, what is your time worth?
We must know our costs and our own worth or risk spending hundreds or thousands of dollars defending a few dollars, or vice versa, not spending enough defending what amounts to large dollars. You absolutely must know where you stand from a financial viewpoint and put into place a system so you know when to stand firm and when to give the client his way.
What needs to be done next?
Once we have determined exactly where we stand financially and what kind of time we are willing to commit to the issue, we must then determine what happened (or did not happen), and decide on the best course of action. To do this, we must understand what the client is complaining about.
Is it a perceived problem or an actual physical problem? Which of your product’s or service’s claims did not live up to the client’s expectations? What was he expecting in the first place? Was he promised something by the sales staff that was not delivered? Did the client misunderstand how to use the product or service and needs retraining? Was your product or service truly at fault and, if so, to what extent? Was it a personality conflict between your staff and the client?
Speak to the client where possible. Do not be defensive. Allow him the time to be heard. An upset client should not be put on a time limit. Acknowledge the validity of the complaint. If he becomes angry or frustrated, reassure him emotionally before dealing with the issue logically. Even if the complaint seems bizarre, it probably contains a grain of truth. Try to learn something from it. Any complaint is a 100-percent bona fide, major issue for the client. His perception is your reality.
Research the problem and look for lessons before making any decisions. Find out what actually happened from both sides. Does it need to be fixed or is it a one-time issue? Has the client misunderstood something? For complex problems, give yourself time to figure out a proper resolution.
If the situation was caused by something that can be controlled, implement a system to prevent it from happening in the future. Know that if one client complained, others probably feel the same way.
Give the client a choice of possible resolutions. Suggest a way that works for both of you. Sometimes just listening to a grievance and acknowledging it is sufficient. At other times, the client is looking for more. Be creative, find an equitable resolution to the problem, and make sure the client agrees that it meets his needs.
Finally, you cannot make all the people happy all of the time. If you have done everything in your power to resolve the issue within the risk parameters you have set up, it is time to fire the client because he is now costing you more money than he is worth.
How can a business learn from these situations?
Most importantly, the business will learn what clients’ true perceptions are of the service or product you provide. Just because you believe you have the most wonderful widget in the world, does not make it so.
If there are complaints, do not take them personally; take them as a challenge to be even better. Categorize complaints from a once-in-a-blue-moon occurrence to ‘it’s serious and a solution must be found now.’ Then make sure to track them on a regular basis for trends.
Obviously, very serious situations will be dealt with immediately but for the rest, you need to look to the trends. Over time, are you seeing that one person’s name keeps popping up? It might be time for retraining. Are you seeing that a certain specialty product that you produced on a limited basis is getting rave reviews? Maybe it is time to expand its line. The trends and your clients will provide you all the information you need to be successful.
HOLLI HAMMARQUIST is an assistant director of client services for International Profit Associates, Buffalo Grove, Ill. IPA's 1,800 employees offer consulting services to businesses throughout the 50 United States and Canada. Reach Hammarquist at (866) 538-0668 or email@example.com or www.ipa-iba.com.