Hans Peter Michelet has been called a serial entrepreneur because he’s constantly starting and developing a variety of businesses, but one of his most ambitious efforts is as chairman of Energy Recovery Inc., which manufactures energy recovery devices used in seawater reverse osmosis desalination plants.
Michelet was an early investor in ERI back when it had only two employees and was still just an R&D venture, and he’s overcome many obstacles to ensure the company’s success today.
Michelet was originally told by engineering experts that ERI couldn’t manufacture a pumping device out of available ceramics technology that could withstand the pressure and tolerance specifications required. He and the inventor defied their expectations and proved them wrong.
He also had to make changes to ERI’s management team. He believed that the company needed the right team for the right time, and that meant ousting the founder of the company. On top of that, he moved the company from Virginia to California to be near a new management team.
Then financially, the company was burning through cash as it developed its technology. Michelet was able to convince a small group of investors to commit to the process more than most venture capitalists would probably tolerate.
Today, as a result of Michelet’s leadership, the company is a market leader and changed the economics of desalination. On top of that, this executive chairman has created jobs. What started out as a two-person start-up has turned into 54 employees in the United States and another 13 in offices in Shanghai, Dubai and Madrid.
HOW TO REACH: Energy Recovery Inc., (510) 483-7370 or www.energyrecovery.com
Data Domain was founded in late 2001, and when Frank Slootman left a larger, more established company to hop on board as CEO in 2003, it already had its share of young company issues. At that time, the business didn’t have a sales staff or customers, and Slootman himself had to sell the first half dozen or so customers.
To make Data Domain a player in the data storage market, Slootman articulated a set of values for everyone including himself to live by. He also created a plan and vision for the company, which didn’t include being acquired or any other exit strategy. Instead, he focused on making Data Domain an independent and self-sustainable business.
He also defied conventional wisdom. Instead of bringing on a team of managers with a trail of accolades following them, he chose to hire people who showed great potential and whose greatest accomplishments were yet to come. He also ruffled some feathers by choosing to go overseas early in the company’s life instead of establishing itself here first. While many thought this was a mistake, it allowed the company to diversify its revenue streams, accelerate growth and block competition.
Slootman’s vision and risks have paid off. The company’s revenue grew 1,450 percent from 2005 to 2007, and at of the end of last year, it had 1,500 customers in 23 countries.
HOW TO REACH: Data Domain, (408) 980-4800 or www.datadomain.com
The hardest work involved in running a business may be closing it, which is the ultimate end point of the life cycle of a business: birth, growth, maturation and decline. Owners who are not prepared for a formal closing process and even those who are will find the job daunting.
But, closing a business is a common occurrence, whether it is by choice or circumstance, and there are professionals who can simplify the myriad steps involved based on extensive opportunities and experience.
Nationally, about 75,000 businesses fail each year, closing with unpaid debts which is approximately half the number that opens each year. And of those 150,000 annual start-ups, approximately one-third will close within two years of opening. These figures suggest that every business owner should be prepared for that eventuality.
Smart Business spoke with Russ Burbank, a partner with Burr Pilger Mayer, to learn more about the formal business closing process and the risks associated with sidestepping it.
What risks do business owners who do not follow the formal closure process face?
Businesses close for good reasons. They can range from acquisition or owner retirement to consolidation or business failure. In any case, the formal closure process has to be completed. Otherwise, owners run risks like incurring personal liability for taxes, assessments, fines as well as loss of protection under state statutes against future claims until a certification of dissolution is issued by the Secretary of the State.
Are all business closures the same?
Not at all. The process varies, depending on factors such as whether the company is insolvent or solvent when it is closed, the reason it closed, the complexity of the business and the level of cooperation among the creditors. The more complex the company and the more contentious the creditors, the more likely it is that they will seek the strong arm of the bankruptcy court to maintain an orderly process.
How important is the role creditors play in the closing process?
That depends somewhat on whether the business is solvent or insolvent. When a business is solvent, the owners decide how and when to close. In this case, the closure process typically consists of an orderly wind down of operations, settlement of all outstanding liabilities and a formal dissolution of the business entity. But, it is different when there is the possibility that creditors may not be paid in full at closure because the company is insolvent. In those cases, creditors ultimately decide how the business will be closed, either in or out of court. The court might involve Chapter 7 or Chapter 11 bankruptcy filings. Deciding out of court might mean that an Assignment for Benefit of Creditors (ABC) specialist will distribute the proceeds from liquidation of the business to creditors. Either way, the closing process can be tedious, time-consuming and costly when not done properly.
What steps exist when a business closes?
Here are just a few: Owners must terminate and pay employees; issue or make arrangements for wage and withholding information (W2s); provide information to subcontractors (1099s); notify vendors of ceased operations, request them to submit final invoices and ask them to indicate final bills were paid; notify tax authorities of the closure in accordance with state, federal and local procedures; cancel state and local permits, including business licenses, sellers permits and fictitious names; and deal with landlords regarding lease terminations. The list goes on.
