It’s also rare that Ohio Commerce Bank, where Duncan serves as president and CEO, is growing while many community banks report losses. In 2009, assets were up about 9 percent to $73 million.
Though he’s ahead of the curve, Duncan knows the lending game has changed.
“In good times, it’s like nothing can go wrong. You tend to approve loans on what the positives are,” he says. “Today, because you’ve been burned on loans, you tend to highlight what can go wrong especially with small business loans.”
Because banks are reluctant to loan, borrowers need to be more prepared than ever to present their case.
Smart Business spoke to Duncan about how borrowers can attract lenders.
What’s the first thing lenders look at?
The first priority and it is a distant first is demonstrating over the last two or three years the ability to have the profitability or cash flow to service the debt that the borrower is asking for. Regulators today are coming down hard on a transaction if the borrower doesn’t demonstrate the ability to make a payment, and that certainly influences banks’ decisions.
It makes it challenging for a year like 2009 where a number of businesses lost money. That string of two or three years of profitability has been broken. [With] many of the larger banks, because they have to make bankwide, industry-specific decisions, there tends not to be a court of appeals for one bad year. [Smaller banks] are willing to forgive or understand what might be a one-year loss that is not necessarily a trend.
How can business owners demonstrate strength despite a bad year?
What they need to do is demonstrate to the bank that it was a one-year aberration; it was due to the economy, not because of management failings or the industry changing.
[Large banks] basically designate certain industries as being undesirable. The difference with a community bank, we only need three or four new customers a month to make our projections so we can afford to spend however many hours it takes to understand fully the financial statements. It’s not just crunching ratios but some of the dynamics behind it. With companies that lost money, we are willing to spend the time to understand exactly what went wrong and what has management done to get back on their feet, what’s the game plan for 2010-2011.
The owners, more than ever, need to understand their financial statements and also where their business is headed. That’s where a good accountant comes in.
I’m amazed when we ask about significant items on a balance sheet deferred compensation or notes receivable and the business owner doesn’t have a clue. We’re talking about $100,000, $200,000 transactions. That doesn’t give the bank a lot of comfort that the owner is going to make the right decisions or even understand what needs to be done.
Beyond financials, how do lenders identify a strong company?
We tend to look at some nonfinancial factors like the strength and diversity of the management team. We crunch the numbers but we do spend time to visit the facility, meet the management team, make sure that we have a pretty deep understanding of their business, what makes it unique, what are the risks, what has management done to mitigate risks.
One of the other elements that banks will look at is the business model or strategy. If technology has leapfrogged their product or service, then even a historical profitability might not be there going forward.
Banks today are looking at risk factors that can cause problems within what might be a profitable company. Like customer concentration it’s not unusual for small businesses maybe to have two or three customers that constitute a very high percentage of their sales. The risk is if the business loses one such customer, they can go from being very profitable to unprofitable.
The level of debt that businesses have certainly weighs in. You like to see borrowers that are disciplined when times are good; maybe they use some of the profits to pay back their line of credit and not distribute it to the officers of the company. The amount of debt as a percentage of the net worth is certainly something that becomes important to banks in these times.
We also look at the personal net worth and liquidity and credit scores of the owners because with small businesses, there’s a pretty good correlation between how management handles their personal finances and how the business handles their finances.
What questions should a business owner be prepared to answer?
The four questions that a business owner should be fully prepared to answer are: What’s the purpose of the loan? How much money do they need? How long do they need it for, what term? And they need to demonstrate how they’re going to repay the loan.
Until a business has good answers to those four questions, they really shouldn’t talk to the bank. In some cases, the bank is just going to turn them down on the spot because they don’t have their act together. We have a limited amount of time [to] spend assisting a customer to give us what we need.
It’s probably a good idea to meet with the accountant beforehand to make sure you understand what the financials are and have an idea, especially coming out of a recession, what the next year or two might look like.
What should borrowers use loans for?
Don’t look for a loan because of management failure, which would be something like they’re not being diligent enough in collecting their accounts receivable, maybe they have too much inventory or they have unpaid [debt or] taxes. Those are sources of cash that the business should be squeezing out, not a bank.
Banks prefer to have the loan used for a productive purpose that will result in higher sales and profits. If it’s for equipment, that piece of equipment will allow them to be more efficient and get better margins, more profits.
What should a business owner personally be prepared for?
Not that it’s going to happen in every case, but they should be prepared to personally guarantee the loan and possibly pledge personal assets. In many cases, the bank has more invested if you want to call a loan an investment in that business than the owner does, and the bank is looking for a commitment that the owner is as committed as the bank is with the dollars that they put in.
If you have a company where the equity is $200,000 and the bank is lending $500,000, there’s an imbalance. The bank wants to make sure that the borrower is not going to walk away from the transaction. That’s where the personal guarantee and sometimes personal assets come into play.
The people that impress us are ones that understand that the banks are in business to make money also. They’re … willing to provide whatever it is that the bank wants in terms of maybe personal guarantees or assets or maybe bringing more of a relationship to the bank so that … this isn’t just a transaction but a relationship that can foster good profits for the bank during the years.
Commercial lending is a little more of an art than a science. There’s a lot of factors that go in and some certainly are financial, but others are more of the character variety. So any references that you can bring for us certainly have value because we’re very much relationship-oriented.
How can owners prepare for the relationship aspect of the transaction?
Two years ago when I was getting referrals, inevitably within the first minute or two the question would come up: ‘What’s your interest rate?’ Today, that question rarely comes up. The interest rates are so low; if you can’t make a project work on a 4 or 5 percent borrowing rate, you probably shouldn’t even think about the project. But more importantly, businesses are understanding that the lowest interest rate is not necessarily best in the long run.
Businesses today are and should be more mindful of looking for a bank that actually has shown a consistent interest in small businesses. When a business is out there looking for a loan, understanding the bank they’re with and what other alternatives are out there is usually a pretty good first step for them. If you’re taking a small transaction in an undesirable industry to one of the large banks, it probably is a waste of your time and theirs.
How would a business owner decide between a large or small bank?
The amount of money that a business needs is a good place to start. Our niche is loans up to $2 million. If we get loan requests of $4 or 5 million, not that we can’t do it, but when we have to start getting one or two other [community] banks involved, you start to have the same amount of time that a large bank is likely to take in analyzing their requests, which they could do on their own.
Today, it seems like something $2 million and above, larger banks will pay some attention to. That’s not to say that the large banks aren’t making loans under $2 million, but they certainly don’t have nearly as much interest as they would in larger transactions.
That’s where the accounting firm often can help. [Firms] often are plugged in to a number of banks around town. They can be a good first source.
Small business owners have their own network, whether it’s business associates, people at the country club or the health club or whatever. Asking around is not a bad start, if only you can find out a certain bank doesn’t seem to be lending at all or another bank is pretty receptive or, ‘I had this good experience with XYZ Bank,’ or, ‘It took me two months with the other.’
It’s best to come to the bank last as opposed to early. If you have those kinds of conversations with the accountant and friends and business associates and you’re hearing the same banks either to stay away from or to talk to, then you have a better probability that you’re going to have more meaningful conversations.
HOW TO REACH: Ohio Commerce Bank, (216) 910-0550 or www.ohiocommercebank.com
After exponential growth, The Morey Corp. wasn’t quite the same company that Morey’s grandfather founded in a basement in 1934. While that growth was great, it also revealed the inefficiencies of old systems.
“The first signs that you have to do something different is when systems and processes and people that were performing well … start to crack,” says Morey, the third-generation president and CEO of the electronic manufacturing services provider. “Problems that you didn’t have before because they were just handled start to crop up again. A lot of it is just because the volume of work that needs to be addressed changes. The demands of customers have a tendency to become greater. The speed at which we need to operate increases and everything just has to move to another level of performance.”
The manufacturing processes that Morey Corp. developed for smaller-scale operations weren’t keeping up with its growth. The company was committed to keeping manufacturing operations in the U.S. instead of outsourcing overseas. It was also planning to expand beyond original equipment manufacturer services by offering products directly to end-users.
But the company was stuck.
“We recognized that, given the tools and the expertise that we had developed over time, we had gotten about as good as we could get,” Morey says. “We just were not making the types of improvements particularly in quality that we believed we needed to make to remain a world-class manufacturing company.”
To be able to scale to growth and compete in the global market, Morey knew he had to slim down the inefficiencies and improve quality. He found the perfect match for the company’s continuous improvement philosophies not to mention an expanded toolbox of methods in lean.
“When you’re providing any good or service, the fundamental objective is to do it as quickly and efficiently as you possibly can, at the highest quality,” he says. “The key to that is eliminating waste, eliminating rework, eliminating anything that doesn’t bring value to the process.”Take a long-term approach
You can’t eliminate waste until you know what it is. You have to know what points to the end goal and what doesn’t, so you need to know your target.
“First and foremost is to adopt a long-term philosophy,” Morey says of lean. “In other words, I’m not doing this in order to meet some quarterly financial statement goal. The things that we do are aimed at achieving outstanding long-term performance for the company and for our people.”
To make sure improvements point toward long-term performance, start with your overall vision and work your way down.
At Morey Corp., the vision starts when owners set high-level performance goals like revenue growth, profitability, cash flow and other financials. As those trickle down through the company, more of the 550 employees get involved at each step.
