Twenty-five years ago, Fred Potthoff and his partner took out a $300,000 line of credit to start their own company. Potthoff backed his half by putting up his house and his retirement savings, and from that moment, it was a race against time to see if he and his partner could sell enough before running out of money.
Fast forward to today, and the company they started, Kroff Inc., a leading water and wastewater treatment and recycling services company, has more than 80 employees, eight different businesses under the Kroff name and annual revenue of more than $50 million. Potthoff’s entrepreneurial gamble paid off, and today, he isn’t stressed about making enough money to survive but rather about finding the right talent to keep the company at the top of its game.
“We are a bottom-up run organization, and we go by the philosophy of hiring bright, creative, entrepreneurial people and giving them the right tools. Then we get out of their way to let them flourish,” Potthoff says.
Even with the company’s eight different businesses, Potthoff has remained an integral part of its hiring process and ensuring that great talent enters the company.
“Some people are surprised when they talk to me first, second or third in the organization as one of the original owners,” Potthoff says. “I tell them, ‘This is the single most important thing that I do in the course of my workweek or month.’”
Since Kroff’s inception in 1988, the company has experienced an average of 24 percent growth every year. The attention to his company’s hiring process, which he calls motivational fit, is what Potthoff focuses on to make sure Kroff Inc. will continue to grow.
Here is how Potthoff hires the best available talent.
Find the best fit
Kroff Inc. has seen some incredible growth over the years and that success is a direct result of the people Potthoff has been able to hire. In fact, each of the organization’s eight businesses started with ideas from sales associates.
“Aside from the original company, my partner and I didn’t come up with any of the other ideas,” Potthoff says. “It was people in our organization coming to us and us listening to them and running with that idea.”
When Potthoff interviews candidates, he is interested in trying to spark that kind of enthusiasm and interest in the company.
“It doesn’t mean that everybody who comes here is going to run their own company, but it’s part of our culture,” he says. “People who fit in well here think that way and look for opportunities. When we interview, the key is looking for that kind of person, so we’ve all been trained in behavioral interviewing and that’s an important component of trying to identify the right person.”
Behavioral interviewing is a key component at Kroff because when the company was first started, Potthoff put a lot of stock into resumes and conventional interviewing. While resumes can provide wonderful statistics about how much somebody sold or how many new accounts they created and a lot of facts and figures, they aren’t as effective at finding the best fit as behavioral interviewing.
“In behavioral interviewing, you get into specific examples and you try to drill down and mine for a number of examples where they’ve shown an attribute in the past,” Potthoff says. “If they say they have an entrepreneurial bent, you say, ‘Give me an example of when you demonstrated this in your past job.’
“Whatever the attribute is, we want specific examples where they’ve done it before and they can tell us a clear story about why they have that talent and where they manifested it.
“It’s a more difficult interview process because often they have to think and dig down to find an example, but that’s what you want. Then you know you’re getting the right person if they can give you a lot of examples where they have demonstrated this capability before.”
While this technique of interviewing has resulted in strong employees for Kroff, it isn’t without its drawbacks.
“Behavioral interviewing is a challenge; you have to sit and wait sometimes for the person to think of examples because you want them to give you very specific, very concrete examples,” he says. “So the interviewing process takes a little patience whenever the candidate is in front of you.”
In Kroff’s case, the company hires a lot of sales engineers, and one of the first challenges is finding an outstanding chemical engineer who wants to have a career in sales.
“Sometimes it’s mixing oil and water, and we’re often looking for personality attributes that aren’t in one person,” he says.
Another challenge is where to find the best talent. The best candidates may be the passive candidates, not the ones shopping their resume around.
“They are the ones who are successful who are doing a great job wherever they are,” Potthoff says. “To try to get their attention sometimes is difficult.”
The third thing Kroff does to find good talent is to check references or see if someone has worked with that person before.
“If you depend on the interview process and the resume, it’s more of a crapshoot,” he says. “If you can find somebody in your organization or get references from reliable people who have worked with the person, then your chance of having success with that person is greater.”
To overcome these challenges and have help in the search process for talented employees, Kroff often utilizes the services of recruiters.
“We’ve picked two or three that we work with and we bring them in to our office and try to educate them to make sure they understand exactly what we’re looking for, because when you’re dealing with recruiters, they’ll often throw resumes at you in hopes you’re going to hire somebody,” he says.
“It is important to invest some time with the recruiter and say, ‘This is exactly what we’re looking for, and don’t send us anybody else.’”
Translate talent into success
While a company’s success can benefit greatly from its products or services, Potthoff believes his hiring techniques and the talent he has been able to bring in are the true difference makers.
