Todd Beckman gets up early. He says the drive to be successful propels him out of bed at 5:30 a.m., to the gym for a good workout and straight through a 10-hour workday at The Tan Co., the tanning franchise company that he founded.
That drive gives the president and CEO the energy he needs to keep his company on the edge of change and also serves as inspiration for his employees, who have helped him grow The Tan Co. to 72 stores in 13 states and $30 million in 2007 revenue.
Smart Business spoke with Beckman about how to earn the respect of your employees and why CEOs should always have their phones on.
Q. What advice would you give to other CEOs?
Build respect with your employees and the leadership to where they want to look up to you and to the point where they want your job. Show your appreciation to them.
You need to show them that you’ll do the work, too. Show them that you’re not worried about telling somebody to do the job that you won’t do. That’s what’s got me to the level that I am at with the respect of our employees.
That friendship and that love between the CEO and their employees just has to be there. They just have to like you.
Q. What are pitfalls that a CEO should try to avoid?
A big one is just taking their eyes off of the game. Leaders can’t be thinking that everyone else is going to do it for them. They need to stay on it every day themselves and make sure they’re in control and have a great team underneath them.
You should be involved every day. I’m on it every day, seven days a week. I’m never more than one phone call away.
From every franchisee to every manager, they all have my number. That’s just always been my motto. I’m always going to be there.
Q. How do you attract quality employees?
We start from the ground up with most of our employees. We look at them from young kids to growing into management.
When we train them from the very beginning when they first get a job, they end up being the most successful employees we have.
They live it, and they learn it the way we want them to learn it, and they love it the way we love it.
It makes them so motivated to love that brand. That’s what makes them strive to be a winner.
We really work hard in developing winners all the way to where we hope they can own their own franchise store.
Q. How do you train employees?
I try to lead them with the way I would want the business run. There’s a lot of motivation, a lot of training. Understanding what they’re doing is important living the job, loving the job. Expressing that throughout the whole team; that’s pretty much what I focus on.
If they’re not liking what they’re doing, then we’ve got to find somebody else.
Q. What are some other ways you motivate employees?
We have a complete commission structure and bonuses for them to receive. We have your normal 401(k) as well as a car program. We will logo their car and pay them to be advertising on their car.
That’s a really big incentive. They really love it, especially the younger kids. It helps them buy a new car.
We put $5,000 toward their franchise fee after they’ve been with us for one year. We’re always driving to keep them happy.
Q. What has been the greatest challenge you have faced in business?
The greatest challenge for us is just getting to the customers, getting to the possible franchisees and letting them know what a great plan we have. Just getting the leads to show people how successful this brand and program is to get them involved.
Q. How do you communicate your vision to your employees?
We have a newsletter that goes out every Friday, which keeps franchisees updated on every single thing that’s going on from a week-to-week basis. We have a VP of operations who can handle any e-mails back or phone calls back from all franchisees.
Everyone has my telephone number, too. So if they see an issue or see something that is not getting done, they can call me.
HOW TO REACH: The Tan Co., (636) 305-8222 or www.thetanco.com
Approximately seven years ago, the home builder’s work force was ruled by cliques: salespeople in the field, management in the Chesterfield corporate office, carpenters on the worksite and so on. Each was separated by sputtering channels of communication and the festering antagonism of exclusion.
Faced with such division, Taylor brought his employees together the only way he knew how by sharing any and all information that he could. Promoting an open-book policy on financials and strategic goals not only fosters a sense of inclusion, he says, it also instills trust and ownership among staff members. Today, Taylor-Morley’s employees work as an aligned unit, boosting the company’s 2006 revenue to approximately $80 million.
Smart Business spoke with Taylor about how to facilitate cohesion at your company through communication with your employees.
Don’t be afraid to let employees read the books. We have brown-bag seminars where we invite all of our company team members to a breakfast where we talk about current events and the vision of the company. The leaders of the company will discuss pertinent issues that have to do with where we are financially, meeting our goals, our budgets and also talk about current events in the industry.
We have an open-book policy where people know where we are as it relates to our goals in terms of revenue and profitability and on and on and on. That goes a long, long way to instill confidence and trust amongst your team.
The benefits are people are going to learn. Where you’re able to communicate with people, they’re not just wedged in their four-walled office or their little cubicle. They’re learning; they’re growing.
Share information with everyone.
At one time, we didn’t have that open-book policy. Six or seven years ago, we felt that there were too many little cliques going on.