“From there, we will get our top leadership team together and we’ll go through a process that says, ‘OK, this is what it is we want to achieve. Here’s where we’re at today. What are the major types of initiatives that we need to focus on over the course of the coming year or two years?’” Morey says.
That sets high-level strategic initiatives processes, capabilities, products and services that will contribute to corporate goals.
“From there, we’ll bring in our next layer of management,” Morey says. “We just start asking the questions: In order to achieve these strategic initiatives, what do we need to be able to do at a functional level? So everything is at this point still based upon these levels of performance that we want to achieve. We’re not focused on how we’re going to do it. We’re not focused on the sequence of events. We’re simply trying to get a clear picture of what it is that we need to try to achieve as a company.”
Keep moving the goal down, involving employees at functional levels to uncover tactical improvements that will contribute to those strategies. Teams at Morey Corp. meet to identify specific projects and time frames for them that will help the company achieve its objectives.
Even the way those projects are documented can get employees thinking about the connection between present and future. Morey Corp. uses an A3 which refers to the size of paper they use.
“In the top left quadrant, you’ll have the stated goal and the specific metrics you’re trying to achieve,” Morey says. “Right below that in the lower left-hand quadrant, you will map out the current state. That’s where you’re going to get people all the way down the line involved in identifying what is our current state.
“Then in the top right-hand corner, we create a future state map. In other words, when we have achieved our objective, what will it look like? How will we be operating in the future? Then in the bottom right-hand quadrant, we create an action plan, which is simply a step-by-step, ‘This is what we’re going to do. This is who’s going to do it. This is when it’s due.’”
By trickling goals down that way, you ensure alignment between the high-level corporate vision and front-line improvements. You also encourage buy-in along the way by involving employees.
“The idea with this process is that, in the end, every corporate goal and objective and improvement associated with them permeates the daily tasks of functional area, team and individual employee,” Morey says.Find opportunities for improvement
Now that you know where you’re trying to go, shave away waste to get there more efficiently.
First, you have to understand the current steps in a given process.
“You can think of it in terms of getting ready for work in the morning,” says Morey, explaining his 18-minute routine: shave, shower, dress and head out the door.
If you wake up, head downstairs for coffee, climb back upstairs for a shower, walk outside to get the paper then back upstairs to brush your teeth, think about how you could simplify the process.
“Identify … any activity that you’re performing that doesn’t directly add value to the process or require you to perform this activity to get the overall done job,” Morey says.
In lean, that’s illustrated with a value stream map.
“On a piece of paper, you simply make a map of all of the major activities that need to be performed in order to achieve some process output,” Morey says. “Then once you create that value stream map, you start to look at, ‘Well, how much does it cost me to perform this step?’ You can measure it either in terms of dollars, if that’s the appropriate measure. Typically, we’ll measure it in terms of time.
“When you map things out and you map the actual flow of information and you map the actual flow of a product or service, it looks like spaghetti things are just shooting out all over the place.”
Waste may not be obvious in day-to-day operations, but when you look at an illustration of the entire process, you can spot it in those offshoots that jut out instead of pointing toward the goal.
Of course, employees at the functional level should be involved in this process because they know it best. Dialogue with them about the issues that they see.
“You can take a look at, ‘What are customers asking for that we can’t provide? What are the things that cause us the most problems?’” Morey says. “If you start asking those questions, I find that, generally, the intuition within the organization is very strong. The people know what the weaknesses are and if you ask the right questions, they’ll give you the answers.
“They might not necessarily understand the root cause of the problem, but they can certainly point to the symptoms or to the performance indicators that will lead you to where the problems are.”
Those employees can also explain why certain steps in the process exist or if they’re even necessary.
“You’re saying, ‘Why do you have to go from this person to get something from this other person who sits on the other side of the building and then that information goes to a third person who’s sitting over here only to get back to you?’” Morey says. “And they say, ‘Well, that’s the way we’ve always done it.’ When you hear that answer, you know that it’s the easiest thing in the world to change.”Tackle it
There may be plenty of ideas about what to improve but only so many resources to devote. To set priorities which Morey identifies as his primary objective he takes a few approaches.
“One is obviously to try to get some early wins so that people gain confidence in the process,” he says.
First, he looks for problems that come with quick, easy fixes. That’s a good way to begin a process as detailed as lean because it acquaints employees with the specific methods and tools used to analyze problems.
After you get a few successes, you can look for weaknesses that need improvement most. Using the theory of constraints, Morey visualizes the company’s operations as a steel chain stretched between two points.
“Think of each of the links in that chain as some process that you need to perform in order to turn an input into an output,” he says. “Eventually that chain will break. There is, by definition, only one weakest link that’s going to break first. The objective of theory of constraints and a lot of what we try to do when we are trying to implement lean is to identify: Where is that weakest link in our company? If we can identify and strengthen that weakest link, that then allows us to strengthen the overall performance of the company. Strengthening any link other than the weakest link does not strengthen the overall chain.”
One way to identify weak links is to look for substantial capital drains.
“Typically, the money and that weakest system are tied together very closely because that’s where your leaks are,” Morey says.
Tackling those improvements goes deeper than just looking at numbers.
“Much of that has to do with understanding your business, understanding your customers and understanding your people,” he says. “There’s no substitute for intimately understanding your business and what you do.”
Again, it goes back to your employees. Morey asks interdisciplinary teams to discuss solutions around a particular process. Internal experts with experience and knowledge in that area meet with people outside of the process that are affected by it like employees from other departments, customers and suppliers.
If everyone gets a chance to share his or her varied perspectives, Morey has found that general consensus around a direction usually falls into place. But the ones he really cares about getting on board are the front-line employees who handle the process.
“It’s most important to have the people who are actually responsible for the system or the process and for implementing it, they’re the ones that really have to believe in the solution,” he says. “If they don’t believe in it, you’re not going to get very far.”
Fortunately, those same employees may even envision the solution. You just have to be open to the suggestion.
“Generally, they know how to fix it,” he says. “You just have to be willing to ask the question. You have to be willing to accept the truth. Sometimes it’s difficult to accept that your baby’s not necessarily as cute as you think it is, but that’s OK. The objective isn’t to be perfect; the objective is to continue to get better.”
HOW TO REACH: The Morey Corp., (630) 754-2300 or www.moreycorp.com
Justin Nelson’s biggest challenge isn’t exactly a problem. His company, dash Carrier Services LLC, is growing fast.
The provider of emergency and public safety services and wholesale voice solutions grew by more than 60 percent in 2009 to about $15 million in revenue. But that means Nelson needs to hire more employees so he must attract and retain the right ones.
“Until maybe the last 12 months or so, we felt like we were underemployed,” says Nelson, the CEO. “We were struggling to bring on the people that would accelerate our growth.”
Nelson, now with about 25 employees, found the solution in an unlikely place: Denver’s nonprofits. With a community involvement program that rewards volunteer hours with paid time off and bonuses, he attracts and empowers the employees he wants to have.
Smart Business spoke to Nelson about how philanthropy builds a better business.
How does community involvement attract good employees?
Typically, when you talk to [potential] employees about the community involvement plan, you can tell pretty quickly if they’re engaged and interested in that because they’ll, quite often, share what they’re doing outside of work. So we look for that as part of our interview process.
When employees talk about where they’re volunteering or where they’re spending their time, that’s an indication that they aren’t fully focused on themselves. In a company, people have to understand that there’s other people that they’re working with.
Honestly, I think it has helped us hire employees that we probably would struggle to bring on board. They look at all the aspects of employment: salary and benefits, etc. I think we’re competitive in the other aspects of employment, but we’re definitely a leader in community involvement and that’s helped us get employees who value that and frankly, those are the employees we want.
When you talk about, ‘Not only are we looking to encourage you to hit your internal targets; we’ve got external targets and goals that we want to participate in,’ they see that we’re not just solely here to grow the company. We may not be bringing the perfect salary package to you or the perfect benefits to you, but when you look at the overall ecosystem of what we have, we’ve won candidates that way.
How does community involvement tie back to the work environment?
This is almost the quickest way that you can get somebody integrated to your team. They’re going to, very quickly, be working and communicating with other employees outside of work, which carries over to work.
You build teamship because they’re interacting with each other outside of work. That’s when you get good communication between employees. It’s pretty interesting how stepping out of the office can lead to better communication. On a day-to-day basis, you get stuck in the rut of typical communication mechanisms between people you work with. People can often be nervous about communicating across that structure. By doing it in the community environment, it almost eliminates those barriers to communication. Our employees have been doing events where they’re participating with other employees … from different teams and different levels of management.
You get a sense of camaraderie from volunteering and giving back. I don’t think anyone walks out of a volunteer event without feeling good that they’ve done something. And that directly ties back into the company because employees feel like they’re making a positive change, both outside the company and inside the company.
The core goal is community involvement and giving back. That drives employees that are interested in helping others that’s the core value we want back in the company. In turn, you’re getting the benefit of them realizing ownership in the company because they know that we’re successful. We talk about how important it is to the company and how that helps us keep growing as a company because the culture is better.
How can you tie community experiences back into work?
The challenge is to try to put those in concrete terms. I’m a firm believer that it’s happening all the time, and we’re seeing the benefits and that’s why we’re successful. But to try to prove that to my board, it’s probably a little more difficult. There aren’t easy ways to track how that’s happening.