The process is often made more complex because owners let their employees go as part of the closing process and are faced with doing many of these tasks themselves. That explains in part why professional ‘closers,’ such as attorneys, accountants and turnaround specialists can be valuable assets in the process.
Why hire a professional to help with a business closure?
It can be as difficult to close a business as it is to start one. Depending on the complexity of the organization, its number of locations and the kinds of liabilities that must be terminated such as employee pension plans, tax accounts and insurance claims a complete closure can take a year or more. So, there is a point in the closure process when the owners are better off turning it over to professional ‘closers’ who do that kind of work more economically and efficiently.
For one thing, professional ‘closers’ cut business owners’ costs. The neutral third parties to whom they hand over the closure will typically be working on an as-needed basis, rather than full time. That speeds up the process and increases productivity. Third-party professionals will focus their attention on the closure details, sometimes on an hourly paid basis, which may not be true with the company’s management team or employees who milk their final days or may be more concerned with finding their next job than they are with terminating their soon-to-be ending position. Either way, they are less productive and that costs the owners money that could be better used to pay creditors or themselves.
RUSS BURBANK is a partner and Certified Turnaround Professional (CTP) with Burr Pilger Mayer’s Consulting Group. Reach him at firstname.lastname@example.org or (415) 677-4530.
Commercial entities, such as banks, retailers and airlines, know that some of their own employees are far more likely to steal from them than a thief outside of the organization breaking into their facilities. This “likelihood” also ports to companies that own or manage intangible assets ideas, know-how, confidential information, inventions (patented or not), works of authorship protectable by copyright, trade secrets, trademarks, trade dress, business methods and patents.
“Employees can do serious damage to a company’s future if they walk off with their employer’s intellectual property, particularly its confidential information, including trade secrets,” says William Munck, chairman of the Dallas-based law firm of Munck Carter, P.C.
Smart Business talked to Munck to find out how a company can better protect its trade secrets and other intangible assets.
What is a ‘trade secret’?
Trade secrets may be thought of as any information having independent economic value and that is not generally known or otherwise readily ascertainable. Examples of trade secrets may be ideas, patterns, compilations, programs, formulas, methods, techniques, processes and secret devices. The courts have also found such things as machining processes, blueprints, computerized stock trading systems, customer lists, pricing information, unpublished inventions and nonpublic financial data overhead rates and profit margins that help companies price their goods and services to be trade secrets.
How can companies prevent exiting employees or contractors from stealing trade secrets and other IP when they leave the company?
It is impossible to prevent all trade secret theft by exiting employees or contractors. The situation is unfortunately exacerbated when a company fails to take appropriate precautions. Some tools at the company’s disposal include requiring employees and contractors, when they are engaged by the company, to sign engagement agreements, including (i) broad nondisclosure provisions and (ii) narrow noncompetition pre-visions that cooperate to prohibiting the employee or contractor from using company confidential information to compete with the company; educating employees and contractors about trade secrets and other IP and the importance of keeping confidential information, such as trade secrets, confidential; conducting exit interviews with departing employees and contractors to remind them of their duty to keep confidential information secret; limiting access to confidential information to those who need to know; and employing electronic surveillance equipment and software to limit and monitor access to confidential information.
Are noncompete agreements enforceable?
Frankly, they must be appropriately narrow in scope to be enforceable. This means that provisions must be limited, such as to geographic areas, scope of employment and duration in time. It is always recommended that such terms be included in an initial engagement/employment agreement that is executed by the employee/contractor and the company at the start of the relationship.
In the event that such language is not initially included, and the company decides that it is desirable later on to include such terms, the situation is more complicated. To add not-to-compete covenants into existing agreements, there must be additional and adequate consideration exchanged between the employee and the company for post-employment obligations.
With little USB drives, is it easy for current employees to walk off with files?
While USBs are a new tool for stealing confidential information, they are only slightly different than e-mail or other tangible mediums for copying the same. The real question is, ‘What can a company do about an attempted or actual misappropriation of confidential information or other IP?’
The company must immediately pursue injunctive relief to prevent an attempt to misappropriate confidential information from becoming an actual disclosure of the same. While such action involves retaining an attorney and filing a lawsuit, it is often necessary because once the confidential information, particularly the trade secret information, is made public, it is much more difficult, if not impossible, to restore the information to trade secret status.
It is important to note that pursuing monetary relief due to corporate misappropriation of confidential information may be more practicable. Most jurisdictions actually permit recovery of both the actual loss caused by the misappropriation as well as any unjust enrichment gained by the wrong-doer as long as the ‘enrichment’ is not included within the ‘actual loss’ portion of the analysis. If such damages are not easily proved, the company may seek to impose a ‘reasonable royalty’ damage model. If the conduct leading to the misappropriation was willful, most jurisdictions permit the awarding of punitive damages and the
WILLIAM A. MUNCK is chairman of the Intellectual Property section at Munck Carter, P.C. He concentrates his practice on domestic and foreign IP procurement, exploitation, enforcement and counseling. Dedicated to counseling clients concerning their development of offensive and defensive IP portfolios, Munck emphasizes market-focused long-range corporate strategies for private financing, public offerings, mergers, acquisitions and establishing market leadership. Reach him at email@example.com.
