K’NEX Brands LP has been taking a bigger and bigger bite out of its market ever since Michael Araten took over as president and CEO in 2006. In the past six years, the manufacturer of building toys has formed partnerships linking the K’NEX brand with brands such as Nintendo, Sesame Street and NASCAR.
This year, the company will introduce a line of toys licensed by Rovio Entertainment, makers of the “Angry Birds” video game franchise.
The tie-ins that Araten and his leadership team have orchestrated are having a major impact on the company’s bottom line. In 2008, K’NEX produced about $100 million in North American sales. In 2011, the company’s North American sales had jumped to $150 million.
Given all the success that K’NEX has had, what is Araten’s first tip on managing growth?
“I would tell other leaders to be lazy,” he says.
No, Araten hasn’t discovered the secret to building a highly successful enterprise from your living room couch. But he has developed a good grasp of what a CEO should and shouldn’t be doing when piloting a company through a growth phase.
“What I mean is, the first question when I’m looking at a task is, ‘Who needs to be doing this, and is there a way I can put this in someone else’s hands?’” he says. “The key for the CEO suite is to recognize who has what talents, and make sure they do what they are great at. If you don’t have the ability to do something yourself, what you want is someone on your team who can help you accomplish the key things you need to do, so that you can execute your growth strategy.”
Araten has been able to successfully manage the growth of K’NEX through strategic planning and effective delegation — knowing where he wants his company to go, and who can take it there.
To Araten, the plan is the known quantity, and the people are the variables. The success of K’NEX — or any company — is dependent on how well the team executes the strategy.
“If you have the right people executing on the plan, it will go really, really well,” he says. “If you don’t, it doesn’t matter how good the plan is, it just won’t happen. That’s why the linchpin in all of this is assessing the talent of your people and making sure they’re doing what they are really good at.”
Draw a map
The first step in any journey with a destination is to plan a route. When plotting a journey for your company, your route is outlined in your strategic plan.
Araten gathers all his top thinkers together for periodic strategy sessions, during which the team assesses growth opportunities that have either been presented to K’NEX or that the company is considering pursuing. The strategy team members weigh avenues for growth against a number of internal and external factors.
“It’s a risk-reward calculation, really,” Araten says. “How much reward do we think we can get for a given opportunity, and how much risk is related to that reward? We look at how much risk we want to take, how much inventory we want to build, what does our distribution channel look like, and build a plan around that. Once we agree on how much upside there is related to how much downside, we go and execute on that plan.”
To develop an accurate strategic plan, you have to know what market factors stand the biggest possible chance of affecting your business. K’NEX exists in a market that is seasonal in nature, and produces a product with a very specific appeal to consumers. With that in mind, he set boundary lines for what his team could consider regarding growth opportunities.
“We’re a seasonal business, so there is a little extra risk involved with that,” Araten says. “With every opportunity that comes along, we also have to ask ourselves if it makes sense as a building toy. Not to single out ‘American Idol,’ but even though the show is very popular, it probably wouldn’t make sense as a building toy.”
When Araten and his team did research prior to signing a licensing agreement with Nintendo last year, they started by figuring out the type of reach Nintendo had with its brand and video game characters, and by extension, the type of reach K’NEX could expect with cross-branded building toy products.
“We started by asking how many users of Nintendo products there are in the U.S. and around the world,” Araten says. “For example, we know that 40 million Wii units have been sold and another 70 million Nintendo DS units. We looked at Q Scores of various characters, and those scores have always been in the top five over the past decade.
“We also did a survey of our key customers, so we knew that retailers were open to carrying a new product. So we took all of that information, looked at our budgets in several categories, where we’d find placement in North America, Europe, Australia and other places, and decided that we were comfortable making, let’s say, a $10 million investment in inventory.”
Good growth opportunities in the manufacturing sector usually center on two areas: new customers and new products. You either increase what you offer to customers, or you increase the pool of customers to which you offer your existing products. In most cases, your growth will result from a mixture of the two, and you need to account for that in any strategic growth plan.
In the toy industry, executives such as Araten are fighting a constant battle to stay current. Kids quickly grow bored of their current toys and parents are always on the hunt for the next smash-hit birthday or holiday gift, so the leaders at K’NEX have to harness their creative and collaborative power to stay a step ahead of demand.
In that battle, the wins you already achieved can act as a critical springboard for future wins.
“When you look at our history, our first big licensing deal was with ‘Sesame Street’ back in 2007 or ’08,” Araten says. “Once we had ‘Sesame Street,’ and people saw how good we were performing and how well we could capitalize on the opportunity, licensors started coming to us with ideas.
“We were the ones who approached Nintendo for that deal, but we’ve had a lot of other brands come to us. That is where you want to build a checklist into any strategic plan that it makes sense for you. That you can reach consumers with marketing and distribution, and that the idea is a good match for your company. As I said, we want to make sure it’s an idea that makes sense as a building toy.
“We’re also starting to leverage technology so that we can ship directly to consumers in pretty much every country on earth. We want to be able to ship to anywhere from our warehouses in the U.S., so we are modifying our websites to be able to launch in a variety of countries that make sense. We’re working on both of those, and that is why we’re so interested in product relationships with global appeal.”