But one thing you can build on is that through those programs, we’ve seen people take more and more ownership. We started the program a couple of years ago. There wasn’t as much volunteering going on so, as a company, we decided, ‘Well, let’s tie it into the bonus.’ What you saw, over time, was that, because people are interacting with other individuals in the company and they’re building teams slowly, people sort of take ownership of volunteering. Our target is six hours [per employee] a quarter, and last quarter, the employee that did the most did 13 or 14 hours and we had 100 percent participation. We didn’t need 100 percent participation to get to our bonus. The target this year is 80 percent.
Often, an employee will say, ‘I have this volunteer event that I’m thinking about going to. Is anybody interested in participating?’ The employees are encouraging other employees to join in.
What that shows is that employees are taking ownership. And I think anytime employees take ownership regardless of if it’s directly related to work they’re going to take more ownership internally.
How do you encourage employees to get involved?
Start small. We started with a target of four hours per quarter and 60 percent participation two years ago. Starting with a low threshold … takes the pressure off people. If they don’t want to participate, they can choose to not do so.
Since we’re rewarding with PTO and talking about it as part of the bonus, these are all upsides for employees. Right now, one-fourth of the calculation of the bonus is determined (by meeting community involvement targets). So instead of making it mandatory or trying to push it down, we’ve given additional bonuses for participation.
That’s the way you avoid ostracizing employees that don’t want to volunteer. Make it flexible enough especially when you start out the program that people see that we’re not trying shove it down on them but we’re giving them an upside.
How to reach: dash Carrier Services LLC, (800) 815-5542 or www.dashcs.com
Shoelaces showed John Rotche how to build culture.
When he bought a one-van air duct cleaning company, Rotche asked an industry pro how to set his business apart.
“He said, ‘I focus on the little things, and it’s the little things that added up to make one huge thing,’” says Rotche, who remembers the man opening a closet to reveal shoelaces of every length. “He said, ‘If [technicians] see that my attention to detail goes down to the color of their shoelaces, that sends such a message … and it just escalates from there.’”
Now, Rotche serves as president of BELFOR Franchise Group — an $18 million operation that includes the air duct cleaning franchise DUCTZ International LLC and its kitchen exhaust cleaning sister HOODZ International LLC.
The culture comes down to the little things.
“If we can do our part, focusing on every culture-building opportunity that we can, it makes for a great place to work,” Rotche says.
Smart Business spoke to Rotche about empowering employees to build culture.
Invite little things. I let the team [determine the culture]. First thing, you’ve got to be ethical and have integrity, but it’s got to be fun as well as productive.
We often ask, ‘Hey, what else can we do to make this really fun?’ People come up with, ‘Let’s bring our dogs to work. Let’s do barbecues. Let’s make cookies.’
It’s out of empowerment. If they make a decision and it’s about building culture, as long as it’s ethical, I will never challenge it.
We purposely created a lot of lounge areas around the building for people to come together and communicate. We built a kitchen in the center of our building purposely, because where does everyone hang out at grandma’s house? In the kitchen. One of our team members really enjoys fresh-baked chocolate chip cookies, so she would always make a batch. There was not a strategic initiative surrounding this, but … everyone loves having fresh-baked chocolate chip cookies. Why not in a corporate environment?
So we encourage new ideas from people. But the most important thing to do is never squash a bad idea. Make one person feel lousy about a not-so-good idea; watch how quick people put their heads in the sand and don’t talk.
Even bad ideas, there’s a certain strand of logic or at least spirit. Say, ‘Hey, you know what I love about the idea is that you’ve thought enough to share it and to think out of the box. It may not work in this particular instance, but good for you, and thanks for sharing it.’ It comes down to respect.
Focus on productivity. You inspect what you expect. We have regular staff meetings [where] we list each person’s goals and objectives, but also they have to give a report on their progress. It all comes down to empowerment and accountability.
You either have people on your team that you can trust to take the ball and run with it or you don’t. If you have the team in place, find out whose skill set best would match the needs of the program. You have to be willing to hand that ball off to that person and not micromanage.
You have to be able to empower them to not be afraid to make mistakes. If they’re going to be on your team, they need to know it’s a safe environment as long as they’re trying hard and they’re being honest and they’re willing to get better. It still has to be followed up with accountability, performance reviews and so forth, but they can’t be paralyzed by fear of making a mistake.
Reward employees. You just have to celebrate the wins. Just by stopping and saying, ‘Do you guys realize how well we’re doing or what we’ve done?’ Just stopping to say, ‘Hey, forward the phones; we’re leaving for an hour to go have ice cream sundaes.’ It may not fit in the Harvard textbook management, but in our organization, it works.
To some of these young folks here, I say, ‘What do you want your resume to read in two years? Are you just a regional service manager; all you do is answer phones and listen to people complain? Or do you want to be the national director of business development? There’s no pay change, but how do we want to set up your job and what’s going to inspire you?’
I’m going to say, ‘Where’s your passion and where’s your gifting?’ [They say,] ‘I really like to do this.’ [Then I say,] ‘OK, you still need to do this, but we’re going to add this onto your plate. You’re going to be in charge of this program.’
It’s amazing how excited they are. They don’t come back and say, ‘How much more are you going to pay me?’ If that’s the first question they’re asking, then are you bringing in the right people?
Hire the right culture. You can’t train culture and you can’t train ethics and you cannot train integrity. So it really begins with the interviewing process.
Every new [franchisee] candidate spends breakfast and then the end of the day with me. I talk to them about: Have they ever managed employees? What’s the greatest thing an employer’s ever done for them? What’s the worst thing an employer’s ever done to them? By asking certain questions about how they look at leadership, that gives you insight into what type of leaders they’re going to be, how they treat their employees and the culture they build.
Our entire staff eats lunch with the candidates. You can see how comfortable are we with them and are they with us. The next day, our team will get together and talk about the candidates because I’m not in every session. I may think someone’s great and then I may find out that this person showed some signs they may not be really nice or they may have other social challenges.
A great indicator is [asking] my team, ‘Hey, would you guys like to see them at a convention next year, or would they be someone, if you were walking down the hall, you’d probably duck into another room?’ If you’d want to duck into another room, that’s probably a good sign that they’re not someone we want to bring on board.
William “Biff” Comte would rather be the tortoise than the hare. He knew the path to profitability at AccentCare Inc. wouldn’t be quick or easy, especially if he was going to involve employees in the process. But he thought steady consensus-building would be the surest route to success.
“This isn’t a race,” he says. “We’d rather be the turtle and get there than be the rabbit and run out of energy after a couple of months. You’ve got to play for the long term.”
When he stepped to the starting line, taking over as chairman, president and CEO in 2003, Comte saw a $40 million in-home health care company losing money fast. By the time he got there, the corporate office had seen significant turnover. And metrics were almost unheard of to the point that he wasn’t sure what the remaining employees were doing every day.
The venture-backed start-up began in private-paid personal care but hadn’t decided exactly what it wanted to be when it grew up. As a health care veteran, Comte knew the company would need to broaden its approach by getting involved with government payers to enter the skilled nursing arena for programs like Medicare.
So he began the process of weaving feedback from more than 10,000 employees into his own observations so he could form a clear picture of what he was working with and how he could use that to get where he wanted to go.
“We knew that we needed to go in that direction, but it’s one step at a time and until we knew where we were, we couldn’t figure out where to go,” Comte says. “So we spent a lot of time talking to the employees.”Get up to speed
Before you can think about the finish line, you have to figure out where you’re starting. Comte didn’t have the luxury of data to get him up to speed, so instead he started investigating.
“It’s what I would think to be Business 101,” he says. “When you go into a new organization, you take a look at your people, you take a look at your product, and you take a look what we are doing.”
Whether you’re taking over or just staying up-to-date, the key to assessing the state of your business is meshing your observations with feedback from others.
Comte’s first step to do that was shadowing some caregivers to learn how his employees spent their days.
“I just wanted to get a feel for what it is they do so when we make decisions here, we understand how it’s going to affect the folks in the field,” says Comte, who now requires all office employees to spend time observing caregivers to understand what goes on in the field.
Remember, you’re not just assessing the company for the sake of a snapshot. Look for better ways of doing what you’re doing or even additional things you could be doing, too. Some of that can come from your past experience, so think about what you’ve seen at other companies what works and what doesn’t.
“Based on the fact that I had been in the health care business for a long time, I could see things that were possibilities for us that we weren’t doing,” Comte says. “I could also see things that we were doing that didn’t make a lot of sense.”
Comte complemented his observations with feedback from employees and clients. He continues to poll patients about the service they receive and employees about what they think of their company and where they see room for improvement.
The key is to be frank about what you see and hear, which will encourage employees to take on the same bluntness.
“The first thing you have to do is be straightforward and honest with everybody. Tell everybody what they’re doing right, what they’re doing wrong,” he says. “Listen to what they have to say as to where they thought the company should be, what they thought they were doing right and wrong, how they have interacted with management in the past, what they think could be better.
“It was honesty: ‘Here’s where I see things. Here’s what I think we need to improve on, and here’s where I think we’re doing a great job.’ And if they disagree with me, that was the time to stand up and say, ‘You might be right here, but we think you’re missing the point here.’ I tell them what I think and I respect the fact that they’ll do the same back with me.”
As long as he kept his door and, therefore, the communication circuit open, Comte found that feedback flowed.Establish structure
Comte describes the structure of the AccentCare he first encountered as loose and scattered. People were getting work done but more out of habit than as progress toward any ultimate goal. There was no accountability and no metrics, which meant progress was tough to track.