“You can have the best products in the world and you can have the best computer software and order entry, but it really comes down to quality people,” Potthoff says. “The key component of our success is that we’ve been very fortunate for the most part in hiring great people.”
Another key component of Kroff’s success has been that Potthoff has done a good job of listening to ideas.
“It’s one thing to give lip service to somebody, but if somebody comes to you with a good, creative idea, you can’t summarily dismiss it because maybe you tried it before or it seems a little harebrained,” he says. “You have to be willing to listen and trust the people, and if you think it’s a great idea, be willing to move and invest in it. When you do that, the culture responds to it.”
A lack of listening is one of the biggest mistakes many companies make.
“I don’t think many companies listen well enough to the people in the field who have their fingers on the pulse,” Potthoff says. “If you’ve hired the right people, they’re closer to the action and the opportunities than somebody sitting up in a corporate office somewhere.
“I’ve seen it in the past where some vice president comes up with an idea about what market the company should go after. It may be a brilliant idea, but oftentimes, it’s not. I think you are better served by getting intelligent, creative people and listening to them when they come to you with a market opportunity, because they’re in a better position in a lot of ways to see opportunities.”
To incorporate this kind of thinking into your organization you have to make the behavior part of your company’s culture.
“View company meetings and company culture as a meritocracy, which is the way we look at it,” he says. “In other words, if we are in a manager’s meeting, I set the tone for the meeting. It’s not myself and my business partner pontificating about where the company is headed and what we’re going to do.
“When you present ideas, everybody has to chime in with what they think the best idea is, and we will hash it out here and the best idea will rise to the top.”
This mentality is an easy thing to say, but it’s a hard thing to accept because you have to set your ego aside and listen to comments and criticism.
“That’s where some entrepreneurs and business owners go array because they are so vested in the company,” Potthoff says. “The way they got the company off the ground is the right way to do it, and it’s hard for them sometimes to hear somebody criticize it. It is vital to stay vibrant and alive, so you have to listen to the new people that you bring in.” ?
How to reach: Kroff Inc., (412) 321-9800 or www.kroff.com
Be involved in the hiring process.
Utilize resources to help you find the best talent.
Once you have the talent use it to grow your business.
The Potthoff File
Co-founder and co-owner
Born: Latrobe, Pa.
Education: He attended Shippensburg University and got a bachelor of science degree in business.
What was your very first job?
I was a lifeguard in the town of Latrobe. It was a great summer job.
What is some business advice you would give to others?
The bulk of my time in business has been in specialty chemical sales … and if you graphed how much time I spend listening and how much time I spend talking, I probably listen 75 percent of the time and talk 25 percent of the time. For anybody in business, that is a good ratio. You can learn a lot more and get a lot more accomplished if you use that ratio to build your business and career.
Who do you admire in business?
If you could have a conversation with someone from the past or present, who would you want to speak with?
I’m a history buff, so there are a lot of people that I’ve read about over the years that I’m intrigued with. Out of the Founding Fathers, I think the most fascinating person to speak with would be Thomas Jefferson. I think he is one of the most brilliant people that I have ever read about, and how fortunate we were to have him as one of the founding fathers.
What are you looking forward to in the future of your business?
What excites me now and what motivates me is watching people underneath me do well personally and professionally.
With the world of business changing faster and becoming more complex every decade, organizations today have to adapt, reinvent, differentiate or die. Over the past few years, the nature and intensity of these changes in the business landscape has created organizational disruption and a realistic need to redesign organizational strategy and leadership approaches.
The process is not easy, and this is why many executives in organizations decide to stay the course, bury their head in the sand, and copy and paste what others are doing. Today, businesses are realizing that they cannot cut their way to prosperity and that their growth potential has been severely reduced due to the continued recessionary trends.
They are starting to look at their business models and are reinventing their value propositions in order to generate customer excitement, boost value-creation programs and capture value through value-based pricing. These companies get it. Many, though, do not.
The following are tips on how you can embrace the value imperative and design and implement leadership initiatives to place customer value at the center of business.
Organize a series of off-site meetings with key people to have a realistic, candid and mindful conversation about your value proposition: Why are customers buying from us? What makes us truly different? Are we paying enough attention to our business model? Are we working on the right projects to support our value proposition?
This meeting should be led by top executives to demonstrate the importance of the process. I recommend you avoid the use of consultants, keep the agenda semi-structured to create conversational flow and reinforce that this is a confidential and safe environment.
Define your core
Identify what your true “core business” is that brings most of your revenue and profits: Are we bringing enough value to customers? Are we losing steam in our differentiation? Are competitors catching up on us? Does the core business need to be reinvigorated? Defining the true core business might end up being an interesting process as a team.
I recommend you avoid the use of the constraining and sterile strategic analysis tools such as SWOT analysis, market forces analysis and others. Start with a white sheet of paper and see where it takes you.