Invest in human capital
A strong culture that embraces solid core values is a central component of any high-growth organization. But to have that type of culture, you need to first build a team that can embody and promote your values.
Many leaders reference the principle of getting employees in the right seats on the bus, as popularized in Jim Collins’ book, “Good to Great.” No matter what metaphor you use to illustrate it, the concept is true: In order to have a strong culture that can enable growth, you need the best possible people positioned throughout your organization in a way that allows them to grow as employees, and allows you to leverage their talents and skills for the best possible effect.
Araten says much of what he has learned about people stems from years of experience, which has helped him develop a reliable gut instinct regarding whether a prospective employee fits in the company, or whether a given team member fits in a specific role. But that isn’t enough. You also need to be able to ask the right questions.
“Some of what I do I’ll refer to as a ‘friendly deposition,’” Araten says. “You ask people a lot of questions about why they are doing what they’re doing, you apply common sense to what the answers are, and you see if they’ve thought about all the potential angles to a given problem or scenario.
“If they have experience dealing with that scenario in the past, that is something to consider as well, Araten says. “In some cases, you’re going to have some new employees with limited experience, so some of what you are able to do is going to depend on where you are in your life cycle as an organization.”
In assessing a person for a job, promotion or assignment, you need to get to the core of their thought process. If you can peel back the onion layers on how they process information and solve problems, you’ll get a much clearer view regarding how they might fit your team.
“You have to look at the thought process of how they came to their decisions,” Araten says. “If it makes sense, it looks like the probabilities are in your favor, and you can move forward.
“There is never a scenario where you have perfect information or a guarantee of success, so you just try to get as close as you can, make the move with the information that you have at the time, and the results are the results. More often than not, when we take that approach, things seem to pan out in our favor.”
If you hire or promote an employee into a new position, and the person falters out of the gate, making decisions that don’t bear fruit, you need to get to the heart of what is going wrong. It might be the person, or it might be the process. In either case, you need to get your hands on as much information as possible so that you can address the issue.
When K’NEX launched its line of Nintendo products, the team overseeing the launch made a miscalculation in the budget. Admittedly, Araten was not happy, but he didn’t go on the warpath, point fingers of blame at everyone involved. Instead, he used it as a learning opportunity.
“On a couple of the items, we underestimated somewhere on the order of $100,000,” he says. “We thought it was going to cost $100,000, but it ended up costing $200,000. As part of our review on all the product lines, this comes up, and you could tell the person who was telling this to me was a little nervous. But we went through why it happened, whether we missed anything, and found that our logic was sound.
‘In the end, we learned some things about what we could have done differently. We ended up improving some of our internal mechanisms.”
If you encounter a similar situation, Araten says you should do three things.
“One, figure out if the person in charge asked the right questions, and if the questions were based in logic,” he says. “Second, if you would have done anything differently, what is it and did the person you put in charge know it – or should they have known it? Three, teach them how to ask better questions. Oftentimes, as the CEO, you will have a much broader view of the organization, and will think to ask questions that the team or department leader didn’t. That’s part of the learning process. If everybody knew all the questions to ask, we’d have hundreds of CEOs in the organization.
“If you value teaching in your organization, teach people what questions to ask so they improved their logic. Then, the next time a situation arises, it goes smoother and reaches an even better outcome.”
How to reach: K’NEX Brands LP, (215) 997-7722 or www.knex.com
The Araten file
Education: Political science degree from Stanford University; juris doctor from the University of Pennsylvania Law School
First job: I worked as a part-time sales guy at a leather and fur store in suburban Philadelphia.
Araten on building a high-growth organization:
I think you have to develop a culture, along with some mechanical things. You need to be able and willing to reinvest in the mechanical infrastructure, but to me the more important thing is that you need to create a culture where it is OK to take a chance going fast, where you forgive people their mistakes as long as their logic is good. So I think it is setting that tone from the top and letting your leadership team say it to the rest of the crew.
We are going to go a hundred miles an hour to try and take advantage of these opportunities, and we are going to miss some stuff. But as long as the logic is sound, what we miss shouldn't be critical. Whatever mistakes we make, we will learn from and move on. It is easy to say, but the more critical part is the first couple of times you make those mistakes and learn from them and move on. That is what people really remember.
Araten on reinforcing a culture through communication:
I have one-to-one meetings with my leadership team every week. We are sitting together for at least an hour each week making sure that we understand what the priorities are and the logic behind the major decisions that we are making. When things go awry, it starts with me asking how we are going to learn from it so that it doesn't happen again, and then moving on. Then, encouraging them to do the same thing with their teams.
On the flip side, you want to make sure that you are giving positive feedback whenever possible, whenever they are doing things that you really like. We have a few mechanisms in place for that, such as awards that any employee can give to any other employee when someone goes above and beyond the call of duty.
The big challenge for so many executives is that they have been reared in “boss mode” rather than in the culture of leadership.