Dave Dutton walked into a nightmare when he took over as Mattson Technology Inc.’s CEO in December 2001.
“The company had just completed a merger, and then, right after the dot-com bubble burst, went into one of the worst downturns,” Dutton says. “The founder quit and essentially retired. This all happened three days before an analyst’s conference call, which I had never been experienced in.”
Adding fuel to the fire, Dutton said the merger hadn’t been fully integrated, so his business was behaving more like three separate companies.
“The company had an optimism that the companies would just fold into each other and grow,” Dutton says. “The reality was the merger was not a structured business focus, so the company was losing money. On top of that, the worst downturn in our industry hit, so that took a weak operating structure and sent it down further.”
Being hit from all angles, Mattson was already on its knees and still getting hit as it closed out 2001 with a $336.7 million net loss and only $230.1 million in net sales.
It was now Dutton’s job to heal the wounds, but with those numbers, he couldn’t simply slap on a bandage.
Instead, he needed to completely overhaul the semiconductor manufacturing equipment provider, so he took to rebuilding Mattson’s infrastructure by cutting costs and creating a new vision.
“It’s just like anything else in business,” he says. “When you’re in a difficult situation, a turnaround or whatever, call a crisis a crisis, get people in the room, start mapping where you are today, make decisions, and speed of execution is still critical.”
Make tough choices
In a financial crisis situation, most leaders would just start wildly slashing costs everywhere, but Dutton realized he couldn’t just cut without reason.
“Really quantify clearly what you need for success,” he says. “What does a company need to get to as far as the size and level because, certainly, when you make these cuts, you don’t want to be doing them over and over.”
To move forward, he decided to examine all the products and business segments and evaluate their current strength and long-term viability.
“We had to make decisions around what products and what areas of the company were adding value near term and had the capability in place to continue to drive toward a leadership position, and those areas that weren’t having an impact and weren’t positioned to have an impact in the future,” Dutton says. “We were making cost-cutting decisions left and right.”
Dutton and his team developed a set of product principles to help them make these decisions. A product had to first have a clear path to leadership meaning it could be No. 1 or No. 2 in the market with what it already had or with what they were anticipating developing. The second test addressed whether the product had differentiating capabilities and technology from competitors.
Dutton then applied those principles to each product and business segment to see if it was delivering now or if it was positioned to do so in the next two years.
“It was decisions around, ‘Is this business strong enough today? If it is, can it continue to have that strength?’” he says. “In other words, is it positioned well in the market, and is it generating value for us? That first set became keepers.”
The next step was looking at the areas that weren’t positioned well.
“Do we have the funds and resources to bring it to position, and if so, will it be a contributing factor in the next two years?” Dutton says.
If the answer was yes, it stayed, but if it was no, it went. “It sounds pretty mechanistic, but we’re making decisions, and in some cases, we’re shutting down some very new and novel technologies that could have been market winners ... but the reality was, at the state the company was in, we felt we wouldn’t have the resources to deliver those to success.”
When you’re cutting products and areas, you’re also cutting people, so Dutton had to communicate to his 2,300 employees the company’s state and that many would lose their jobs as he made decisions. With bad news, it would be easy for them to slack off until they know if their job is safe, but Dutton showed them how their work output would affect not just themselves but their peers.
“A lot of it was being clear to our employees and divisions,” he says. “There were cases I’d walk in and show people our revenue stream, our cash flow and essentially give them a number ‘If we reach this point in cash flow, the company will cease to exist and nobody has a job, or you can adjust to this level, and then some people will have a job. It’s your choice.’”
People worked to reach the levels he set out, and Dutton continued making decisions. Because these decisions affected so many people, if something had to go, he first looked to divest it so fewer people lost jobs. About 900 people left as a result of the divestitures. What didn’t get sold was discontinued, along with the necessary layoffs of about 800 people. Although it’s never easy to reduce a work force that much, focus on the silver lining.
“The thing is, instead of 1,800 people having to lose their job, it could have been 2,300, so you have to do the right thing through the enterprise,” he says. “Whatever that end solution is, the enterprise now is successful in moving forward. That’s what you’re signed up to do that’s the ownership you take in that role.”
His advice for others is to get your leadership team on board, and then move quickly.
“Once a decision is made, move as quickly as you can,” Dutton says. “Get it done, get it over with, so that the people that are departing can be helped to the next stage, and the people that have to move the company forward can now be focused on what are the next steps to move the company forward.
“It’s making pretty tough calls and getting down to a point then that the businesses you have moving forward are generating value, and you can translate that value back into a profit. Once you get to that stage, now you can start building that little strategy going forward.”
Create a new vision
Once Dutton had the people and products in place, it was time to start moving everyone back toward profitability, and to do that, Mattson needed a new vision.
“It’s not only an execution in the now, but also an eye on the future because without building that future, that company dies,” he says.
He hired outside consultants to help him and his team focus on overall corporate wellness and not get caught up in only keeping the patient alive.