Find ‘hidden assets’
Identify your “hidden assets” that are creating excitement with customers and generating profit but that you have taken for granted, not paid attention to or underestimated. List these assets, celebrate having them and evaluate their contribution to the overall value proposition.
The definition of what a hidden asset is might get tricky, but it is worth having it. Launch the conversation of what-if scenarios: What if we had more of this or we did more of that? What would be the impact on customers?
Based on the previous steps, start redesigning your core business and value proposition by reinforcing the strengths you clearly have identified and by leveraging your hidden assets. While it is important to fix gaps or work on weaknesses, leveraging strengths and hidden assets might have a greater return.
Eventually, the result of this business model redesign process will need to be integrated in the strategic planning process. This process is critical to re-energize your value proposition and your overall business model. It is also a great opportunity to emphasize with your leadership team that all you need to do is create customer value and increase loyalty.
When times are tough, customers will make quality/performance sacrifices, will try other alternatives to reduce costs and will challenge your value proposition. My view is that the best defense is a calculated offense. ?
Stephan Liozu (www.stephanliozu.com) is the founder of Value Innoruption Advisors. He specializes in disruptive approaches in strategy, innovation and value management. He is also a Ph.D. candidate in management at Case Western Reserve University and can be reached at firstname.lastname@example.org.
Decent bosses typically try to lead by example. As a leader, you must model appropriate behavior to promote the greater good and to send a constant message with teeth in it.
The French term “esprit de corps” is used to express a sense of unity, common interest and purpose, as developed among associates in a task, cause or enterprise. Sports teams and the military adopt the sometimes-overused cliché, “One for all and all for one.” “Semper Fi” is the Marine Corps’ motto for “always faithful.” We commonly hear, “We’re only as strong as our weakest link.”
However, the real test of team-building and motivational sayings is that they are good only when they move from an HR/PR catchphrase to a way of doing business — every day.
As soon as you put two or more people in the same room, a whole new set of factors comes into play, including jealousy, illogical pettiness and one-upmanship, all of which can lead to conflicts that obstruct the goals at hand. Certainly, much of this is caused by runaway egos. Perhaps a little bit of it is biological, but most of it is fueled by poor leadership. Everyone has his or her own objective and it’s the boss’s responsibility to know how to funnel diverse personal goals in order to keep everyone on track. This prevents employees from straying from the target and helps avoid major derailments. Essentially, it all gets down to the boss leading by example with a firm hand, understanding people’s motives and a lot of practicing “Do as I say and as I really do myself.”
Communicating by one’s actions can be very powerful. A good method to set the right tone is stepping in and lending a hand, sometimes in unexpected and dramatic ways. This shows the team that you govern yourself as you expect each of them to govern their own behavior. In my enterprises, I constantly tell my colleagues that the title following each person’s name boils down to these three critical words: “Whatever it takes.” Certainly, I bestow prefixes to this one-size-fits-all, three-word title, such as vice president or manager, but I consider these as window dressing only.
After speeches, when I explain this universal job description, I always get questions from the audience about how I communicate this concept. I follow with a real-life experience that played out in the first few months after I started OfficeMax. As a new company, we had precious, little money, never enough time and only so much energy, which we preserved as our most valuable assets in order to be able to continually fight another day.
In those early days, too frequently, I would see what looked like a plumber come into the office, go into the restroom and emerge a few minutes later presenting what I surmised to be a bill to our controller. I knew whatever he was doing was costing us money and probably not building value. The third time he showed up, in as many weeks, I immediately followed him into the restroom (much to his shock and consternation). I asked him what in the world kept bringing him back. He then proceeded to remove the john’s lid and give me a tutorial on how to bend the float ball for it to function properly. That was the last time anyone ever saw this earnest workman on our premises. Instead, after making known my newly acquired skill, whenever the toilet stopped working, I became the go-to guy.
This became an object lesson to my team about how to save money. At that time, 50 bucks a pop was a fortune to us. It got down to people knowing that all of us in this nascent start-up were expected to live up to their real, three-word title. This was our version of how to build esprit de corps. Others began boastfully relaying their own unique “whatever it takes” actions, and it became our way of doing business.
The lesson I learned in those early days was that it wasn’t always what I said that was important but rather what I did that made an indelible impression. A leader’s actions, with emphasis on the occasionally unorthodox to make them memorable, are the ingredients that contribute to molding a company’s culture.