We felt that the only way to really break down those barriers was to make sure that we communicated to everybody any and all information.
We have our salespeople in those brown bags, we have our field people, we have our carpenters, we have our office people, we have our customer service people, our financial people; everybody participates.
It has really, really helped tremendously just by virtue of how people are willing to help one another. We don’t have the kinds of cliques that we had at one time from one department to another. It really breaks down that barrier.
You’ve got the best shot at dealing with outside conditions when you’ve got people all pulling together and understand what the goals and objectives are, and that they know that they can count on their fellow team members to be there to help and assist toward reaching those goals.
Make yourself accessible. There is not a substitute for timely and proper communication.
People know that I have an open-door policy. I’m constantly around and engaging people and wanting to get feedback. ...
By having an open-door policy and always being accessible, that gives the individual person the mindset that you’re just not talking all the time, you’re listening, and you’re available to them.
Maintain an air of sincerity. You can say whatever you want, but if people feel that you’re condescending, they’re not going to be able to trust you.
That’s the most important thing. They have to know beyond a shadow of a doubt that when you say something to them, you’re sincere, and that they can trust that the feedback and communication that you have is important and it means something.
You’re not able to build that kind of a culture overnight. It takes time.
I’ve built my career around, ‘My word is my bond.’ People can, without a doubt, trust me. When I say something, I’m going to do something. ...
It’s pretty simple stuff, but leaders’ egos get in the way a lot of times. The most successful leaders are those that don’t have the large egos and care more about the individual and the company. If they genuinely care about their success, then along with that will come the success of the company.
Let employees know where they stand.
People want feedback. People want to know how they’re doing against their goals and objectives.
Everybody in the company is reviewed every 90 days, and they have an opportunity to have their direct report go over what their goals and objectives are in terms of their particular job and get feedback. That’s extremely important to raise the vitality of our people.
It’s really all about communication. ...
That’s helped to grow our company in terms of the quality of people.
The quarterly review process is a fabulous tool and one that gets very, very high marks from our team members.
Previous to that, people would wander around saying, ‘I don’t know whether I’m doing the right job,’ or, ‘I don’t know what so-and-so thinks.’ This leaves no doubts in the manager and the staff position of where they stand.Associate Editor Patrick Mayock contributed to this story.
HOW TO REACH: Taylor-Morley Inc., (888) 297-3155 or www.taylormorley.com
It’s been said that moving a home is one of life’s most stressful experiences, but what about moving an entire corporation? “For many companies, their real estate obligation is one of their largest annual obligations,” says James W. Mosby, principal, senior vice president, Colliers Turley Martin Tucker. “These transactions are often multimillion-dollar obligations, and they should receive the highest priority and resources possible.”
Thorough planning is key to a smooth relocation, and it’s never too early to start the process. A carefully prepared strategy executed by a qualified team, including brokers, attorneys and architects, prior to embarking on property tours, will greatly ensure the likelihood of a successful corporate relocation.
Smart Business spoke with Mosby about ways to find the best space for your business, while getting the most for your money.
What are the phases of a good strategy?
A process we’ve executed with success on multiple occasions is divided into five phases, some of which may overlap or take longer than other phases. Phase I consists of defining your objectives and priorities. What are the desired space requirements, growth projections, financial goals, location requirements and project timeline? Keep both short-term and long-term needs in mind.
Ninety percent of problems occur because clients want to skip this all-important step and move directly to Phase II market survey and property tours. In the first phase, market conditions and available properties are reviewed, with consideration given to existing spaces, build-to-suit, new construction and sublet opportunities.
During property tours, a range of qualities to assess functionality are considered, including location, building and area services, parking, floor plan efficiency, expansion capability, ownership stability and quality of building management services. Preliminary cost estimates are also prepared to begin narrowing down the possible options.
In Phase III, Request for Proposal (RFP) forms are submitted to selected properties in order to evaluate all occupancy variables, including tenant and landlord responsibilities, economic obligations, renewal and expansion options. Larger tenants or tenants that are adding a significant amount of new jobs to an area need to allow extra time to procure incentives. Additional financial considerations such as tenant improvement allowances, operating expense base years and moving allowances are evaluated and negotiated during this phase. A comprehensive financial analysis that encompasses both qualitative and quantitative elements is prepared for the selected properties, resulting in projected occupancy costs for each alternative.