“We needed to establish direction and goals and then hold them to those goals and make them accountable for what they did, reward them when they did it, and let them know when they didn’t do it,” he says.
If your company is going to do anything more than merely scrape by, you need to establish some structure that includes both abstract operating philosophies and concrete metrics.
For the first piece creating a mission statement and guiding principles Comte relied on his employees, who had the best insight into the company’s core.
“Management shouldn’t be developing these, in my opinion,” he says. “These are things the employees have to buy in to and have to agree to and have to live. I can’t tell people how do to that.”
So he asked each manager to round up a few willing volunteers sans management, of course to participate on a committee. He gave them a general direction and asked them to fill in gaps by defining what the company was all about.
“We don’t put a lot of structure in when and how they should do it,” Comte says. “We just put the emphasis on the results.”
The ultimate test of their proposed mission is to put it in front of everyone else. Now, for example, new employees get a printout of the mission and guiding philosophies and Comte encourages them to disagree or edit. Additionally, an employee committee gets together annually to ask the rest of the staff for revision suggestions. But for seven years, the mission has remained unchanged.
Once you have the outline of what the company is and how it acts, you can drill down into specific goals that will propel the company toward its mission. If you want to see progress, you need to be able to measure it.
“Make it look, feel and act like a business,” Comte says. “Bring in the appropriate metrics. Make sure they look at the financial information the right way.”
But, especially if you’re starting from scratch, what exactly are the appropriate metrics?
“There are certainly your financial goals. The first thing you want to do is get the company profitable,” Comte says. “And then we determined after we got profitable, what should our margins be? What should our bottom line look like? And then you drive for that.”
After you set the first goal of profitability, then you have to think ahead to what success will look like in the future.
“You just start putting together the picture using input from the field. You start mapping out what this company should look like,” Comte says. “Once you figure out what it should look like today, then you start working out what should it look l ike tomorrow, and then how do we get there. That’s an ongoing process.”
It will take several other metrics to build your future picture of success. Once you’re familiar with the company, it should be fairly obvious which statistics define the business in terms of productivity.
Basically, measure what your employees spend their time doing and what your clients expect, then try to reduce the gap. Comte, for example, looked at how many home visits caregivers conducted on various time scales and how many visits particular clients needed.
“You determine … what are the people, what are the metrics, what do we need to look at every day, every week, every month to make sure that we’re heading in the direction that we all laid out that we could get to,” he says.
Just as you should revisit your mission statement, determining metrics is similarly ongoing.
“Each business has its own set of metrics and they’re constantly evolving,” he says. “I don’t think there’s a month when we don’t say, ‘How about if we look at it like this, and chop up the data and see what it means if we do this?’ It’s never complete. You’re always looking at better ways of doing things.”Pull together
Of course, when you’re giving employees a voice in setting your direction, you’re asking for a chorus that may not always converge. But by relying on a disciplined process and common goals, Comte seldom had to make decisions that weren’t backed by his team.
Obviously, different managers will want different things for their departments. But by asking them to prioritize their needs, you can start to get alignment. Comte does that with a three-pronged question.
“Tell me what it is that you need what is critical to your operations to keep going?” he asks his executives. “What would be nice to have in order to grow your business? And if everything was just perfect, what would you like to have?”
Then you can divide their requests for people, equipment and other resources into necessities and nice-to-haves. Because you only have so many resources, the next step is deciding which ones to grant first.
“Let’s figure out whose project we’re going to move forward the fastest,” Comte tells his team. “What makes the most sense for the company, not only financially but for who we are and what we do?”
He sets the expectation up front that, at the end of the day, everybody has to agree on a direction. To establish that unity, he reminds his employees that despite divisions and departments they are one company pushing toward a single goal by illustrating how success in one part of the company translates into success for everyone.
“Ultimately, what’s best for the company is what’s best for everybody,” he says. “Although everybody, for example, may be bonused in how their division does, there’s also a big piece of the bonus that’s how the company does. So they’re going to want the other divisions to do well because it helps them.
“If we’re hitting our budget and they’re getting bonuses, that means that we’ll have additional money to do other things that will help them. They know that if they say, ‘Well, I’ll put my thing on the side burner; we’ll help you guys get there,’ those people are going to help them next time.”
After all, it’s not like one department gets something while everyone else gets nothing. It’s more like someone gets something now so others can get theirs later. Putting priorities in perspective like that can bring employees together to support each other’s initiatives. Comte also checks up on goals several times a year to see if priorities should be reorganized.
Now, the road ahead of Comte looks a little brighter. AccentCare has paid down debts significantly, and it’s now profitable enough that the venture capital company hasn’t fed it money for several years. By 2009, the company had grown to about $200 million in revenue and to a seven-state service area from a two-state area all thanks to the collaborative efforts of employees.
“Employees are our business,” Comte says. “Without listening to them and understanding what their needs are to make their jobs easier, we wouldn’t have a business. You just communicate over and over and over again and you consistently listen and try to solve their problems.”
How to reach: AccentCare Inc., (800) 834-3059 or www.accentcare.com
He was only named CEO of Oversee.net last year, a year after he became president and joined the board of directors at the Los Angeles company, which specializes in monetizing, registering, selling and developing domain names.
But he knows the new title means a big change in how his 150 employees relate to him.
“You no longer can count on relationships to be the same as they were,” says Kupietzky, who came on board as an executive vice president in 2006 after serving in several management positions at other technology giants. “You have to have everyone respect you; they might not all like you. And that’s a big challenge, especially when you’ve tried to have a lot of good relationships with people.”
To bridge the gap, Kupietzky tries to be as accessible and as transparent as possible — not just to facilitate bottom-up communication but also to keep employees aligned as information trickles down.
“You try and be available anytime anybody needs something, to have them understand the business issues, to give them the context of why we have to make certain decisions,” he says.
By striving to maintain a level organization where information flows freely between the CEO and employees, Kupietzky has led the company, which has more than $150 million in revenue, to new heights. Everyone is working together toward common goals and pointing out issues that might prevent the company from reaching its objectives.
“You really are in a glass house, and it’s very easy to throw stones before you sat in the chair,” Kupietzky says. “So I try and have people understand those tradeoffs even if they’re not sitting in my chair and giving them all the same information I have so that they realize decisions are not as black and white as it appears.”
Here’s how Kupietzky gives employees a glimpse into his world to keep them aligned.
Make your message meaningful
Poker chips and bingo cards are common at Oversee.net’s company meetings. That’s because, to Kupietzky, alignment between employees and the company starts with transparency, and he gets creative when it comes to giving employees information and making sure they understand it.
Regardless of how you set company goals — whether they’re set in the boardroom or collaboratively built with employee input — transparency is key. Usually, it’s an iterative process to align individual goals with those overarching ones, but some employees require more guidance than others.
In general, Kupietzky communicates overall objectives clearly and frequently, and then offers individual help if employees have trouble tying their goals to that.
To help employees see the connection, he uses the helicopter process. It’s a visual reminder of a chopper hovering over a forest, with both the forest and the trees in view so it’s never just one or the other.
“If you get too specific on the goals, people forget how that fits into the overall vision,” he says. “And if you stay too much in the vision, people don’t really [know], ‘What does that mean for what I do today?’ or, ‘How do I make a priority decision about two different things I could work on?’ That’s where that ongoing, consistent communication is important because it isn’t so clear to everybody.”
Maintaining that balance requires a lot of repetition as you reinforce both the big picture and details. Kupietzky holds biweekly meetings with his management team, giving them full transparency on progress toward targets. He sends monthly staff e-mails with the same information, then holds quarterly all-hands meetings to discuss trends in that data.
“This is where that redundancy comes in, where it sounds repetitive — because it is,” he says. “But it makes sure that everyone knows, ‘This is what we’re trying to achieve. This is how far we’ve come. This is how far we still have to go.’
“Everybody can make that direct connection to what they’re working on or what’s important. The reason why you do all this is [because] I can’t figure out what everybody does and accurately predict that they’re doing the right thing. You want people to understand what the company needs to accomplish and then they figure out, ‘OK, how do I help accomplish that goal?’”
To keep the message from becoming stale, spice it up with examples.
“You always try and find something new,” Kupietzky says. “I love to get wins, specific examples of where we’ve been successful in something. It could be a project, it could be a customer interaction, it could be something that we’re better than our competitors at. I try and highlight those, and I do it for two reasons. There’s individuals that can get recognition, but at the same time, it helps people see why this is real and it’s current; it’s not just the same thing I said three months ago.”
Another way to make your message resonate is tailoring it to your audience. Think about their vocabularies and try to meet them on their level.
“Words like gross margin and net margin, EBITDA, OEBITDA and operating expenses and everything, that’s kind of second nature,” he says. “Most people in the company don’t have a clue what those metrics mean and, even more importantly, why they’re important.”
When Kupietzky rolled out the budget, he showed employees white poker chips representing revenue, red ones symbolizing losses and green chips showing profit. As he moved the chips from jar to jar, he explained what was happening and how it affected the company.
“Visually showing people how white ones become red or green helps people visualize how the company earns its money and how it spends it and how it makes more in the future,” he says. “It became a very effective way for people to understand an income statement. I’ve gone back to that analogy even without using the picture to help people understand, when we talk about our results, why that’s important and how we’re doing.”