Michael Feuer co-founded OfficeMax in 1988, starting with one store and $20,000 of his own money. During a 16-year span, Feuer, as CEO, grew the company to almost 1,000 stores worldwide with annual sales of approximately $5 billion before selling this retail giant for almost $1.5 billion in December 2003. In 2010, Feuer launched another retail concept, Max-Wellness, a first of its kind chain featuring more than 7,000 products for head-to-toe care. Feuer serves on a number of corporate and philanthropic boards and is a frequent speaker on business, marketing and building entrepreneurial enterprises. Reach him with comments at email@example.com.
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Steve Jobs was the master of spotting trends and the opportunities that go with them. He was so good at it that he could see trends when they were still in their infancy. This allowed him to create products that kept his company at the front of the waves of change and ultimately drove massive profits and stock growth for Apple.
While not many people possess the uncanny sixth sense that Jobs had, it’s important to spend time studying your industry and what’s happening at various levels, from customers to suppliers to competitors.
You need to recognize when the trend is pushing positive growth and when it’s not. The additional challenge is to know the difference between a trend and a fad. A trend is more long-lived and drives a lot of long-term opportunity, while a fad tends to burn out quickly. This isn’t to say that trends last forever, because they don’t. An important part of studying trends is to know when to jump off the wagon and find the next opportunity, because if you ride a trend too far, you may find yourself in a rapidly declining industry or an area of waning interest.
For example, Y2K was a fad. For those who don’t remember, the Y2K boom was caused by old computers that only saw years as two digits instead of four, and widespread computer issues were predicted if systems weren’t upgraded. A giant boom in computer consulting and sales resulted from this issue, but it was short-lived. The moment 2000 rolled around, the need for Y2K upgrades dried up.
The dot-com boom, which was partly fueled by Y2K, was a trend. For a number of years, a ridiculous amount of money was being thrown at any project that contained the word “Internet,” regardless of its business model or competitive factors. While it was active, there were plenty of online growth opportunities for businesses to take advantage of.
Those who recognized the trend were able to capitalize on it, and more importantly, those who recognized the end of the trend were able to cash out before it went bust. Not every trend will be as big as the dot-com boom, and depending on your industry, they may not be so obvious.
Finding and recognizing trends starts with studying your industry. You need to stay in tune with what’s happening with competitors and constantly read about not only your industry but related ones as well. Talk to suppliers and vendors to get their opinions as to what direction your markets may be headed. But the most important thing may be to have an open mind. Don’t assume that because something hasn’t changed for 20 years that it isn’t ever going to change.
With an open mind, you are more likely to recognize an emerging trend before everyone else has rushed to capitalize on it, putting you ahead of the curve. Once you are exploiting a trend, you have to be equally diligent to know when it’s going to end, and that’s done in a similar fashion to identifying it in the first place: Stay plugged in to your industry.
These are exciting times and change is all around us. Look for the hidden clues that can lead you to the next big opportunity, and never stop challenging your own beliefs. The CEOs who do the best over time are the ones who don’t accept the status quo.
Fred Koury is president and CEO of Smart Business Network Inc. Reach him with your comments at (800) 988-4726 or firstname.lastname@example.org.
Edward Kennedy juggles new smart grid products and Tollgrade Communications’ core-line testing businessWritten by Gregory Jones
Edward Kennedy is an experienced chief executive with a successful track record of creating value at companies in the communications equipment industry. So it’s no surprise that his ascent within Tollgrade Communications Inc., a more than $50 million, 120-employee provider of network assurance solutions for the utility and telecommunication industries, was a quick one.
Kennedy was named to the board of directors in June 2009 to help the company from a strategic standpoint. He became chairman of the board in March 2010, and just three months later, he became Tollgrade’s president and CEO. In his more than two years in the role, he has helped Tollgrade grow in several ways.
“Our customer base is the who’s who of telecom players, both here in the United States and Europe — AT&T, Verizon, Quest, Frontier, British Telephone and more,” Kennedy says. “We have a very strong footprint — roughly about 250 million lines under test — 140 million in the U.S. and 110 million in Europe.
“Because of all that, we have over the years, developed some very, very sophisticated software that allows us to maintain this leadership role in testing.”
Beyond Tollgrade’s core service of testing telephone lines, Kennedy has helped the company break into the smart-grid business with a product called LightHouse.
“As utilities globally look at how to become more efficient with their distribution of electricity and also how they manage different types of electricity generation, such as renewables and how that comes into the network, the ability to monitor your network becomes key and that’s what we do with our smart-grid product,” Kennedy says. “That’s a high-growth area for us.”
While Tollgrade’s core business and its new smart-grid business are similar technologies, they are vastly different businesses, and trying to grow a new business while maintaining the other has been Kennedy’s biggest challenge.
Here is how Kennedy is balancing Tollgrade Communications’ growth of a new business while maintaining its core service to take the company to the next level.
Create investment opportunities
Along with the challenge Kennedy has of balancing a new growth opportunity and an existing business, he also needed to find ways to invest more in the future of the company.