Bosses too often believe that they have to come up with all the innovative answers. Consequently, their people will sit and wait for the boss’s next epiphany. It’s old-school thinking!
Most entrepreneurial ventures are born because someone on a lower level within a company had a good idea, but the boss didn’t listen. When companies instead have leaders of the ilk defined by Thomas L. Friedman in his June 2011 The New York Times column, they continue to flourish and evolve toward the next level as opposed to becoming stifled and destined to “expire.”
Friedman says, “The role of leaders today is to inspire, empower, enable and then edit and meld all that innovation coming from the bottom up.”
Why? Because even bosses eventually run out of creative ideas. With that in mind, you have to ask yourself if you are an extreme or a reluctant boss.
With some bosses, in extreme cases, there’s not much that can be done. They build a cadre of yes-men around them and everyone waits for their command or their next crazy idea to execute. But at least the yes-men have jobs — although sometimes at pay beyond their true value because of blind obedience and loyalty.
In these challenging economic times, there are also many enterprises stagnating because their people wait for their boss to paint the picture of what the company will look like going forward. These reluctant bosses don’t know any better. They have just grown up in different organizational cultures.
On the other hand, good leaders build up the confidence and talents of people around them and nurture their creative ideas. That’s call new-school thinking.
Here are three behaviors that will transform reluctant bosses to effective leaders:
- Education and learning: Good leaders have a great appetite for learning, especially in regard to cultivating more effective ways of motivating people and building positive and innovative environments. Good leaders focus on thought leadership and create a learning environment for all. Bosses, on the other hand, participate in little of the education and learning aspects because they believe they know it all already. Sound familiar to anyone?
When executives stop learning, their leadership prowess begins to wane.
- Focus on your people, not yourself: Traditional bosses are generally described as people with big egos. In other words, they’re more focused on themselves and their own prowess and generally have scant regard for the capabilities of their people.
On the other hand, smart leaders focus on building and encouraging their people. They invariably have associates around them that they respect and appreciate. Humility trumps ego every time.
- Let people take risks and make mistakes: Once you take a leadership posture toward people, you will be open to letting them learn from their mistakes. Remember, creating an atmosphere of risk-taking is very healthy. By doing so, they will discover and innovate. Who knows — one out of every five interesting ideas may bear real potential.
As their leader, your job is to assemble resources and talents, as well as create a vision for the company, focused on innovation. Whenever setbacks occur, and they will, you must encourage the innovator to hang in there — your support and patience will be required.
Again, remember that innovation comes from all those talented people operating within your organization. Your people probably have many unrecognized talents, which, when harnessed properly, could put your enterprise on an exciting new track.
So give up on being an atypical boss and try leadership instead — the results will speak for themselves.
G.A. Taylor Fernley is president and CEO of Fernley & Fernley, an association management company founded in 1886. Reach him at email@example.com, or for more information, visit www.fernley.com.
Now more than ever, companies need their employees to remain connected and productive. New, affordable cloud-based solutions enables companies to transform operations while trimming expenses and reducing the burden on IT support resources.
“An average 25-person business saves $11,556, or 82 percent, during the first year of replacing its premises-based email and messaging with a cloud-based one. This yields a two-month pay back period,” says Mike Maloney, vice president of business services at Comcast.
Smart Business spoke with Maloney about how to save money by moving your business toward cloud-based solutions.
What challenges are businesses facing with setting up and managing email and messaging?
Small and mid-sized businesses have limited IT staff and must balance their IT expenditures against other corporate priorities. Setting up and managing various pieces, including email and messaging, is expensive. Not only are the initial equipment expenses sizable, but ongoing IT support, server maintenance, licensing and software updates also add costs in future years.
How can businesses decide if the implementation costs of a cloud-based solution are worth it?
In 2009, the Yankee Group researched the real costs of email and messaging operations in a 25-employee business for one year. Its cost results found:
Licensing, maintenance, support $12,000
Licensing, maintenance, support $1,761
The upfront migration and implementation costs of the Microsoft/Comcast cloud-based platform of $2,001 still resulted in savings. Additionally, the cost savings grew to 84 percent over three years, for a total savings of $36,042.
The study assumed there were no custom-built exchange applications; no unified messaging platforms; standard email and messaging security; and a server already capable of handling on-premises email and messaging. In addition, the features and functionality were replicated in both email solutions, even though cloud-based technology typically has more applications and features.
With the help of telecommunications and computer professionals, employers can explore the cost and feature trade-offs between hosted and on-premises email. A hosted solution even can be appropriate for a small business with 10 or fewer employees that generally has no IT staff and where an on-premises email might be impractical.
What are some of the additional features found in cloud-based email and messaging?
Features that are commonly found with both on-premises and cloud email are addresses with company domains, shared calendaring, shared contacts, email storage of 2 gigabytes per year, anti-spam, anti-virus, mobile email, and email archiving and retrieval. Even with these shared features, there still are cost savings with the cloud because anti-spam and server-based anti-virus, which companies are typically paying for with their premise-based email and messaging, are included as part of the cloud.