Employees have picked up on Kupietzky’s repetition. Now, when he takes the stage to deliver a message, they get Jeff Bingo cards featuring his most often-used keywords. They can win prizes for Bingo, so they’re incentivized to pay attention.
Meet one on one
Employees won’t immediately fall into line when you make an announcement, but individual meetings can help align them to the company goals and secure a role in its success.
“That’s a very effective way to manage an organization — is ensure that there’s regularly scheduled check-ins between a manager and his or her employees and between senior management and indirect employees,” Kupietzky says.
He meets with his direct reports weekly for half-hour to hour-long one-on-ones, and with employees two layers down every three or four weeks. He also opens his schedule for anyone else who wants to meet — usually setting up a time within 24 hours of the person’s request.
“As I manage my calendar, I ensure that there’s a priority for people that are looking for my time,” he says. “Obviously, I like that because i
t shows initiative from the employees to feel comfortable broaching an issue that might be two or three levels above their chain of command.”
However, it’s not an excuse for employees to override their direct managers and go straight to the top. Kupietzky makes sure meetings with him are in addition to — not instead of — meetings with managers. Unless it’s confidential, he shares the conversation with the manager later to fill in gaps where employees withhold opinions from their bosses.
Similarly, your direct reports may not tell you everything. Talk to others around them — their direct reports, for example — to get other perspectives.
“You have to talk to enough people about the issue to get a multibiased view,” he says. “Everybody’s biased, but at least you’ll get multibiases.”
Unless employees have something specific to discuss, Kupietzky questions them to see if they understand the company’s goals and the role they play in achieving them.
“When you get a, ‘No, I’m not sure. I’ve got issues with it,’ we have misalignment,” he says. “Every person should know what they’re working on, how that ties to the department goals and how that goal ties to the overall company mission. When we have people that are unsure about it, then it becomes an opportunity to talk through it.”
You want to make sure employees have the resources they need to be successful, so ask how you can help. It’s important that they know how they fit into the organization, but what matters most is that they simply know that they do fit in.
“That’s the most important thing for an employee to be satisfied, is that they feel like what they’re working on is important and it ties to some overall goal, that they can understand the line of sight from what they’re working on to what the company’s trying to achieve,” Kupietzky says.
Because you’re getting direct feedback in one-on-ones, you can make course corrections more quickly. Sometimes, all it takes is reinforcement.
“Sometimes, my job there is just to listen and give support and, frankly, cheerlead what that person’s individually working on — which is a way for them to feel connected to the overall mission of the company,” Kupietzky says. “It helps a lot, obviously, when there’s a view that the CEO took out a half-hour or an hour of what’s perceived to be the busiest schedule in the company. People appreciate that.”
There’s a difference between explaining things repeatedly and actually getting people on board. To really build buy-in, you need understanding plus consensus.
Being transparent about your goals and decisions is a good start, but it has to coincide with feedback from employees.
“You definitely have to give people a chance to talk through it and give them the time to air their opinion,” Kupietzky says. “You hopefully have created good relationships so when there is a difference of opinion it’s not personal and it’s really based on different points of view.”
That’s where one-on-ones are useful because they give employees opportunities to ask questions and share opinions. You can show them the same information you see so they can understand the business side of things instead of reacting emotionally.
“When they take the time to understand the issues and see it from all the different points of view, they’ll come to the same conclusion [as you],” Kupietzky says.
At least that’s the hope. But sometimes, they’ll see all the information and still disagree. That’s when your conviction is crucial.
“Then you make sure it’s very clear a decision’s been made,” he says. “You don’t want to leave it hanging that, ‘Well, we can always reverse this,’ because then people will undermine it. So I tend to spend more time on, once we got to that decision — independent of how we got there — let’s just make sure we’re all bought in to it.”
Don’t confuse conviction with inflexibility, because you may have to reverse a decision. While being clear that your decision is made, you should also acknowledge potential obstacles.
“You explicitly call out that you’re aware of the risks and the challenges, and here’s how you feel we’re going to achieve them,” Kupietzky says. “You have to be optimistic but cautiously optimistic so people don’t think that you’re just drinking the Kool-Aid. Recognize, if you are wrong and it’s something that can be reversed, you still make that reversal and admit your mistake.”
If you acknowledge that the path may change, doesn’t it give employees reason to resist? Only if they feel like you’re making decisions without reason.
“If you’ve gone through a good enough process to ensure that the issues were raised, the decisions were vetted and then you make the call, I think generally people would prefer to be moving with work being done than stagnating,” Kupietzky says. “When everybody’s in their highest gear, they rarely get concerned if we are doing course corrections. It’s when people feel, because of the indecision we’re idling, that’s when people get frustrated. Even if we don’t know the right direction, it’s just so important to get people engaged and active because you can always get to that right place later.”
Of course, outcomes will ultimately determine whether employees are meeting goals to achieve the mission. But constant communication with them will keep everyone on board and aligned. That way, even if the direction changes you’ll all be moving together.
“It’s easier to change the direction once the train is moving on the tracks than it’s sitting in the station and you’re still trying to figure out which way to point it,” Kupietzky says. “I use that analogy a lot because I think we’re better off as an organization if we’re executing well. We can always figure out where to point if we all believe we know where we’re going. [That’s better than if] we can’t get out of the station because we’re not executing.”
How to reach: Oversee.net, (213) 408-0080 or www.oversee.net
Leaders in Joe R. Davis’s position might feel growing pains.
The $5 million printing company he started in Houston in 1985 has sprouted into 70 locations across 27 states as well as into Toronto and Prague. In fiscal 2009, which ended in March, the company struck record revenue of $1.15 billion.
But Davis, chairman and CEO of Consolidated Graphics Inc. (NYSE: CGX), knows he can’t handle every aspect of a rapidly growing organization. In order to keep the company strong as it expands, he needs to develop future leaders.
“Developing these young people, [giving] them the opportunity, is the most rewarding as well as sometimes the most challenging thing we’ve had to face,” Davis says.
So he developed the Leadership Development Program to speed college grads through an accelerated path to management.
The company’s Web site touts, “The program succeeds because it is not a cookie-cutter structure. It’s an organic process that is very much tailored to the individual’s goals.”
And succeed it has.
Since its start in 1991, the award-winning program has added 278 graduates to the work force of 5,500 and 87 of those came in January alone. And yes, we said award-winning: Consolidated Graphics scored multiple honors from the National Association of Colleges and Employers for best practices in educational programming in 2005 and information resources for students in 2007.
Davis has learned plenty about training and developing future leaders but just as much about finding those future leaders to develop.
“You can sit down and talk to them. You can make suggestions to them,” Davis says. “But in the end, it’s up to the individual to perform as you expect.”Find people who fit
Identifying the right people starts with a background check.
“First of all, we have a great belief that past success is a predicator of future success,” says Davis, who begins his search by reviewing a student’s college career. “Somebody in college, at 22 years old, it’s very difficult to predict what they’re going to do. But we look at their prior track record.”
The first general indicator is grade point average; Davis looks for B or better. But that shouldn’t be the only thing you consider.
Look for outside involvements: social groups, extracurricular activities, jobs, etc.
“Something other than just going to school,” Davis says.
You don’t have to narrow your search to candidates with prior knowledge and experience, especially when you’re using young students as your pool.
“We don’t necessarily look for anybody with prior print experience,” he says. “We believe we can get someone who is bright, enthusiastic, energetic and we can teach them the printing business.”
Focus on work ethic and other ways they’ve already set themselves apart that match what you expect from employees.
“You have to judge and base it on prior history,” he says. “What has been their success through high school, college and gotten them to where they are now? Did they work hard in college? Did they have outside activities? Did they have a job? What did they do to distinguish themselves in their college career? I think that’s the best indicator of what they’re going to do once they join your company.”
Davis wants candidates who have shown they are eager, aggressive, hardworking achievers who yearn to succeed not lazy students who want an 8-to-5 day and a paycheck. Separating the good candidates from the lazy ones can start with their responses to basic questions like why they want to join your company.
“If their answer is, ‘You have good pay and benefits and I need a job,’ that’s probably not going to be very interesting to us,” he says. “But if the answer is, ‘I see this as a great opportunity to have a long-term career, and I think I could be very successful. Here’s why I’ve been successful in the past, and I think I can be successful here,’ then we’d be interested in that person.”
Of course, you also have to be clear about what the job entails to make sure both sides are in sync.
“We tell them about the company, how we train them, our expectations of them,” Davis says. “So nothing is new when they come on board.”
Explain both what you expect of the candidates and what they can expect. Davis shares stories of 26-year-old company presidents who have zoomed through the program and risen to the top.
Students can also go online for in-depth descriptions and videos of the Leadership Development Program through first-person perspectives of current students and successful graduates. The “Day in the Life” section shares employees’ blogs to show an average day’s duties in several positions. One employee who has only been in the program for a month shares a day of inking press rollers and attending a production meeting to review every job in the plant. Another new employee, still in sales training, blogs about a morning presentation for combining CGX’s print and online capabilities, the daily hour of cold calls and happy hour with a top client.
“They know what our expectations are coming into the company, and hopefully they know what the opportunities are coming into the company,” Davis says.
Through that, he hopes to find employees who will make the best fit.