“One of the things we did back in May 2011 is we went off of the NASDAQ and went from being public to being private,” Kennedy says. “The motivation to do that was we saw the requirement to make larger investments in new products and larger investments in increased infrastructure inside the company.”
As a public company, you’re measured on a very tight set of parameters. All of those metrics don’t lend themselves when you want to do an investment for the future.
“In a public company it’s kind of a catch 22 — you don’t really have enough money to invest the way you want to grow the business, but if you don’t invest, the business won’t grow the way you need it to maintain increasing stock price,” he says.
Tollgrade decided it needed to look around and see what it could do to unlock some of the investment dollars. The best way for the company to do that was to go private. The company was then bought by a large private equity firm out of California called Golden Gate Capital, a $12 billion fund that invests in all sorts of technology companies.
“With that we are allowed the flexibility to make investments the way we need to grow the business,” Kennedy says. “It allows us to invest for the future, which these days is pretty challenging. Keeping one step ahead of the competition, but also having the next generation of products is going to be key to keeping your business vital.”
Strike a balance
Tollgrade’s ticket to keeping the business vital is through the growth of its LightHouse product in the smart-grid area.
“The smart-grid area has the largest potential for growth and is the one that is the most challenging because we are in so many different areas and applications,” Kennedy says. “The utility environment itself is in a period of change and the requirements for electricity are ever increasing.”
Utilities are looking at how to better manage their grid, which opens up a huge opportunity because the power grid has been the same for many decades.
“Now what’s happening is the issue of different types of power generation where it’s not just nuclear plants, coal plants, hydro plants; it’s also wind farms, cellular rays and things like that,” he says. “There’s a whole new set of demands that have to be addressed and that’s what we are going after.”
While Tollgrade is investing heavily in the smart grid and is one of the market leaders in the sensing and monitoring of that for the utility group, its telecommunications business is also still vibrant and growing. Kennedy has to make sure that Tollgrade is successful at striking a balance between both the new business and the existing business.
“Having multiple business lines in very different market areas is challenging and where it becomes challenging is you want to make sure you put enough investment in the new products to grow it, but you’ve got to make sure you’re not hurting the overall profitability of the business by investing too much,” he says.
Where companies get in trouble or get offline is they don’t sit and think about what the metrics are for success along the process.
“Everybody says, ‘I want to grow this from zero to $100 million in sales,’” he says. “But what are the major steps along the way and what are the definable milestones that you can figure out whether you’re making progress toward that? If you’re not making the progress you thought … what are the issues preventing you from hitting the milestones?
“Having that kind of environment where you’re analyzing in real-time how your business is doing makes people gloss over a little bit because they’re so busy trying to grow the business. As a CEO your primary role is to step back and think on a more strategic and global basis to understand how the company is doing.”
If you’re not keeping tabs on how all your business segments are performing, it is very easy to lose track of one or more of them.
“The core business can’t be seen as an orphan or a stepchild because all the fun and excitement is in the new products,” Kennedy says. “People have to realize that maintaining and growing the existing business is as important, or sometimes even more important, than the new initiatives because the new initiatives aren’t paying for anything if they are still in the investment mode.”
When focusing on a new business, you have to put together some milestones to get to a certain amount of revenue in a certain amount of time and highlight what needs to happen in order to get there.
“As you move forward with your plan, you need to compare that to what’s actually happening and have a feedback loop to understand if you were too aggressive or not,” Kennedy says. “You have to constantly improve your model to better predict how you’re doing moving forward.”
There is a different set of metrics that you put on a new product or a new business area because you have to take increased risks that you wouldn’t take in your existing business because you no longer need to.
“Sometimes these risks work out and sometimes they don’t,” he says. “Failure isn’t not achieving a goal. Failure is not trying hard enough to achieve the goal.
“You focus in on your core strengths and what you know and what you don’t know and by having a very clear conversation with the team that’s running the new business, you can have a view of what progress is and how you measure it and figure out if it’s doing what you think it’s doing.”
The biggest key to having successful growth of a new or existing business is the people who drive the company every day.
“It is crucial to have very motivated and smart people under you that get it,” Kennedy says. “You have to give them an environment where they want to go out and grow the business and they’re rewarded for growing the business and success is seen as management of risks and rewards versus making sure that they stay in their comfort zone.” ?
How to reach: Tollgrade Communications Inc., (724) 720-1400 or www.tollgrade.com
- Create opportunities that enable investments for the future.
- Strike a balance in how you grow a new and existing business segment.
- Set goals and create milestones to measure growth.
The Kennedy File
President and CEO
Tollgrade Communications Inc.
Education: Has a B.S. in electrical engineering from Virginia Tech
What was your very first job and what did you learn from that experience?