Some additional cloud features include a collaboration solution such as Microsoft SharePoint, secure email backup and document sharing. The cloud’s secure email backup is important because many small or mid-sized companies employ tape drive based storage for this service, which comes with a fairly low level of security as tapes easily get lost, stolen or damaged.
Based on research into cloud-based email and messaging, what steps do you suggest mid-sized business IT departments take?
- Switch to cloud-based messaging and email platforms, empowering remote and mobile employees. A number of vendors, including Comcast, provide a compelling suite for businesses.
- Take the opportunity to start using cloud-based collaboration solutions. A collaboration solution, such as Windows SharePoint, can be used for sharing documents where multiple people can access a document simultaneously and incorporate a number of comments and edits. This software also is useful for sharing files that are too large to email such as those with high-quality graphics, technical diagrams or photographs.
- Budget a few IT days for training. Switching applications creates stress, so plan for training, even if these costs are only opportunity costs for your IT employees. Not all organizations will need this, but it provides a safety net for companies where the transition to cloud-based technology is more difficult.
- Develop a good change-management plan to help alleviate end-user pains. Switching from premises-based email to the cloud can be less onerous than switching vendors’ products, if you stay within the same company. Therefore, the change-management plan can be fairly simple, but make sure it includes employee outreach, reminders, training services, online guides, printed guides and contingency plans.
A hosted solution can provide a level of simplicity, reliability and functionality while offering a more professional-grade solution to emailing and messaging.
Note: The Yankee Group is a leading source of insight and counsel trusted by builders, operators and users of connectivity solutions for nearly 40 years. For more information, visit http://www.yankeegroup.com.
Mike Maloney is a Vice President of Business Services at Comcast. Reach him at firstname.lastname@example.org.
Insights Telecommunications is brought to you by Comcast Business Class
Without the protection of a non-competition agreement, most courts are reluctant to prevent a former employee from working for a competitor. However, even when a company has a non-compete agreement with an employee, it may be unenforceable if it is not drafted in accordance with the laws of the state in which the company seeks to enforce it, says Stephen C. Goldblum, a member at Semanoff Ormsby Greenberg & Torchia, LLC.
“There’s a perception that Pennsylvania courts do not enforce non-compete agreements, but that’s incorrect,” says Goldblum. “Covenants not to compete are routinely enforced by Pennsylvania courts to the extent they are reasonably necessary to protect the legitimate business interests of the employer.”
Smart Business spoke with Goldblum about the importance of having properly drafted non-compete agreements in order to best ensure that they will be enforced by a court.
Why are non-compete agreements important?
In conjunction with other restrictive covenants such as a non-solicitation of customers and employees, confidentiality and inventions clauses, non-compete agreements are the best way a company can protect itself from the harm it can potentially suffer in the event an employee leaves the company and then solicits the company’s customers on behalf of a competitor. Although non-compete agreements are fairly common for executives and managers, they are not utilized as frequently as they should be for salespeople and other employees that regularly communicate with a company’s customers.
How does Pennsylvania law differ from other states regarding non-compete agreements?
Many states are less inclined to enforce non-compete agreements than Pennsylvania. For example, California has a statute that prohibits non-compete agreements except in very limited circumstances. Generally, Pennsylvania courts will enforce a non-compete agreement as long as the agreement is narrowly drawn and the company seeking to enforce the non-compete agreement can meet the threshold requirement of having a legitimate, protectable business interest such as customers and customer goodwill, confidential information, specialized training or trade secrets. Pennsylvania courts will not enforce covenants aimed at repressing or eliminating competition to gain an unfair economic advantage.
What should employers know when entering into non-compete agreements with employees?
In Pennsylvania, the offer of employment is sufficient consideration for a non-compete agreement entered into between a company and an employee at the outset of employment. In Pennsylvania, there are four requirements for an enforceable non-compete agreement. The non-compete agreement must be:
- Ancillary to an employment relationship.
- Supported by adequate consideration.
- Reasonably necessary to protect a legitimate business interest of the employer.
- Reasonably limited in duration and geographic scope.
There is no precise formula for what makes a covenant not to compete reasonable. A court will evaluate the circumstances and make a factual determination as to whether it will enforce a non-compete agreement on a case-by-case basis.
If an employer has employees in multiple states, it can include a provision that ensures Pennsylvania law will govern the interpretation and enforcement of the non-compete agreement.
What common mistakes do employers make when entering into non-compete agreements with existing employees?
The most common mistake is to fail to give additional consideration and simply demand the employee sign the noncompete agreement. Continued employment alone is insufficient consideration for a non-compete agreement entered into subsequent to the commencement of the employment relationship.
If the company seeks to enter into a non-compete agreement with an existing employee, it must give additional consideration, which could include many different items such as a promotion, an increase in salary or benefits or a monetary payment.
How can employers determine when and how to enforce non-compete agreements?