“Anybody we hire out of college we think has the potential to be a company president,” Davis says. “Or we don’t hire them.”Provide opportunities
The Leadership Development Program at Consolidated Graphics has three phases to steer employees into management positions, offering development opportunities along the way.
The first stage, formally called the production rotation, is better known as getting dirty. Like the brand-new employee blogged on the Web site, the first step involves teaching employees the process that physically takes a job through the company.
The company’s philosophy is this: If you’re going to be a leader in the business, you have to know how it works down to the finest, grubbiest detail.
After six months, candidates shift to the next phase of business fundamentals by rotating through the back-office departments. They tackle longer-term, hands-on projects in accounting, purchasing and customer service for about another six months.
During these stages, don’t treat the new employees like interns that sit on the sidelines and observe. They should be diving into each specialty to ultimately decide where they want to end up.
On-the-job training provides students reference materials to help teach the technical aspects as well as the assistance of a more experienced associate who may serve as a mentor.
“My objective is I want them to be as successful as they possibly can be,” Davis says. “It’s my challenge to be sure that they have enough opportunities to maximize their potential in our company, and that’s my responsibility.”
While new employees are scouting the various aspects of your company, your job is to make sure they’re making an effort and to help them find their strengths by monitoring their performance.
Every six months, presidents of operating companies comple te written evaluations of the LDP associates at their location, and Davis personally reviews the assessments. While they’re always evaluated on soft skills like getting along with co-workers and communicating effectively, the early assessments focus on technical skills.
“You’re looking at: Are they developing their technical expertise?” Davis says. “They spent six months in customer service, for instance. Have they mastered all the things that you need to know about in customer service? If they’re in purchasing, have they mastered everything, including all the products we buy and the characteristics of those products?”
Their interests as well as your assessment of their strongest skills will lead them to the third stage of the program, which is leadership training in an area of their choosing. At Consolidated Graphics, that’s generally a choice between sales development and operations management, both of which eventually lead to the president’s seat.
“They have to decide what they want to do,” Davis says. “We can encourage them, but I think people have to encourage themselves. We give them a lot of opportunity, and they have to take advantage of the opportunity. We’re not in the baby-sitting business.”
By mostly leaving the choice to them, you’ll also identify the self-starters who will jump into a position and strive for success.
“You can look at your job in a narrow field or you can say, ‘I’m here to learn all I can about the printing business. I want to help in any area I can,’ and if somebody’s overloaded, you step in and help them out; maybe you learn something about their job when you’re doing it,” Davis says. “So I’m looking for people who are willing to extend themselves and understand our business.”Develop leaders
Davis learned that in order for new leaders to develop in his company, he has to throw them the ball and trust them with it. So he tries to strike a balance between letting go and watching how they handle the responsibility.
“It’s necessary to be able to delegate to your people. You can’t be a micromanager,” he says. “But at the same time, I think you need to follow up to be sure that people are doing their job and have some method to measure how well they are doing that particular job.”
The fine line lies at how often you’re monitoring your people. The more closely you examine each step of their progress, the closer you inch toward micromanagement.
“If you’re just looking at results and not questioning the wisdom of every judgment they make, that’s not micromanaging,” Davis says. “You have to let people do enough things and make a few mistakes and hopefully they learn from those mistakes.”
Of course, the way you handle their mistakes can either foster or stint their growth. Davis, for example, prefers to discuss what caused the mistake and how the employee can improve next time. But again, it’s up to them to learn from it.
“I don’t get very upset when people make a mistake,” he says. “What I get upset about is if they make the same mistake twice or if there’s an area that I have told them to be careful about and that’s where the mistakes happen.”
On the other hand, when you see employees using opportunities to improve, it may be a sign they’re ready for more responsibility.
“Go back to the people that have been successful in the job that you’ve asked them to do,” Davis says. “You have an opportunity for more responsibility, then I think that’s the person you’re going to take the chance with and it’s a chance anytime you promote anybody into a new position. You’re taking risks.
“The question you have to have, always, is, ‘Can he run a larger company?’ I look at him and I see he’s done a great job running a smaller company, and my judgment is that he has the ability to run a larger company.”
But, because you’re taking a chance when you make that call, how can you reduce the risk? What if the employee isn’t ready for the responsibility?
“Well, you have to look at his management style,” Davis says with a nod back to the delegation discussion. “He’s running a smaller company; has he delegated or has he done everything himself? If he’d been a one-man band, he’s probably not going to work well. He doesn’t have any experience or maybe the talents to run a larger operation.
“But if he’s been good at hiring the right people, delegating to those people and making sure that they’re doing a good job, then he probably could handle a larger operation.”
With 21 of the company’s 70 presidents coming through the Leadership Development Program, Davis jokes that he can always give aspiring presidents more responsibility.
“I tell them that I never have enough company presidents,” he says. “We can acquire a lot more companies today if we had enough people to run them.”
How to reach: Consolidated Graphics Inc., (713) 787-0977 or www.cgx.com
Visit the Leadership Development Program Web site: www.cgxoncampus.com
Ken Campbell was always the type of kid who had to stick his hand into the fire to verify that it’s hot. These days, it’s companies that are on fire and Campbell is right in the middle of the heat to get things turned around.
His most recent challenge is Standard Pacific Corp., an Irvine-based homebuilder that lost $1.2 billion in 2008.
Campbell came to the company as a partner of MatlinPatterson Global Advisors LLC, a private equity firm that invested more than $500 million in Standard Pacific in May 2008. Campbell had to challenge — and change — how Standard did business to save the company from bankruptcy.
“This was a solid homebuilding company in a bad situation that was getting worse,” he says. “We knew it wasn’t at the bottom of the market — of course, ultimately the bottom was farther down than we thought.”
More specifically, 2007 revenue of $2.9 billion dropped to $1.5 billion in 2008 as gross profits plummeted from a negative $200 million to negative $697 million. The operating loss bottomed out at $1.2 billion in 2008. The stock price fell to 67 cents. By 2008, business declined from its peak by 60 percent while costs held steady. Debts were due and repayment was uncertain. The company was spending more money than it was bringing in, and the market’s downswing was only making things worse.
After seven months, the previous management stepped down. So Campbell — a turnaround expert — took things into his own hands by taking on the role of president and CEO.
“People ask me how do I figure out what’s wrong with a company, and the standard story I give is, ‘Well, I go to the receptionist on my way in the door and I ask them what’s wrong with the company, and then I go upstairs and do it,’” Campbell says. “In other words, the problems are obvious. It’s having the willpower and sometimes the resources to implement the solutions.
“It’s like when you’re 20 pounds overweight, you know you need to lose weight. The problem isn’t figuring out what to do, it’s doing it. … It was pretty easy for everybody to see that something drastic needed to be done.”
As an outsider, Campbell had to rely on employees’ input to help him steer Standard Pacific toward profitability. He learned that if you ask the right questions, then solutions can be as clear as the problems.
“Freeing them up to challenge themselves and not telling them what to do is going to make them and the company much more successful,” he says.
Keep it simple
Whether you’re new to a company or not, the first step to fix a problem is to understand it.
The answer will come from employees, but it may take a little prodding.
“Management has a vested interest in justifying the current state of affairs, which makes them less likely to volunteer radical change because they’re the source of the current solution — which is obviously not working,” Campbell says. “So the trick is to get them to acknowledge what they already know is true and do it in the open and then deal with it. I’m not an alcoholic, but it’s the same as with some kinds of addiction.”
The point is not to blame anyone but to make sure employees understand what they’re doing and why it’s not working. Otherwise, they’ll follow the same routine and get the same results.
“They’ve been doing it for 20 years,” Campbell says. “Then, a $2 billion loss later, they did all the things they were supposed to do. They paid attention to every detail. They knew a lot about the trees and not enough about the forest.”
Show them the forest by tying their efforts to the results. But keep it simple.
At his first board meeting, Campbell received three three-ring binders. Information about the company was buried in them somewhere, but the inaccessibility was proof that employees never looked at data to consider the effects of their work.
“You do have to get them out of their comfort zone because whatever they’ve done over the last three years didn’t work,” he says. “And part of that is changing the information that you look at and share with people.”
Ultimately, you want to reduce data to the pieces that have impacted the business the most. It’s not that smaller pieces don’t matter, but the big ones will make a bigger difference faster.
To simplify your data, start with broad measurements and work your way down.
“You start with revenue and profitability and ask what generates the revenue, what generates the profitability,” says Campbell, whose financial due diligence was built into MatlinPatterson’s investment process. “And then figure out what the pieces are and then what affects the pieces. It doesn’t take long before the eight or 10 things that really have an impact, you know what they are.”
Next, ask employees to explain those things. How do they perform the tasks that have the biggest impact? Are they just following a job description or is there a reason for each step?
That’s where Campbell’s lack of industry expertise came in handy. Similarly, you can admit you don’t know everything about the company and rely on your employees for the answers. Campbell assumes he’s wrong but doesn’t necessarily believe anyone else is right — unless they can explain it. Having employees simplify data is a doorway into that explanation.
“Although, ultimately, it’s all about the same thing — we’re tracking the sale and construction of homes, the purchase of land — because the reports are all done in different formats and are much simpler and reduced, they have to figure out how to address things in a different way, which forces them to be able to explain it,” Campbell says. “In other words, they can’t just go through the motions; they have to figure out: How does this work or why?”
Don’t accept their answers at face value, and be brave enough to ask the stupid questions. Put yourself in the student seat.