My first job was cutting lawns around my neighborhood. I’ve always been kind of a high-energy-driven kind of guy. I learned that you have to work hard to get ahead.
What is the best business advice you’ve ever received?
Be tenacious and thoughtful and think about what you want to do and then be relentless to get it.
What are you most excited about for the future of Tollgrade?
I’m excited about the fact that we have a huge installed base in the telecommunications side that we can continue to grow and help our customers globally to provide better service for their customers. On the smart grid side there is a huge opportunity to help the whole energy marketplace in a better and more efficient delivery of electricity. That’s going to be a major social trend and a major business trend and we can be a pretty significant player in that.
If you could speak with someone from the past or present, with whom would you want to speak with?
I would like to sit and talk to Winston Churchill. He was a man who faced incredible situations and had the weight of a lot on his shoulders, and it would have been interesting to see in his time what he was thinking.
If you had the chance to do something dangerous one time, without consequence, what would you do?
If I couldn’t get hurt, I would want to try flying around in one of those squirrel suits. As long as I land safely, that would be fun to do.
Leslie Braksick: The hero and dog scenario -- How you can’t jump to conclusions about highly talented employeesWritten by Leslie Braksick
One of the patterns I often see are highly talented employees who plunge from being the likely successor to the CEO, the company’s best salesperson or the best hire ever made (aka: the hero) to being questioned whether they have what it takes to remain in the company (aka: the dog).
How does this happen? How can employees who earn such superlatives bottom-out? Can they really be so great and then become so terrible? Were their initial contributions and potential misread or overstated? How can someone plummet from “Second Coming” to “How do we move him or her out?” And why does this happen so often?
When I see this hero-to-dog pattern, I attribute it to three not-so-obvious factors.
Losing your perspective
When a person is selected for a new job, we often see very high levels of performance and potential. We see them doing things we’ve long wanted, at a level we only dreamed about. We attribute all kinds of greatness and possibility to the individual.
However, this may actually be more illustrative of the low baseline they started with. If we become accustomed to an underperforming incumbent, the new hire seems super human by comparison.
You have to set clear criteria for what you expect a fully performing person in the role to look like. Measure the person in the new role against these criteria, not against the predecessor.
You may find you finally have a strongly performing person in the role, doing a great job. That’s what you hired for. By all means, recognize and reward their impressive performance, but don’t exaggerate their incredibleness until you are sure they are truly exceeding expectations.
As executives, our business success depends on the performance of our leaders and key performers. We can’t win with mediocre performers, and we can’t succeed unless our key performers do.
Therefore, although we hate to admit it, we would gladly welcome a person to come along and save the day. Consequently, we often overstate and overinflate greatness from a high performer. We are so hopeful that we start believing that one person can actually save the day.
Don’t burden a high performer with your desire for someone to save the day. Praise and reward the person’s great performance, but don’t allow yourself to believe you are seeing anything other than high achievement by a hardworking person with high standards of excellence.
Reading too much into the start, not the finish
Running a marathon at a sprinter’s pace will burn out the runner before the finish line. A new person may overachieve early, looking like the greatest hero to walk the earth. However, the pace may not be sustainable and holding the person up as an example of best ever only makes the fall harder.
Starting great is extremely important, but finishing greater is what really matters. You want to help sprinters run their best times but at a pace they can sustain to the finish line. Don’t decide the really strong athlete is Olympic material until they win a few races. Better they are noticed for how they finished, in addition to how they left the gate.
Your credibility with the board and the organization can be harmed significantly when a hero-dog situation occurs or, worse, becomes a pattern. Your judgment of people will be questioned and trust will be weakened.
Remember: Keep perspective and skip the superlatives. Success comes from hardworking people, engaging in the right behaviors, sustained over long periods of time. Don’t be lured into believing otherwise. ?
Leslie W. Braksick, Ph.D., is co-founder of CLG Inc. (www.clg.com), co-author of Preparing CEOs for Success: What I Wish I Knew (2010), and author of Unlock Behavior, Unleash Profits (2000, 2007). Dr. Braksick and her colleagues help executives motivate and inspire sustained levels of high performance from their people. You can reach her at 412-269-7240 or email@example.com.
Estate planning is important for everyone. But in the case of a business owner, not giving serious consideration to what could happen to your business could potentially shut it down entirely, thereby eliminating your family’s income at a time when it is critical.
“It’s important that business owners understand that their plan only works the way it’s set up to work if the circumstances that originally determined the nature of the plan remain the same,” says Carly Fagan Neals, J.D., senior trust officer and vice president at First Commonwealth Advisors. “So if there are changes in the business structure, goals or family structure, they have to be communicated to the adviser — the accountant, the lawyer, whoever put the plan in place.