When an employee resigns or is terminated, the company should remind the employee of his or her non-competition obligations and provide the employee with a copy of the signed non-compete agreement. If it is subsequently determined a former employee is in violation of the agreement, the company has the right to proceed against the employee in court. The company may seek preliminary injunctive relief to prevent employment in violation of the non-compete and file a breach of contract action against the former employee and seek permanent injunctive relief and monetary damages. Typically, a case against a former employee also includes the new employer for interfering with the company’s contractual relationship with its former employee.
When hiring, a company should always inquire whether potential employees are bound by agreements that could restrict them from accepting employment or limit the performance of their duties. Otherwise, the company could be inviting a lawsuit if it hires an employee who is contractually bound not to compete with a former employer.
How often should an employer review its non-compete agreements?
Noncompete agreements should be reviewed no less frequently than every two years because the laws that govern their interpretation and enforceability change. Legal counsel that is up to date on the ever-changing landscape of employment law in Pennsylvania should review non-compete agreements to determine their compliance with existing law, which will best ensure their enforceability.
Stephen C. Goldblum is a member at Semanoff Ormsby Greenberg & Torchia, LLC. Reach him at (215) 887-5961 or email@example.com.
Insights Legal Affairs is brought to you by Semanoff Ormsby Greenberg & Torchia, LLC
The laws, technology and science regarding your business’s exposure to cyber liability are evolving rapidly. Privacy breach laws passed in other states may apply to your company if you’re a downstream service provider, or your business could fall under federal requirements for protecting personal identifiable information. And with stricter rules in place for consumer privacy, a breach could cost you and your company far more than damage to your reputation, says James Misselwitz, CPCU, vice president for ECBM.
“The average cost to notify a record holder of a breach is now $350,” says Misselwitz. “Part of the restoration costs can require continued monitoring and biennial privacy audits for as long as 20 years, in some cases.”
In the health care and financial services industries, the average breach costs more than $2.4 million, according to Net Diligence.
Smart Business spoke with Misselwitz about what steps employers can take to decrease exposure to cyber liability.
What is cyber liability?
Cyber liability exists because companies collect, store and share information about consumers. The Federal Trade Commission has been charged with safeguarding privacy for consumers. As a result, there is an emerging group of federal regulations in the form of laws such as the Gramm-Leach-Bliley Act, HITECH Act and Health Insurance Portability and Accountability Act, along with guidance from the Securities and Exchange Commission for publicly traded companies that force disclosure on their 10Q reports.
In addition, most states now have passed their own version of privacy breach laws; only Alabama, Kentucky, New Mexico and South Dakota do not have laws on the books. Of these, the biggest game changer came from Massachusetts, which requires all downstream service providers to comply with its law and have a signed contract addendum certifying that they meet the requirements for all customers.
What cyber liability exposure do employers often fail to consider?
It’s obvious the financial, health care and retail segments face exposure. But when you take a closer look at cyber liability regulations, they easily encompass law offices, accountants, nonprofits and any Internet storage provider. Think about the following when trying to determine your cyber liability exposure.
- Do you collect in your files the name, address, date of birth and Social Security number of your customers?
- Do you have more than 500 customers with this information on file?
If so, you need to urgently consider cyber protection.
What are the particular dangers for mid-sized businesses?
Mid-sized business owners need to take steps now to create self awareness of their data. What data do you store? How many files do you have and what information is contained in those? Where and how is it stored? Do those files have back ups and who has access to the data? What controls are in place? Is the data kept on portable devices? As employers go through these questions, they start to get an understanding of what data they have and whether they could be subject to a significant breach.
Employers may believe that if they don’t do business over the Internet, there’s nothing to worry about. However, cyber liability laws cover data, not the way that data is obtained.
How can employers safeguard their businesses and prioritize the protection they put in place?
You need an assessment process to recognize potential breaches. You also can seek expert help in establishing formal polices and procedures while ensuring that portable devices are not loaded with information that would trigger a breach if lost or stolen.
However, the first basic step should be encrypting the data. Encryption is cheap, readily available and usually easy to install. It also provides a great defense.
When prioritizing protection, use a knowledgeable broker and a detailed analysis of risk to review which insurance coverage is available and at what price as an integral part of your cyber liability business strategy. At that point, you’ll need to put in place testing, an audit and a timetable to re-evaluate your exposure. The laws, the technology and the science are changing too rapidly to just buy an insurance policy and leave it alone.
What risk drivers cause business owners to obtain cyber liability coverage?
Usually it takes an event, such as a missing laptop or a disgruntled employee, to get the owner to focus on what just happened and what could have just happened. At that point, they start to think about risks and how to transfer them to an underwriter. More important, they start to consider the steps they need to take to ensure that if this event happens again, they have eliminated or significantly reduced risk.
Cyber liability insurance is at approximately 15 percent of the market and growing. Larger health care providers, credit card companies, social network providers and banks have been the first big purchasers of the coverage.
What do employers need to know about their cyber liability coverage?
You need to understand the amount of limits; how much coverage is in first-party and third-party benefits; whether the legal expense is inside or outside the limits, and does that portion of the policy have limits; and whether your lawyers, accountants and crisis management teams are acceptable to the underwriter. If you are dealing with a knowledgeable broker, these will be part of the due diligence and product design.