“Their task was to make sure they were pulling us out on regular intervals so we could then go through a revisioning process,” Dutton says. “That process was basically centered around mapping the situation today, understanding the dynamics of our competitors and our market analysis looking at where we thought the market would be 20 years from now, building in white space of where the opportunities were, and from there, building in a set of strategies and principles that mapped into the mission.”
During this vision process, collaboration was key. “When you’re dealing with a collaborative style and a collaborative environment, you work hard to get most of that discussion out so people get it out on the table and understand the objectives,” Dutton says. “Then you drive toward a decision.”
Let the team work through the process, and often in the process, you’ll see the direction slowly appear, so you try to align the team toward that direction, but sometimes, you have to make an executive decision.
“If it gets circular or starts to move away from the problem, it’s time for a decision, and you either bring the team to the decision or you say, ‘Look, this is the decision. Are we OK with it? OK, good, let’s go,’” he says.
Even after you make that decision, you need to make sure everyone has said what’s on his or her mind.
“You make those decisions, you say, ‘OK, this is the decision. Are there any emotions on the table about this?’” he says. “If you bring up that emotion now, you’ll talk about it more. It may not change it, but at least that person really has clarity about where they are and how to operate in the team.”
By asking these questions and opening up discussion, you’re more likely to succeed.
“The more inclusion you have, the more alignment there naturally is,” Dutton says. “You have to have a set of leaders that understand that decisions are made for the enterprise, and they have to execute them.”
Communicate the plan
Once he and his team had created their vision for Mattson’s future, they also had to communicate that to the employees, but stating the vision is just the beginning.
“Visioning is a constant communication, so you never stop communicating,” Dutton says. “You say it multiple times. The old adage, and you hear school teachers say, ‘You have to hear it three times before you get it.’ I think in rolling out a vision, people have to hear it 20 times in 20 different ways, so you’re constantly trying to tie regular communication to the employees.”
One of the key ways to communicate a vision is to get people to discuss it so it’s more inclusive and less lecturing.
“A lot of times, even things that sound simple, like setting the next year’s revenue goals ... if you put 15 people in a room and start talking about it, that number of fears and uncertainties inside every person are all different, so try to get those out,” Dutton says. “Once they’re out, you can talk them through, and then procrastination to moving toward that new goal goes away, and people start to move forward.”
Even when people resisted, Dutton tried to talk things through with them.
“Over time, when people constantly don’t align to where a company is going, a lot of times they make their own decisions that they don’t fit,” he says. “We don’t use, necessarily, authority over dissension. It’s still collaboration through dissension that moves the company forward.”
As he made progress toward the future, Dutton was also mindful to share those victories with people.
“For example, if we win an account because our tool has the highest throughput for a customer, we can tie that back to one of our product principles, which is toward low-cost ownership,” he says. “It’s a constant communication of the mission, and then taking the successes and tying them back into the mission so that people are constantly internalizing it and moving forward.”
Dutton’s strategies have proven successful. With $267.3 million in net sales and $27.6 million in income last year, the company is now solidly positioned and earning money instead of bleeding it. While successful, Dutton thinks back to a conversation from 2003 and how much has changed since then.
“My wife, Donna, and I were talking, and I said, ‘So far, my claim to fame or mark on this role is we’ve taken a company from 2,300 people to 600 people not a great thing, not a thing you want to be known for,’” Dutton says. “But, at the end of the day, those 600 people have now built the company forward, where it’s continued to gain share, it’s become a leader in two areas, and it’s now implementing two other growth segments, and we’re expecting to double our revenue as we go forward over the next year and move into a whole other realm of the company.”
HOW TO REACH: Mattson Technology Inc., www.mattson.com
Anthony Daus understands that you might not want to work Friday nights. He doesn’t necessarily want to either.
But if you’re pulling the late shift at Geomatrix Consultants Inc., the diversified technical consulting and engineering firm where Daus is president and principal hydrogeologist, then the odds are he’s at work with you. That’s not just because Daus wants to make sure that the work is done; instead, he believes that the best way to motivate his approximately 475 employees is to show them that Geomatrix is a flat organization where everyone’s work and input count.
And he says that the principle is pretty hard to argue with when he and the company’s other leaders are regularly entrenched in the projects that occasionally overlap into those weekend hours. As a result, the $110 million firm has built some loyal employees turnover is less than 5 percent a year and engaged leaders.
Smart Business spoke with Daus about how working Friday nights can help forge great relationships and why you should turn off your BlackBerry and listen.
Remember that you set the tone. If you can lead by example, if you can do what you’re asking other people to do, they’re going to have a lot more respect for you.
Whether you are a general in the army, a president in an engineering consulting firm or of a large manufacturing organization, it’s important that you are well grounded in what your company does, what its front-line business is.
I’m on a first-name basis with everybody in the organization. Now, it’s only a 500-person organization, and I certainly don’t work with all of them, but I work with a large number of them, and I try to be very approachable. The great crucible or where relationships are forged is in the progress work, how we get things done.