“The best way to learn something is to try to teach it to somebody else,” he says. “So I’ve turned them all into teachers. By forcing them to teach me, it forces them to challenge themselves. The only way I can be the coach is if I understand how the game is played.”
It’s not about making them justify their duties. It’s getting them to challenge the status quo so they can look for better methods.
“The trick is for them to take that and sort of push it down,” Campbell says. “Don’t accept looking at a spreadsheet as knowing what’s really going on. You have to get out there. Go to the site. Watch them deliver the wood and see if they really do count it, or whatever it is. Don’t just accept numbers on a page.
“If everybody challenges themselves all the time, … they’ll get better.”
With employees’ help, Campbell condensed those three binders into a 20-page PowerPoint presentation, giving them a clearer picture of how their jobs affect the business. That connection is crucial to getting them to try something new.
The faster you advance from merely identifying problems to actually solving them, the better.
“Don’t drag it
out,” Campbell says. “You could spend a lot of time doing a bunch of analysis or you could just decide over the next week or two what to do and do it. And if you make mistakes, you can fix them later.”
No matter how he looked at it, Standard Pacific’s financials were out of whack. So Campbell’s first step was cutting annual overhead costs from $280 million in 2008 to $160 million. Initially, he didn’t know if it would work or not. He just knew, given the dire circumstances, if he didn’t do something, the company would fail anyway.
Maybe your situation isn’t as extreme, but the point is you need conviction.
“You have to do it quicker than you think you need to, and you have to provide people with a solution that they can believe in. Otherwise it won’t stick,” Campbell says. “You can be wrong about the solution, but you have to be convincing.”
You’ll start to build buy-in by asking employees to participate by offering input and ideas.
“You make them part of the solution,” he says. “I just sort of state the obvious and ask them, ‘OK, so what do we do?’ Part of the trick is making it their solution, not mine.”
The rest of the buy-in comes when you convince them that they’re capable. They don’t have to do the right thing — at least right away. You just have to get them to do something.
“In order to fix a company that’s in lots of trouble, you have to force people out of their comfort zone and then give them some confidence that they can actually do this,” Campbell says. “Part of that is removing the fear of failure. In other words, if you try something and it’s the wrong thing to do, that’s OK. If you don’t try something, that’s not OK. Sins of omission are worse than sins of commission because if you’re losing the race, you’ve got to change the strategy. If you do things quickly and aggressively, even if you make a mistake, then you’ll fix them faster.”
The test came in spring 2009, right after Standard Pacific’s cuts, when the market saw an unexpected spike in home sales.
“And we sold and built the homes,” Campbell said. “So we proved it to ourselves in the real world, which is the best test.”
Once you get the ball rolling, successes will keep people on board, so make sure you communicate wins.
“There’s nothing like a little success to feed people’s confidence,” he says. “... Now the problem is we know you can do it so you’re going to have to keep doing it.”
Campbell, who says a big part of his job is keeping employees updated on the company’s progress, does frequent calls with his 780 employees and visits them all at least once a year. He also benchmarks their success against competitors so they gain a relative sense of their marketplace.
“It’s critical to keep them up to date on how they’re doing, whether they’re doing well or not doing well,” he says. “I happen to think telling them how to do better is more valuable than congratulating them for doing well.”
Actually, they may be one in the same, because recognizing people who perform well can encourage others to perform better.
“Thank you is a very powerful management technique,” says Campbell, who sends notes and small gifts as part of his thanks program. “Maybe it’s a $50 thing, but it’s a ‘recognize people’ thing.”
Instead of handing bonuses to managers, Campbell used incentives to empower them to take responsibility for the company. He replaced management bonuses with 67-cent stock options, giving them equity that would only become more valuable if they succeeded.
Now, with stocks nearing $5, they’re reaping greater rewards than if he’d paid bonuses.
“They convince themselves. When it starts to work, it feeds on itself,” he says. “Now that they see they can make money and they’re performing better than everybody else, it provides a whole other level of energy and confidence.
“It’s just like a sport. If you’re sitting over a golf ball and you know the ball’s going to go in when you’re putting it, it’s much more likely to go in.”
Success builds employees’ confidence in themselves and also in your leadership. If you guide them to a win, they’ll be more likely to follow you in the future.
“Since they’ve seen it work in ways that they were probably skeptical of at first, now they’re more inclined to take my advice and they’re more inclined to believe in themselves,” Campbell says. “So it’s easier for me to help them now. Before I had to rely on the world falling apart and now I can rely on the fact that they delivered when they weren’t sure they could. That’s the most fun thing in the world, is watching people succeed in ways that even they didn’t think they could.”
Campbell predicts that growth is still at least a year away, depending on the economy. In 2009, revenue held at $1.2 billion. But Standard Pacific is getting more profitable — with 2009 gross profit stabilizing back in the black at $141.8 million — which he counts as a success.
Still, he’s staying put until growth comes.
“If this company succeeds, it will be because they succeeded,” he says. “I just help them figure it out. Success here is me leaving. That’s when you know it’s over.”
How to reach: Standard Pacific Corp., (949) 789-1600 or www.standardpacifichomes.com
Peter T. Dameris learned about leadership from a man who made company Christmas parties all-inclusive.
“It could be the mailroom clerk or it could be the receptionist or it could be the division president, but he treated them all the same,” Dameris says of a man he started working with 20 years ago. “When they were coming up and saying thank you for the party, he could make that person feel like that was the only person he wanted to talk to in the room.”
On Assignment Inc. was founded on a culture like that, but too many closed-door meetings and subsequent cuts had deteriorated trust in the management and the company itself.
So when Dameris took over as president and CEO in November 2003, he had to give ownership back to his 1,000 employees. At the helm of a staffing firm that places scientific, IT, engineering and health care professionals in other words, a people business Dameris knew giving employees a role in the company’s success would be paramount to achieving it.
“It’s easy when you’re doing top-down management just to pontificate with people … and constantly be behind closed doors versus facing your customer,” he says. “There were a lot of closed-door meetings trying to figure out how can we cut [selling, general and administrative expenses] another 15 percent. That’s not how you grow a business.”
His plan, instead, was to involve employees. He needs their input to stay on top of changes in the marketplace and to make decisions that will position them to serve those changing needs.
“People want to be valued, and it’s not all about what you make or what your responsibilities are,” Dameris says. “If people feel that you value them and that you want to speak with them, they’re going to approach you. Otherwise, they’re going to keep their distance.”
So his goal was to build and sustain an inclusive culture that spans beyond Christmas parties into every aspect of business.
“The hardest job of a CEO is, if you’re building a good business, you have many intelligent, articulate, passionate, persuasive people who all have a separate opinion,” Dameris says. “At the end of the day, you have to evaluate all these disparate opinions and proposals and come up with the right decision.”Initiate bottoms-up updates
First, Dameris talked to everyone. If the end goal is to fit input together to come up with the best decision, the first step is obviously collecting all of the pieces.
It’s a collaborative process for Dameris, who stays connected with multiple touch points at various intervals.
“Try not to be insulated, and at the end of the day, try to formulate an opinion that’s based on many views,” he says.
His management team meets telephonically at least bimonthly, and each manager meets with his or her divisions weekly. But in between, the management team is spending as much time as possible in front of customers.
The goal is to find out how your customers’ industries are evolving and, as a result, what they’ll need from you both now and in the future. That requires understanding general marketplace trends and how individual customers will react to those.
“We don’t want to be Kodak film where, because you haven’t innovated, you’re just intermediated by digital photography. That is something that we have to think about every day,” Dameris says. “In 1999, I could have sold all the COBOL programmers that I could find to help with Year 2K remediation. But after Dec. 31, 1999, there wasn’t as big a need. So if I just focused on that skill set, I would be in bad shape and I’d have an obsolete skill set inventory.
“So we constantly have to think in terms of what’s early-stage adoption, what’s late-stage adoption and where our industries are going.”
While you’re looking at oncoming changes through long-term lenses, part of your job is sharing those glasses with the rest of your staff.
So when Dameris meets with employees for quarterly updates both positive and negative trends in their operations and end markets the sharing goes both ways. Not only does he recap what he’s seeing, he also asks employees what they’ve been hearing from customers.
“We ask the field, because they’re the ones on the front line; we have to feel for their input,” he says. “So whether it’s how we develop a new line of business to how we do better training or communications, that comes as much from the field as it does from corporate. We’re not a complete top-down organization.”
Dameris also spurs feedback with idea submission competitions in certain areas, from branding to controlling overhead without destroying service. He hopes those kinds of pushes will keep feedback constantly bubbling up through managers.
“We typically do bottoms up,” Dameris says. “We try to keep our leaders as informed and as exposed to the customer, to the industry, to thought leaders as possible so that they’re in a better position to develop meaningful and informative opinions for us to use.”Choose words carefully
Empowering employees can’t just be talk but it does start with what you say and the kind of language that you use to say it.
For example, when Dameris stepped in, he did not adopt a transformation plan. It was called, instead, a revitalization plan.
“We recognized that we needed to revitalize what was a good business, not transform it and [not] that the business wasn’t any good,” he says. “[We] really put the power in the hands of the people who created the relationships with our customers and let them believe that we were betting on them versus criticizing them.”
Although most financial cuts had affected the field, that’s where Dameris reinvested. While he expanded the customer-facing work force, he kept reminding the front-line employees how important their positions are.