Although some 16 million confidential records were exposed through more than 662 security breaches in 2010, according to the Identity Theft Resource Center, if you consider your liabilities carefully you could minimize your risk of joining that number.
James Misselwitz, CPCU, is a vice president for ECBM. Reach him at (888) 313-3226, ext. 1278, or firstname.lastname@example.org.
Insights Risk Management is brought to you by ECBM Insurance Brokers and Consultants
There is some good news about the economy — the recently issued “Fiscal Survey of States” reports that revenue collections are up in many states throughout the nation and fiscal conditions are continuing to improve into fiscal year 2013, although many state budgets are not fully back to prerecession levels.
“However, despite the increase, that is not enough to let down your guard when it comes to examining state tax nexus for your business enterprise,” says Timothy A. Dudek, director in the Tax Strategies Group at Kreischer Miller.
The term “nexus” as used in this article refers to what constitutes “doing business” in a state that requires the filing of tax returns.
“A large amount of revenue generated by the states in the past few years has come from aggressive enforcement measures with regard to their out-of-state nexus groups,” says Dudek.
Smart Business spoke with Dudek about why it continues to be important to address state tax nexus, even in years of improved revenue and cost-cutting actions by states.
If states have improved tax collections and are taking action on cost-cutting measures for the future, why do the aggressive enforcement measures continue with regard to state tax nexus?
Future revenue shortfalls are projected. Both the National Governors Association and the National Association of State Budget Officers warn that despite improvements in tax collections, states are now being squeezed in two different directions. First, the budget assistance provided to states via the federal American Recovery and Reinvestment Act is gone. The loss of that money alone wipes away state increases in tax collections.
Second, local governments are experiencing revenue declines due to lower housing values — a situation that will put pressure on state leaders to boost funding for cities, counties and schools.
What other factors prompt a state government to continue tax collection programs?
We tend not to think of the cost of state Medicaid programs, which continue to rise each year. The health insurance program now accounts for nearly one of every four dollars spent by states. Over the next 10 years, total Medicaid spending is projected to increase annually by 8.3 percent.
What is state tax nexus, and how do states reap the benefits of this type of program?
Nexus, under the Commerce Clause of the U.S. Constitution, requires that a business must satisfy certain standards before a state can exercise its power to tax the business. Nexus must have a definite link — some minimum connection between the state and the business it seeks to tax.
It embodies the spirit that a state cannot impose a tax on persons unless there is a certain level of presence or activity by a business within the state seeking to impose the tax. The trick is to understand that different taxes, such as income, net worth, sales taxes, may have different standards for establishing nexus in each state.
Many businesses may unknowingly have satisfied nexus requirements long ago but have never filed the required tax returns with the individual states. State enforcement measures in the nexus arena are designed to discover and ferret out taxpayers that are not in compliance with existing state tax laws. Once a state identifies a business through nexus discovery, the business usually must file tax returns and pay the tax, interest and penalties retroactive to when nexus was initially established in the state.
Depending on the term, that can be a very expensive proposition for a business if, for example, it has to file and pay for 15 years of back returns.
What action can a business take to address these types of state tax programs?
Businesses are well advised to become proactive and to have all of their state tax activities evaluated by a competent state tax consultant, especially knowing that increased nexus audit activity is being conducted by numerous states.
If the consultant determines that nexus exists and tax returns have not been filed, the best action to take on the taxpayer’s behalf is to minimize the exposure for prior years’ taxes, interest and penalties through use of a voluntary disclosure agreement. These agreements can be a valuable tool in resolving prior years’ outstanding state tax liabilities for unregistered businesses that have sufficient presence but have not filed state tax returns.
The benefits of voluntary disclosure agreements to the business include:
- Years open to statute because of unfiled tax returns are generally reduced from an unlimited period to a three- to four-year look-back period.
- Penalties for failure to file tax returns and failure to pay taxes are typically fully abated and waived, although interest continues to accrue.
Generally, the voluntary disclosure program is available to taxpayers who have not been in compliance with the state’s tax laws and who have not been previously contacted by the state department of revenue. Once the state has identified a taxpayer on its own, it is generally too late for the taxpayer to participate in this type of program.
Virtually all states are willing to work with most taxpayers in resolving their prior years’ tax liabilities in a settlement fair to both parties. Voluntary disclosure agreements are offered as a positive, money-saving option to resolve the taxpayer’s outstanding liabilities.
Timothy A. Dudek is a director of tax strategies at Kreischer Miller in Horsham, Pa., and chair of the firm’s State and Local Tax group. Reach him at (215) 441-4600 or email@example.com.
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Human beings find comfort in routine. As children, we gain a sense of security from knowing what will happen, when it will happen, for how long and how we are expected to react to each situation. As we mature, knowing that home and family will be where we left them allows us to go out and explore the world as young adults, secure in the knowledge that we can always come home if we need. However, as we age, this penchant for sticking to the routine can work to our detriment.