And it’s one thing to tell someone to do it and another to get there and help them get it done. If people are working late on a Friday night, I’ll be here working with them. If they have to come in on a weekend, then I have to do that. And I tell my principals and partners they have to do the same thing.
Lead the way for collaboration. To a large degree, you’re just trying to get everyone to go in the same direction, get them to collaborate.
You really have to be able to justify all of your decisions; it has to make sense to them. There has to be one guy who is ultimately in charge of the final decision, but you need the other partners to buy in to it. It has to have a basis in good, sound fundamental facts.
And even though I’m the president of the company, there is a handful maybe six to eight people that really have a lot of sway with individuals in the firm, so you’ve got to get those people behind you so everyone will buy in to it.
We find that if we focus on the things that are necessary for successful collaboration, then the growth and profitability are the outcome. We always do better work when we get the best people in the organization engaged in working together on a project.
Give employees a fair chance before letting them go. One of the hard things that you have to decide as a leader is at what point have we given people enough of a chance to be successful. Those are some of the most gut-wrenching times, when you have to do something and it’s going to change someone’s life.
We give a lot of effort to work through whatever issue that they’ve got and let them be a contributing person to the organization. People want to be treated with respect, and that’s one of the most important things that we can do.
For most folks, I give them about a year, but it gets to a point where you sit down and talk to them early on and say, ‘You know, I think we need to do something different to make you more successful because it’s not working right now and maybe we should try this.’
After you do that, you’re at a point in your discussions where you have to figure out if the organization is the right fit. It gets a lot easier if you start the process early if it doesn’t look like it’s working out and you talk through it with them.
Usually then they kind of know it, as well. It really needs to be a one-on-one sit-down at a neutral area, maybe a restaurant, to talk about their overall performance and whether it’s a good fit for the organization, and then let them go out on their own terms. So it’s rarely, ‘You’ve got two weeks; clean out your desk.’
I give them the reasons and say, ‘It may be more valuable for you to go to another organization.’
Take the time to really listen. Listen to the facts. It’s easy to jump to a conclusion with a limited number of facts, and when you do that, more often than not, you’re not including something that’s very important or not considering an important element of that decision-making process.
Take the time to talk to (employees) and make them feel like they’re the center of attention at that point so you’re not trying to do three or four things at the same time you’re listening to them, and not looking at your computer, playing with your BlackBerry or something annoying.
HOW TO REACH: Geomatrix Consultants Inc., (510) 663-4100 or www.geomatrix.com
Silicon Valley is known as the birthplace of new business ideas and the home of the entrepreneurial spirit. The challenge is that even tech companies with entrepreneurial roots can struggle to maintain a competitive edge and a penchant for innovation as they grow.
Several times, one of the most famous, colorful and outspoken founders in the Silicon Valley, T.J. Rodgers, faced these same challenges.
“What’s important to sustaining growth is that you have to continue to learn as a CEO and as a company, you have to continue to drive things forward,” Rodgers says. “We started as an SRAM company, and we had a single-minded focus, which caused us not to diversify. That made us very vulnerable in 2001. What I’ve learned is that as a company, you exist to serve your customers, and you can evolve and change or simply disappear.”
Rodgers, president and CEO of Cypress Semiconductor Corp., has become famous for his business success and his expert opinions since founding the company in 1982. He testified before a senate committee in 1997, a senate judiciary committee in 1998 and, later that same year, he spoke to the Annual Cato Institute-Forbes ASAP Conference on Technology and Society about why the Silicon Valley should not normalize relations with Washington D.C. In addition, somewhere along the way, he’s grown a billion-dollar business with more than 6,000 employees, invented and patented new technologies, written a few books, and received numerous recognitions.
Given that Cypress’ core business was originally built in the ultracompetitive semiconductor industry, achieving revenue of $1.56 billion in 2007 up from $1.09 billion in 2006 is proof of Rodgers’ innovative tenacity.
At Cypress, the incubator switch is always in the on position and the company has become famous for its continual quest for new ideas. In addition to product diversification, Rodgers has sustained growth by creating and sustaining a visionary culture within the organization.
Building the incubator
Being open to new ideas always helps maintain your competitive edge.
“Start-ups have a lot of energy, and they keep you looking toward the future, so we always have two or three new companies incubating here at Cypress,” Rodgers says.
“We’re known within the Silicon Valley community as having an open door to new ideas, so sometimes we’re approached by external entrepreneurs who have an idea for a new business or internal employees who present an idea for a new product that further leverages our existing technology. Our openness to new ideas is also a powerful recruiting tool. Sometimes prospective employees approach us with an idea, and they come in as sort of a package deal. We get a new employee and a new idea; they get the chance to be entrepreneurs.”
When someone from the outside approaches Cypress with an idea for a new product, they write a business plan that defines the market the product will appeal to and the team that will be responsible for developing the product and executing the business plan.
“Our management team decides if this is something we should fund, and then we take the idea to our board for approval,” Rodgers says.
What makes the incubator structure so unique at Cypress is not only the number of internal employees who are spending their days working on new products but the flexibility of the support relationship between Cypress and the incubating company.