“A business owner has to take an active role in making sure the plan still works because only he or she knows the facts as they are today,” she says.
Smart Business spoke with Neals about how a succession plan is thoughtfully created in conjunction with your estate plan and what factors need to be coordinated and reviewed.
Is there a good time to begin planning?
Every individual should have a will, a financial power of attorney and a health care power of attorney/living will. As soon as you have assets or children it’s imperative to plan because otherwise your assets don’t get to where they need to go and your heirs don’t necessarily get cared for the way you’d want. For many, this can occur at an early age.
What’s involved with establishing long-term goals and determining succession risks?
Every person’s long-term goals are different, and they often evolve and change. So continually question how you can accomplish what you need to, such as passing the business on when you retire or providing for your family in the event of your death or incapacitation.
If your long-term goals involve transferring the business to some specific person, constantly re-evaluate whether that person is able and willing. What training and education might be necessary? When do you start transferring the business, and is it in a monetary sense or just voting stock? And if you’re retiring, how and when do you phase yourself out?
What are some strategies for success?
Ensure there’s sufficient insurance on the owner’s life or the necessary liquidity for all situations, and hands-on training and education for whoever is taking over the business. Also, is a spouse with power of attorney making business decisions? Do you want it to work that way? Be aware of the capabilities and willingness of those you name to have this authority.
Estate and succession plans need to work in tandem. For example, company stock may be a very large asset of the estate, but you need to know how that stock will be used to provide the surviving spouse with the necessary cash flow. Does your business successor need a life insurance policy on you to buy the stock so the resulting cash can go into a trust for your spouse?
Regularly work with your advisers to analyze the possible tax consequences of any transfer or proposed transfer. You don’t want to trigger a big gain or loss as a result of a transfer without planning for it.
Finally, a business succession plan needs to take into account the business’s operating structure. Whether it’s a corporation, LLC or partnership, how will the business run during the period when the transfer is taking place? It can be a matter of signatory authority on bank accounts, being able to order inventory, or having someone authorized to sign for accounts payable or receivable to keep daily operations going.
How should you monitor these plans?
Any time there’s a change — in business operations, key employees, family dynamics, goals, etc. — communicate it with the people who helped put the plans in place. Even without changes, it doesn’t hurt to talk to your advisers annually, or at minimum every few years. Even though you may not meet with your accountant or lawyer every year, if you’re working with an investment manager or wealth adviser doing regular performance reviews, a good adviser will ask the questions necessary to help determine whether it’s time to go back and get in front of your other advisers including your accountant and/or lawyer.
Carly Fagan Neals, J.D., is a senior trust officer and vice president at First Commonwealth Advisors. Reach her at (412) 690-2131 or firstname.lastname@example.org.
WEBSITE: To learn more about succession planning, visit ask4fca.com.
Insights Wealth Management is brought to you by First Commonwealth Bank
Many employers realize that their commitment to their employees doesn’t necessarily end at retirement. But wanting to deliver post-retirement health benefits and doing so in an effective and affordable manner is not always possible for all businesses.
However, employers do have several options, including outsourcing retiree billing administration to a firm that specializes in that area.
“It may make sense for many companies to outsource their retiree billing administration,” says Tammy Clay, manager for Flexible Spending Accounts and COBRA with UPMC Benefit Management Services. “It can save a company money, time and valuable resources.”
Smart Business talked with Clay about retirement billing administration and why it can work for many employers.
What is retiree billing?
Basically, it’s a Web-based service that provides coordination of enrollment and billing. For many companies, retiree billing is considered as a sort of a yolk around their necks. They need help in this area and sometimes an outside source is the best place to look for it.
What makes retiree billing difficult for some employers?
Retiree billing is generally considered to be among the most time- and paperwork-intensive assignments that a human resources department ever has to deal with.
There are a number of ‘necessary evils’ employers have to deal with where retiree billing administration is concerned. When billing the appropriate premiums and relaying timely eligibility updates to the carrier, a multi-functional billing system should be at the heart of the process.
In some cases, an employer provides credits to the retirees to apply toward Medicare supplement plans. The process used to determine if the money leaving an account matches the amount claimed, and ensuring that the correct credit is being applied for a certain time period, is account reconciliation. Account reconciliation is important because it helps with cash management and protects businesses against fraudulent activities.
Regardless of the size of the company, the retiree populations will always continue to grow. For some companies that growth might dwarf the active population. As a result, many companies find that they cannot afford to grow their HR departments to keep up with it.
What are some advantages of outsourcing retiree benefits administration?