We begin to settle in at home more and more, often opting to camp in front of the television rather than venture into a new neighborhood or to try a new vocation. Our sedentary ways can have damaging health consequences, most significantly for that muscle that drives the body: the heart. To stay strong, the heart needs daily movement that includes periodic challenges (to force it to pump more oxygen than normal), foods that declog blood vessels and keep them flexible, limited preservatives and refined foods, and regular activities that relieve stress. But, once sedentary, inertia can make it seem as if changing our habits is an insurmountable task.
However, with concerted effort in three areas, what I call affect, behavior: and cognition – the ABCs of Change - we can break the cycle and embrace good cardiovascular practices.
First, start by tracking your moods, your activities and your thoughts in relation to heart-healthy activities such as walking, jogging or any other activity that works up a sweat. Jot down on paper how you are feeling and what you are thinking at the moment when you decide to engage in any act that undermines your heart.
Next, write down how you will change your behavior each time you feel yourself slipping into the unhealthy mindsets that precede unhealthy behaviors. Now, write down what things inspire you to get up and move or to make heart-healthy decisions.
Then, commit to doing at least one heart healthy activity each day and to modifying your environment as needed each time you feel yourself sliding into unhealthy practices.
Last, give yourself time. Generally, it takes 21 days of repeat activity to develop a new habit; however, you may slip up. They key is to review your strategy and recommit each time you fall. Ultimately, your heart will be the better for it.
Patricia Adams is the CEO of Zeitgeist Expressions and the author of “ABCs of Change: Three Building Blocks to Happy Relationships.” In 2011, she was named one of Ernst & Young LLP’s Entrepreneurial Winning Women, one of Enterprising Women Magazine’s Enterprising Women of the Year Award and the SBA’s Small Business Person of the Year for Region VI. Her company, Zeitgeist Wellness Group, offers a full-service Employee Assistance Program to businesses in the San Antonio region. For more information, visit www.zwgroup.net.
In business, confidence is key. I would say that it is foundational. All other factors, such as motivation, training, drive and leadership, depend upon a core of inner confidence.
Whether you work for someone else or run your own business, tapping into your inner confidence is vital in order to succeed. A few people do this with the greatest of ease, but for most of us it is a daily challenge that takes hard work and determination.
Here are four “tools” that will help you to find and tap into your inner confidence in order to propel your business forward:
First: Refuse to give consent.
I pull this idea from a saying of Eleanor Roosevelt: “No one can make you feel inferior without your consent.”
Refusing to give consent to feeling inferior is the jumping off point for the daily challenge of using confidence in business. Here is what I mean:
Your first step into tapping your inner confidence is to refuse to see yourself as less, no matter what anyone else might say. This refusal forces you to take a stand and begin to think differently about yourself.
Dr. Wayne Dyer says reminds us here that: “Self-worth comes from one thing – thinking you are worthy.”
When you take this first step, it awakens your inner confidence. It stirs it up and gets the ball rolling. It becomes active in the process of your success.
Quite simply - it empowers you.
In business, being empowered leads to the desire to grow, the ability to step outside your comfort zone and the determination to act. I have discovered through coaching others that empowered, powerful people do powerful things.
Tapping into your inner confidence requires you to step up refuse to see yourself as inferior, less or wanting.
Second: Be willing to change.
Unwillingness towards change holds you and your business captive. It takes the wheels right out from under you and stifles vision and action. It halts growth.
I believe that fear of change is a problem of confidence. Most business people who struggle with change are, at the root, struggling with confidence. For some, it is easier to stay stuck and inactive.
They do not realize that being willing to change frees up your inner confidence. The willingness becomes the catalyst to move past the fear. It frees you up and drives you forward.
What kind of change must you be willing to consider? You must be willing to change your thinking.
Having the same thought patterns over and over again is not beneficial to your success. The problem is that the same old thoughts lead to the same old behaviors and, in the end, the same old results.
Albert Einstein said it this way: “We can’t solve problems by using the same kind of thinking we used when we created them.”
In order to propel your business forward, tap into your inner confidence by being willing to change your thinking.
Third: Envision the end result.
This tool is about making choices.
In his book, “Hostage at the Table: How Leaders Can Overcome Conflict, Influence Others,” George Kohlrieser talked about these choices when describing successful athletes:
“The power of imagination is incredible. Often we see athletes achieving unbelievable results and wonder how they did it. One of the tools they use is visualization or mental imagery….they made the choice to create their destinies and visualized their achievements before they ultimately succeeded.”
Story after story has been told about athletes, race car drivers and men and women in business who have taken the challenge of looking into their mind’s eye and envisioning the end result they desire. They “made a choice to create their destinies.”
In my opinion, visualization is the tool that sets your inner confidence in stone. Tapping into this well is a sign for all to see that you have the confidence needed to achieve your desired result, whatever it might be.
Fourth: Practice positive self –talk.
Over the years, I have encountered two very distinct groups of people when it comes to self-talk. The first is the over-the-top, fake, often arrogant folks who can’t stop talking about themselves – always with a positive “I’ve done that and better than you” attitude.
The second is the self-humiliating, always down on their luck, also fake folks who can’t find one good thing about themselves.