“Part of what gets decided before we agree to move forward is how the new company will be supported through Cypress’ infrastructure and what support they’ll provide themselves,” Rodgers says. “If they use Cypress support services, such as accounting and HR for example, we’ll bill them back for the time and materials. Since Cypress is providing the funding, if the new venture runs short of cash, it will sell Cypress additional shares to raise cash.
“Like any start-up, not everything succeeds, and you don’t always know exactly what the customer wants. I would say that maybe six out of 10 new ideas will fail.”
But Cypress has had two really big winners. One was the creation of SunPower, which got the company into the solar energy business, and the other was the creation of Cypress Microsystems Inc., which was an employee start-up that is now doing $160 million per year in revenue.
“Both of these businesses helped diversify our offerings, counterbalanced our cycles, improved our profitability, and they keep us on the leading edge of innovation,” Rodgers says.
“Creating these entrepreneurial start-up subsidiaries has allowed us to really do two things at once. Many companies have a hard time driving innovation, but with this structure, our main line managers can continue to drive our existing business, and they don’t have to worry about the fear of failure with new product development.”
Maintain a unified culture
While one of Cypress’ strengths is its entrepreneurial culture and its structure of multiple subsidiaries, Rodgers is the first to acknowledge that it’s been hard to find the balance between maintaining a culture that’s open to innovation and achieving consistency.
As the company grew, Rodgers says there have been times when not only innovation lagged but, at one point during the downturn of 1992, business results were extremely poor, partly because the company was having an identity crisis. To remedy the situation, Rodgers relied on the teachings of Jim Collins and Jerry Porras in their book, “Built to Last: Successful Habits of Visionary Companies.”
“One thing that I’ve learned is that in order to continue to drive growth and maintain innovation, the main thing is that you have to keep everybody on the same page philosophically,” Rodgers says. “It doesn’t matter that you have different structures or businesses, what matters is that everyone maintains the same set of values. That’s what holds everyone together.
“As you get larger and start acquiring other companies, it’s important to continue to think about who you are as a company because you can become a crazy quilt of different cultures. Once you achieve philosophical continuity, the technical work product flows from there.”
When Rodgers accepted the fact that his company was in the midst of a crisis seemingly from a lack of a singular vision, he traveled to each location, sat down with employees and talked to each group about what makes Cypress different. Their answers would be the key to reclaiming the company’s universal philosophy and values, a critical step to putting Cypress back on a growth track.
“I essentially put my butt in an airplane seat for six months and traveled around to 25 different locations asking each group of employees what makes Cypress different,” Rodgers says. “I was using them to write a new corporate vision, and what I found is that they frequently mentioned the same things. All I did was repeat back to them the things that they already believed about the company.
“For six months, I gathered this data, and then I reviewed it for commonalities and divided it into five categories. From there, I put the data in front of the VPs and managers for discussion, and then we rolled it out. Going through the process helped to get everybody on the same page because people who thought they were in an identity crisis, suddenly felt like they had a great deal in common with their co-workers.”
The results of the effort helped unify the company. “Now, we have a statement of core values, a unified statement of purpose, a mission statement, and we’ve stated specifically how we were going to take each business component and move it from its old position to a new posture that continues to drive revenue and profit growth,” Rodgers says. “We have one page of information that ties everyone together, and we’re out fighting the enemy not each other.”
Since the crisis, Rodgers says that he has learned his lesson. To keep the situation from repeating, he frequently meets with employees, gathers feedback and has rewritten the company’s statement of purpose 40 times. It’s the single tool that he relies on to keep everyone on the same page.
Learning from mistakes
Rodgers says a company needs to never lose sight of quality. “If I had it to do all over again and I was building a new company, from day zero, I’d hire a VP of quality,” Rodgers says. “Anyone can make a product more cheaply than the next guy. Where they fail is working quality into the process. Every company needs someone who gets up in the morning and thinks about quality, and they need to have real authority to get things done.
“You need to approach quality from a holistic standpoint, and as a CEO, you need to demand quality in every aspect of your organization, and then it will wrap itself around the manufacturing process. I was never trained in the mathematics of quality, and it took me awhile to understand it and embed it in all of our processes. Quality is the main reason that Toyota has been beating Detroit because they are perfectionists in design, and they have never given up on their quality focus.”
And if a lack of quality or any other reason leads to a mistake, don’t be afraid to admit that a mistake was made.
“That’s another thing I’ve learned through my experience as a CEO, always admit your mistakes and never stop learning,” Rodgers says. “There have been times in the history of this company when we’ve had a stellar ride and management took credit for it, so when there’s a problem, management needs to take responsibility for that, as well. People will judge you not by what you say but by your actions, so if you make mistakes, admit it.”
HOW TO REACH: Cypress Semiconductor Corp., www.cypress.com
Nelson Chan loves to play mystery shopper.
Despite his wife’s protests, the president and CEO of Magellan Navigation Inc. frequently poses as a would-be consumer to observe the behavior of customers at retail chains throughout Northern California. It’s not that the GPS-unit manufacturer doesn’t designate enough resources for market research; it’s just that Chan is obsessed with understanding his customers, which he says is the key to success in business.