“We constantly express to them that it’s their business and that the changes that they make and the ideas that they have make a real impact on our business,” he says. “This stuff isn’t being developed in some sort of ivory tower and then communicated down.
“We use the analogy [that] we always want to be looking through the front windshield of a car, not through the rearview mirror. [We want them] to understand that they’re not in the backseat, that they’re driving the car and that the direction of our business is dictated by what they’re seeing in the field.”
Make sure your language reflects the inclusive culture you’re trying to build, whether it’s extensive as the car analogy or as simple as referring to the company as a collective team.
“We try to build a sense of community versus it’s ‘us versus them,’” Dameris says. “I use that exact language.”
Communicating that message also means being honest and straightforward and thanking employees for their efforts.
“We acknowledge that it’s an honor every day that they elect to invest their talents and efforts with us,” Dameris says. “We tell them that my job is easiest when I get to brag about their efforts. I didn’t generate the revenues; I just have the privilege of bragging about them. So they really feel as if it’s their efforts.”
Publicizing employees’ ideas and successes also encourages them to get involved. On weekly field calls, Dameris does “shout outs” where he recognizes employees whose ideas have been implemented. Through that, you encourage others to get engaged so they can be recognized.
Speaking out from the podium with careful word choices can usher a lot of empowerment. But showing employees personal attention is a crucial piece to make them feel valued.
“As a group, you’re communicating to 100 people and you don’t know how each person’s going to interpret your words,” Dameris says. “But on a person-to-person basis, you see their reaction; you see their feedback. And that then multiplies as they go back and feel good about themselves and the next day talk about how they had a great conversation.
“So be out and about and talk to all levels of the organization. Understand the power of the chair that most people are going to be intimidated to speak to the leader and sometimes the leader’s going to have to make the outreach.”
When employees see, through your language and attention, that you care about their efforts, they’ll be more likely to offer their feedback.
“What we try to do is not stymie innovation or stymie constructive dialogue,” Dameris says. “So we’re constantly trying to involve people and make people feel as if they’re recognized and their voice is heard.”Build consensus
While you try to instill a long-term vision in your employees by encouraging them to think about big pictures and end results, keep in mind that you’re the ultimate puzzle master tasked with putting all of the pieces together in the end.
“Building something from the bottom up and allowing someone to have ownership helps, but it’s not a perfect democracy,” Dameris says. “Sometimes a decision has to be made and you hope that people are constructive. But sometimes you’ve got to make decisions where you feel like, as passionate as someone believes that this is the direction you go, they’re looking at just one aspect of their plan and not taking in all the needs of the organization.”
Still, try to maintain an inclusive culture in those cases. Dameris realizes that resolving disagreements can be one of the toughest skills for executives to learn but that consensus building is one of the most important. So he offers some guidance.
He calls it “charm school training,” and it teaches managers communication and dispute-resolution skills. Dameris lays out expectations for how managers should treat each other and their employees, but the bulk of the training comes through examining other situations.
“We do a fair amount of case study work where we give people examples of prior incidences in corporations and, at the end of the day, how people reacted, what the end result was, and how it could have been handled better or worse,” says Dameris, who also reaches out to third-party talent coaches for training help.
Once employees go through training, at least you’ll all have a similar arsenal of skills to use for building consensus. Then part of the process is explaining to them what makes certain options more appealing than others.
First of all, you try to explain the thoughtfulness, discipline and reason that goes into your decision-making, like how you look for the option that will give you the biggest bang for your buck.
“You look at the opportunities where best to spend your time and resources,” Dameris says. “What has the largest market opportunity? Are you focused on long-term or shorter-term success? What has the highest probability of success when you take into consideration the resources you have to deploy?”
Not everyone will always agree on the best use of resources, but you can make every decision a learning process by discussing what works or what doesn’t and why.
“Now, it’s tough to then communicate back that, ‘Hey, this was a great idea, but it’s something we can’t execute on right now,’” Dameris says. “But the way we handle that is by identifying the positives versus the negatives, showing that people’s ideas were submitted and some were implemented and have improved our business versus just focusing on yours wasn’t adopted.”
That way, you’re still reinforcing the collective team goal and fueling an employee-centered culture.
By rebuilding that culture and bolstering it with a couple like-minded acquisitions along the way Dameris has more than doubled the size of On Assignment, from 2005 revenue of $237.9 million to $618.1 million in 2008. He recognizes it can take a lot longer than that to build a culture that brings results, but it’s worth it.
“Short term, it may not generate any financial return, but like anything, you reap the fruits of your labor,” he says. “To the extent that my leadership team spends time in developing their direct reports and making sure that we have the brightest and most constructive people, it makes all of our jobs easier.
“So longer term, people really underestimate the positive benefits of having a good culture and a good leadership team that’s been trained on soft skills as well as hard skills.”
How to reach: On Assignment Inc., (818) 878-7900 or www.onassignment.com
Back when Ernie Wallerstein Jr. was a salesman, the vice president of sales offered him some advice that has gone on to guide his leadership: Identify a potential client’s top three issues and make sure you could solve at least two of them.
“I’ve morphed it into more of a business concept, where you lay out three objectives and you need to map to them, because if you’re not, you’re probably not doing something that’s going to benefit the company in the long run,” says Wallerstein, now president of Zeacom Inc., the U.S. operations of the unified communications software provider.
That process helps keep his 50 employees aligned to core objectives as they continue growing U.S. revenue — which makes up more than half of total global revenue for the company.
“Be sure you clearly articulate what the goals and objectives are, and then make sure that the efforts that are going on map to those objectives,” he says.
Smart Business spoke to Wallerstein about mapping employees’ goals to your company’s initiatives.
Explain goals. I look at what our revenue goals [from the board] are. I look at what our personnel goals are: How many people do we want to add to address that? Then I look at
what our position in the industry is: Who do we want to be at the end of the year? Those are the factors I use to set my goals.
I don’t think you ever set more than three. People can digest three. You need more than two because people are driven by different things, but if you get much more than three primary objectives, it’s hard for people to map to it.
When you lay out these goals and objectives, you have to drop down a layer. You have to articulate [goals] to your different functional groups so they understand how they map to it.
Everybody needs to know where you’re trying to get to. If you put a travel and expense limitation on the company, they need to know why. It’s not because I’m trying to get five more shekels in the board’s pocket. It’s because I’m trying to hit this revenue goal and this profitability goal. We try to hit this profitability goal so we can afford those three extra head count that are going to help us hit our top-line revenue objective. That top-line revenue objective is going to move us up a tier in the industry so we’re a more formidable player for the large companies.
I try to make that communication more face-to-face than through e-mail. When you’re talking about the key goals of the company, that is something that you’re delivering in front of people and allow them to respond to it in front of you.
Solicit feedback. When we’re laying out these goals and objectives, I need to understand what challenges they see in their ability to map to those. It’s not just about talking; it’s also about listening.
Strategically, you have to set social settings in your organization. Once in awhile, have a golf outing or a bowling night out … where people can get more comfortable and be honest with you. You have to be cognizant that these are still people, and you have to let people let their
hair down once in awhile. If you make sure that once a quarter you are setting up some type of social gathering for the organization, you do get a lot feedback, and it’s a much more relaxed situation for people to provide feedback.
One of the ways you solicit feedback is being willing to sit down with an employee and share ideas and tell them how you think they’re doing. The individual managers do the reviews, but then the reviews come to me and we go over it with the employees — how their contributions map to the company’s effectiveness.
Encourage aligned ideas. If I set the revenue goal and then somebody in the organization comes up to me and goes, ‘I think we should be doing this because we can generate another $5 million of revenue,’ I’m all ears. If that same person comes up to me and goes, ‘I think we should paint the walls blue because it will be a more soothing setting,’ that’s not germane to our core.
It’s rarely an emotional response. It’s much more of a tactical response: ‘Look, that’s a great idea; that’s not really core to our needs.’ If it’s something that there’s any doubt about or it’s on the periphery, then you stick to your guns and say that doesn’t tactically map to what we’re trying to accomplish.
If it’s something that moves the dial, that somehow maps back to a number, that’s going to have a significant impact, it typically is worth investigating. If someone comes to me and says, ‘I’ve got this great idea. We’ll make an extra $50,000,’ that’s not worth stopping that person from doing what they’re doing day to day when you’re trying to do $30 million. If someone goes, ‘Hey, this thing will make $2.5 million,’ that’s 12 percent of our overall target; let’s talk.
If you make it a tactical conversation, it’s less emotional. You never want to thwart somebody from coming up with ideas. What you want to do is steer them in the right direction. If you stick to the guns of, ‘Is it core?’ it allows you to respond properly.
It also doesn’t put the employee in the spot where they stop thinking. He’s going to have constructive feedback from me that said don’t forget what our three primary tenets are, and he’s going to try to come up with something that goes to that.
You always want to have that environment where people come up with ideas. I’ve had people bring me ideas that I thought were great. I said we have to hold off on that and I’ve announced to the team, ‘Look, this person came up with this idea; I think it’s dynamite. I’m not quite sure this goes exactly to where we’re going, but I think this is the right thought process.’ I will give somebody credit for coming up with a great idea, even if it’s not one
we’re going to be able to do right now. You want people to believe that stuff is being recognized.
How to reach: Zeacom Inc., (800) 513-9002 or www.zeacom.com