Both groups are uncomfortable to be around. Neither group will work well in business.
The ability to speak to yourself in kind and affirming ways builds up the well of inner confidence and keeps it alive and well. This ability is necessary to energize yourself as you encounter the ups and downs of life and business.
Positive self-talk is the maintenance tool. It keeps everything running smoothly.
There you have it – four distinct and powerful tools. Refusing to give consent, together with a willingness to change, the ability to envision the end result and positive self-talk, will allow you to tap into your inner self confidence and propel your business forward.
I wish you all the best on your journey.
DeLores Pressley, motivational speaker and personal power expert, is one of the most respected and sought-after experts on success, motivation, confidence and personal power. She is an international keynote speaker, author, life coach and the founder of the Born Successful Institute and DeLores Pressley Worldwide. She helps individuals utilize personal power, increase confidence and live a life of significance. Her story has been touted in The Washington Post, Black Enterprise, First for Women, Essence, New York Daily News, Ebony and Marie Claire. She is a frequent media guest and has been interviewed on every major network – ABC, NBC, CBS and FOX – including America’s top rated shows OPRAH and Entertainment Tonight.
She is the author of “Oh Yes You Can,” “Clean Out the Closet of Your Life” and “Believe in the Power of You.” To book her as a speaker or coach, contact her office at 330.649.9809 or via email firstname.lastname@example.org or visit her website at www.delorespressley.com.
You might think I’m a warm, fuzzy and “Kumbaya” kind of Guy. Most of the time I am, but I have strong feelings about e-mail etiquette and what it takes to get your e-mail read — and answered.
As someone who gets dozens of e-mails every day and sends a handful of e-mails every day to get strangers to do things (“digital evangelism”), I offer these insights to help you become a more effective e-mailer.
Craft your subject line. Your subject line is a window into your soul, so make it a good one.
First, it has to get your message past the spam filters, so take out anything about sex and money-saving special offers.
Then, it must communicate that your message is highly personalized. For example, “Love your blog,” “Love your book,” and “You skate well for an old man,” always work on me. While you’re at it, craft your “From:” line, too, because when people see the “From:” is from a company, they usually assume the message is spam.
Limit your recipients. As a rule of thumb, the more people you send an e-mail to, the less likely any single person will respond to it, much less perform any action that you requested.
This is similar to the Genovese Syndrome (or the “bystander effect”): In 1964, the press reported that 38 people “stood by” while Kitty Genovese was murdered in New York.
If you are going to ask a large group of people to do something, then at least use blind carbon copies; not only will the few recipients think they are important, you won’t burden the whole list with everyone’s e-mail address. Nor will you inadvertently reveal everyone’s e-mail address.
Don’t write in ALL CAPS. Everyone probably knows this by now, but just in case: Text in all caps is interpreted as YELLING in e-mail. Even if you’re not yelling, it’s more difficult to read text that’s in all caps, so do your recipients a favor and use standard capitalization practices.
Keep it short. The ideal length for an e-mail is five sentences. If you’re asking something reasonable of a reasonable recipient, simply explain who you are in one or two sentences and get to the ask. If it’s not reasonable, don’t ask at all.
My theory is that people who tell their life story suspect that their request is on shaky ground, so they try to build up a case to soften up the recipient.
Another very good reason to keep it short is that you never know where your e-mail will end up – all the way from your minister to the attorney general of New York. There is one exception to this brevity rule: When you really don’t want anything from the recipient and you simply want to heap praise and kindness upon him or her. Then you can go on as long as you like!
Quote back. Even if e-mails are flying back and forth within hours, be sure to quote back the text that you’re answering. Assume that the person you’re corresponding with has 50 e-mail conversations going at once. If you answer with a simple, “Yes, I agree,” most of the time, you will force the recipient to dig through his deleted mail folder to figure out what you’re agreeing to.
However, don’t “fisk” either (courtesy of Brad Hutchings). Fisking is when you quote back the entire message and respond line by line, often in an argumentative way. This is anal if not downright childish, so don’t feel like you have to respond to every issue.
Use plain text. I hate HTML e-mail. I tried it for a while, but HTML is not worth the trouble of sending or receiving it. All those pretty colors and fancy typefaces and styles make me want to puke. If you can’t say it in plain text, you don’t have anything worth saying.
Control your URLs. I don’t know what’s gotten into some companies, but the URLs that they generate have dozens of letters and numbers.
It seems to me that these 32-character URLs have almost as many possible combinations as the number of atoms in the universe — I don’t know how many URLs a company intends to create, but it’s probably a smaller number than this. If you’re forwarding a URL and it wraps to the next line, it’s very likely that clicking on it won’t work.
Guy Kawasaki is the co-founder of Alltop.com, an “online magazine rack” of popular topics on the Web, and a founding partner at Garage Technology Ventures. Previously, he was the chief evangelist of Apple. Kawasaki is the author of 10 books including “Enchantment,” “Reality Check” and “The Art of the Start.” He appears courtesy of a partnership with HVACR Business, where this column was originally published. Reach Kawasaki through www.guykawasaki.com or at email@example.com.