In a similar vein, the executive also analyzes the behavior of his management staff members by revisiting their personal objectives at employee-led quarterly reviews. The exercise sets a tone of accountability that has helped the company and its 475 employees worldwide push Magellan’s total market share from 1.9 percent in the second quarter of 2006 to 5.7 percent in the second quarter of 2007.
Smart Business spoke with Chan about how to foster such accountability by pushing back on decisions and practicing transparency.
Don’t be afraid to push back. I really like decisions to be made at a different level than always having to be at the CEO level. Decisions made at the lower level are better made.
When decisions are pushed up to me, and I don’t think it’s the right place, I push back.
It’s listening to them and basically saying, ‘Guys, this decision should not be coming to the CEO’s office. This decision should be made by you,’ whether I’m talking to my staff or multiple levels below in the organization.
You’re just encouraging their behavior if you don’t push back. The fact that people come to you and expect you to make decisions all the time, and you do it well, guess what? That reinforces that.
There are a lot more decisions that really should be made at other levels in the organization. It’s even healthier for the organization not only is it a scalability issue but also a knowledge-level issue.
There are many people, if you hire smart people, that can make much more intelligent decisions than if they filter all the way up to the CEO. It’s not healthy if employees don’t feel empowered and don’t feel like they’re held accountable.
Hold employees accountable. When people succeed, you reward them. You reward them lavishly, and you reward them publicly.
When people don’t perform, you do the opposite. If they don’t perform consistently, you have to make changes. Those are also made very public.
If you say you hold people accountable, you have to show you hold people accountable, which means you have to fire people, and you have to reward people.
I have a quarterly meeting with my staff where they stand up and they basically review their objectives. They tell me, ‘Here’s what I’m committed to do this quarter.’
Likewise, they spend time reviewing the objectives from the previous quarter that they committed to the organization. They get a chance to grade themselves and say, ‘Based on this objective, I said I would do such and such. This is how I would grade myself whether I did or didn’t do it and why.’
The whole idea there is having very specific, measurable, achievable objectives that are black or white, whether you did them or not. There are no shades of gray. You’re standing up there and holding yourself accountable to your peers and the company on whether you achieved them or not.
They are doing that not just for me as their direct management but also to their peers, which I think is even more important. When you commit, it’s not just committing to your boss but to your organization and your peers.
This is a team sport. That peer pressure is very important. Sometimes, it’s even more important than any other pressure you can get.
Practice transparency. When I talk about transparency, it’s really no hidden agendas. We don’t come into a room and try to have a strategic decision and people are having different agendas. We’re all trying to achieve the same goal.
A lot of it has to be basically aligning your goals and objectives. You want to make sure that the management team as well as the employee base all understand what your goals and objectives are and also what your values are.
[It’s also] communicating to employees the status of the company. Be open and forward with them with both the good and the bad. Not everything’s rosy.
It makes life a lot easier. It makes a lot less politics. Everybody knows where they stand. It makes getting to the point much quicker and much easier.
Keep moving. A lot of people get into an analysis-paralysis issue, where they feel like they need to have all of the information before they make a decision.
In life, unfortunately, you don’t have all of the information, and you’ve got to know when you’ve got to make a decision. At the end of the day, if you don’t make a decision, a decision’s actually made for you, whether you like it or not.
I like to sail. If you’re moving [in a sailboat], it’s much easier to change course and change direction than when you’re sitting still.
The same goes for business. Even though you may be making the wrong decisions, you get a lot of feedback, and you get a lot of data that says, ‘Hey, this is wrong. You need to change course.’
If you’re moving in the wrong direction, it’s much easier to turn because you’ve got momentum that allows you to change course.
HOW TO REACH: Magellan Navigation Inc., (408) 615-5100 or www.magellangps.com
“If you tell everyone in the world you are going to supply longevity and consistency and you have such a high turnover in your company, then it does-n’t match,” he says.
Trevis retains employees by finding people who want to grow and challenging them.
“Stability is created when you create a situation where you are part of the team and you have been challenged by learning,” he says.
Smart Business spoke with Trevis about how to evaluate employees and how to help them grow with your company.
Q. How do you evaluate employees?
We have tried several things in the past with very little success. We used to have performance evaluations. Today, we have adapted our own version of a system called Catalytic Coaching, a career development process developed by Gary Markle from Energage.
We don’t necessarily look only at the past performance, but we focus (on) the future. We are always looking at present and future performance.
Employees, in most cases, really don’t care about what happened in the last 10 to 12 months. The new process allows them to recap their past achievements and disappointments but doesn’t focus on it. What has been recognized was recognized then.
To sit down with an employee and say, ‘In the last 12 months, you have been bad or good,’ is not necessarily the focus of our future career development process. We are into designing a process where an individual looks at the future and does not focus on the past.
We are not here to rate people. We are here to work with people that want to grow and develop themselves. So far, we have seen better results.