Employers want to reduce their liability for post-retirement health benefits and can often do that by outsourcing. Retiree premium billing administered by a neutral third party can protect retiree privacy. Health and financial matters are sensitive issues that retirees may not want to share with a former employer. Moreover, there can be complications and frustrations in dealing with the complexity of retiree benefits. It is best for all involved that any frustration is not directed at the former employer.
What are some advantages for employers of outsourcing the process?
Retirees will no longer call an employer’s human resources department to ask questions that the HR department may or may not be able to answer. This can save both money and time, and increase the productivity of the HR department. When billing is outsourced, the people dealing with the retirees are specialists in this area who can answer any questions or concerns retirees might have. In many instances, retirees can access 800-number phone lines and 24/7 websites to make it easier for them to get information and answers to their questions. An employer is saved the hassle of dealing with multiple phone calls and emails to resolve these issues.
By outsourcing retiree billing to an experienced, reliable organization, employers can be confident that the service is compliant with federal, state and local laws. Employers also like the fact that by outsourcing retiree benefits administration, they have more time to focus on strategic planning that can create value for a company.
Tammy Clay is a manager, Flexible Spending Accounts and COBRA, at UPMC Benefit Management Services. Reach her at (412) 454-8739 or email@example.com.
WEBSITE: For more information about what UPMC Health Plan has to offer employers, please go to www.upmchealthplan.com/employers/index.html.
Insights Health Care is brought to you by UPMC Health Plan
Young adults ages 19 through 29 are the largest growing age group in the U.S. at risk for being uninsured. Officials estimate this age group accounts for approximately 13 million of the 47 million Americans living without health insurance.
“As young adults transition into the job market, they often have entry-level jobs, part-time jobs, or jobs in small businesses and other employment that typically come without employer-sponsored health insurance,” says Keith Kartman, client advisor at JRG Advisors, the management arm of ChamberChoice.
The Dependent Insurance Coverage provision in the Patient Protection and Affordable Care Act (PPACA) was designed to address the millions of young adults currently uninsured.
Smart Business spoke with Kartman about how dependent coverage laws work.
What are the dependent coverage laws?
The PPACA requires private insurers that offer dependent coverage to children to allow young adults up to the age of 26 to remain on their parent’s insurance plan.
A number of states also require insured health plans to cover dependents past age 26. Every group health plan purchased by employers from commercial health insurers and health maintenance organizations must comply with Pennsylvania’s dependent coverage laws. However, self-funded plans subject to the Employee Retirement Income Security Act are exempt from this dependent coverage law. Pennsylvania’s dependent coverage only applies to medical. This excludes dental and vision only, hospital indemnity, accident or specified disease only, Medicare supplement, long-term care and individual health insurance policies.
Who qualifies for this dependent coverage?
Regulations specify a young adult can qualify for this coverage if he or she is no longer living with a parent, is not a dependent on a parent’s tax return or is no longer a student. Both married and unmarried young adults can qualify, although that coverage does not extend to a young adult’s spouse or children.
The law also states that young adults can only qualify for dependent coverage through group health plans in place prior to March 23, 2010, if they are not eligible for another employer-sponsored insurance plan. In other cases, a young adult can choose to remain insured through a parent’s dependent coverage, even if the young adult is eligible for other employer-sponsored coverage.
What do employers need to know?
The Department of Health and Human Services has stated that young adults gaining dependent coverage under the PPACA can’t be charged more for coverage than similar individuals who didn’t lose coverage due to the end of their dependent status. Also, young adults newly qualifying as dependents under the law must be offered the same benefit package as similar individuals who were already covered as dependents.
What are the tax implications?
Treasury Department-issued guidance on the tax benefits states that employer-provided health coverage for an employee’s child is excluded from the employee’s income through the end of the taxable year in which the dependent turns 26. The benefit applies regardless of whether the plan’s coverage is required or voluntarily.
Key elements include:
- The tax benefit continues beyond extended coverage requirement. Some employers may decide to continue coverage beyond the 26th birthday. In that case, if an adult child turns 26 in April but stays on the plan through Dec. 31 — the end of most people’s taxable year — all health benefits that year are excluded for income tax purposes.
- Broad eligibility. This tax benefit applies to various workplace and retiree health plans, as well as self-employed individuals qualifying for the self-employed health insurance deduction on federal income tax returns.
- Health premium shares for both employer and employee are excluded from income. In addition to excluding any employer contribution toward qualifying adult child coverage from income, employees can receive the same benefit by contributing toward the cost of coverage through a cafeteria plan. The IRS states that a cafeteria plan allows employees to choose from two or more benefits consisting of cash or qualified benefit plans.
Keith Kartman is a client advisor at JRG Advisors, the management arm of ChamberChoice. Reach him at (412) 456-7010 or firstname.lastname@example.org.
Insights Employee Benefits is brought to you by ChamberChoice