Q. How do you look to the future without focusing on the past?
We take the past as basically an experience standpoint. We aren’t necessarily telling the individual in the past what he has done but actually concentrating on the future. ‘These are things we need to get done in the future. These are things we can see you grow into.’
We help the individual identify what the plan is for the future. We don’t tell them what to do, but we help them identify and get back to what they think would be the things they want to do in the future to grow in our company.
Q. Why did you change your process of performance evaluation?
People hate to be rated. It’s not a theme that anybody appreciates. I’ve seen many performance evaluations that, if you had to ask an employee an hour later after the performance review what would he remembers, the only thing he’d remember is his raise. That is not something that creates accountability or excitement or willingness to grow and loyalty.
What we’ve found is that if you work on a process with an individual over several sessions where you define the individual’s ability,
define a path for growth and let the individual come back and tell you how he or she is going to get that done, then it creates accountability and excitement and responsibility.
Part of the performance and growth evaluation is defining where we are going from here, not what we have done.
Q. What is a pitfall to avoid in business?
Most CEOs are made to be the visionaries and give directions to the company. Most CEOs make mistakes in their career of not empowering people at the time they need to be empowered. They micromanage or get into a situation that they don’t delegate or hire the right people.
Sometimes, you have to stop and listen. That’s another problem I see in CEOs. They don’t quite listen as much as they should listen. That’s a big mistake.
You come quickly to a solution, based on your experiences, in every single part of your company that you don’t stop, listen and look for solutions. Many people walk into your office with a problem, and if every time they walk into your office with a problem, you give them a solution, then that becomes a behavior. I realized, in the past, I forgot to ask the question, ‘What would you do?’
I always tell my direct reports, ‘Tell your own people, too. Before you come to my office with a problem, think of a solution.’
I like my direct reports to have a conflict conversation with me or between their peers to analyze problems and solutions. Don’t be afraid of conflict. Argue a position and discuss, but always keep honesty and common sense and professionalism behind it.
HOW TO REACH: Corvalent Corp., (888) 776-7896 or www.corvalent.com
Every business owner knows that one day they will exit their business either on their own accord or involuntarily. However, many fail to properly prepare for their departure. One issue that every business owner should address as part of their exit strategy is how to maintain their current standard of living upon exiting their enterprise.
Early in the exit planning process it is important to develop a contingency plan for the business and assemble a team of advisers who can help identify strategies to meet your personal financial goals.
“The cost of hiring a team of experts is typically recovered several times over through the benefit of the increased selling price of your business and maximum personal financial security,” says Sandro Rossini, senior vice president, regional manager of Wealth and Institutional Management at Comerica Bank.
Smart Business spoke with Rossini about how business owners can most effectively transition into a comfortable retirement, the importance of having a customized financial plan in place and what type of service and performance standards one should expect from investment professionals.
What’s the first piece of advice you would give to founding owners about exiting their business?
The first step is to determine who is going to run the company upon the founder’s death, disability or retirement. If a decision is made to exit the business, the founder must decide between liquidating the business, selling the business to a non-family member or maintaining ownership of the business within his or her family. One-third of businesses don’t get passed along to the second generation. If you want the business to remain in the family it is important to evaluate the capabilities and interest of your children. This process can never be started too early.
How can a business owner most effectively transition into a comfortable retirement?
Just as an owner might hire a team of professional advisers, such as engineers, attorneys and CPAs, to build a successful business, it is important to hire a team of professionals to build a solid personal financial plan. The first step is choosing a financial planner.
Upon exiting a business, why is it so important to have a customized financial plan in place?
The main reason is so that you can maintain your standard of living. By having a plan in place, financial strategies can be developed to establish cash flow and reduce the tax impact of the sale of your business. It is critical to develop a customized financial plan because everyone’s financial circumstances are different. One person might have all of his net worth tied up in his business, with no other assets to speak of, while another person might have significant assets outside of her business. A certified financial planner can help you customize your plan so it meets your specific objectives.
Why is it important to get outside help when planning a financial strategy?
Switching from earned income to investment income is a whole new way of living. You are shifting expenses, such as for cars, travel and entertainment, from corporate expenses to personal expenses. This requires a complete evaluation. Working with a business broker, business attorney, CPA, financial planner and investment adviser should be part of your strategy.
What type of service and performance standards should one expect from investment professionals?
It is best to start with an evaluation of all your options with multiple professionals. Getting a referral from a trusted colleague that has gone through a business sale is always a good way to start. You should expect the planning process to be intense and require multiple meetings. All of the professionals you are working with should provide you with plenty of attention and be thoroughly committed to meeting your needs.
It is important to understand the compensation structure of the individuals with which you are working. For example, many stockbrokers carry the certified financial planner, or CFP, designation but are compensated only when you purchase a product from them, whereas other certified financial planners charge a fee and may not have the incentive to sell you a particular product. Part of setting your performance standards involves understanding what motivates your team.
SANDRO ROSSINI is senior vice president, regional manager of Wealth and Institutional Management at Comerica Bank. Reach him at (415) 477-3212 or firstname.lastname@example.org.