Phase IV begins with space planning and design. An architect prepares preliminary plans for the most desired properties; these are submitted to landlords to allow them to prepare preliminary construction budgets. Negotiations continue resulting in a detailed letter of intent (LOI) defining the terms and conditions whereby a lease can be drafted.
Phase V consists of construction management so that the space is on time and within budget. The bid process is administered, a contractor is selected, permits are obtained and a construction schedule is finalized.
What role does timing play?
The goal of the entire process is designed to create leverage for the company to carefully analyze all of its options and make the best possible decision. Time and the ability to research many options will create an environment where landlords are competing for the company’s tenancy. However, not allowing enough time shifts the leverage squarely back to the landlord. Why? Because the landlords realize that the company doesn’t have the luxury of exploring many other options (if any) and is forced to make a decision. When the landlord doesn’t have to compete with other options, it will exert its leverage on the company especially in renewals.
How much time is required?
Typically, the larger the tenant, the greater the amount of lead-time required, since there’s a greater supply of small spaces. If a company is considering a build-to-suit, the lead-time is a minimum of 24 to 30 months. If a tenant is considering existing buildings, it’s a minimum of 12 to 18 months. But again, larger tenants 50,000 square feet and up should allow for additional lead times.
What mistakes do you see clients make?
The most prevalent mistake is believing you can execute this process without retaining qualified individuals and involving them early in the process. Remember that most landlords will have assembled a qualified team. Why wouldn’t a company want the same advantage? A corporate relocation is a time-consuming process, but if qualified outside individuals are retained, the burden is shifted to the assembled team.
Another common mistake is not assembling an internal team tasked with this responsibility. Equally important is receiving continual participation from the individual(s) that will eventually approve the team’s recommendation. Inevitably, assumptions and decisions will be challenged, but the chosen direction can be supported through a prepared and planned process. Otherwise, you’re back to square one, with much less time and leverage.
JAMES W. MOSBY is the principal and senior vice president at Colliers Turley Martin Tucker. Reach him at firstname.lastname@example.org or (314) 746-0316.
Maxine Clark hears the same question from employees who’ve just been hired as she hears from those who have been with Build-A-Bear Workshop Inc. since the company was founded 10 years ago.
“How are we going to keep the company like this?” Since its inception, Build-A-Bear has grown to more than 275 stores in the United States, Canada, the United Kingdom and Ireland, along with franchise stores in Europe, Asia and Australia.
Revenue for fiscal 2006 totaled $437 million as kids both young and old flocked to their local Build-A-Bear store to create a cuddly stuffed animal of their own, with the help of the bright and cheery sales staff for which the company is known.
Clark, Build-A-Bear’s founder, chairman and CEO, credits the company’s success to its sharp focus on culture.
“I think everybody comes to work every day to make a contribution, no matter where they go to work,” Clark says. “For the most part, 99.9 percent come to make a difference every day. They want to be rewarded for their contribution. They want to be noticed. They don’t want to be anonymous. Our job as leaders is how do we make that happen every day? How do we make that come alive and transfer into results for the company and growth for the people individually?”
Developing a culture that meets these standards begins with the leader. But maintaining such a culture as the company grows and changes is a responsibility Clark says must be shared by each and every one of her 5,500 employees.
“The company is the people, not me,” Clark says. “It’s up to every single individual in the company because they interact with other people that are part of our company. I can’t interact with everyone every day. ... Everybody that works in our company and works in your company is part of that company’s brand. How do you make sure that they feel responsible about that and that they realize they work for a company that has certain values, even when they are in their daily life?”
It can start with something as simple as saying, “Hello.” “You’re automatically a mentor when you’re the boss or somebody that people look up to, and you have to take that seriously,” Clark says. “If I walk down the hall and I’m not saying, ‘Hi Susie; Hi Mary.’ ... People notice that I didn’t say hello to them. They may not say hello to me first. But that’s my job. It goes with the territory. And I like that job. Sometimes, you’re the cheerleader. Sometimes, you’re the disciplinarian. Sometimes, you’re just the greeter. Sometimes, you’re the hardest-working person in the building. Most often, that’s not me. You have a lot of roles as a leader, and those roles tell the company every day who you are and what you believe in.”
Here’s how Clark has conquered the challenges of culture to take Build-A-Bear to new levels of success.
Make it personal
When it comes to developing a culture, you should not be afraid to let your personal traits and qualities filter into what you want to develop.
“Somebody is a mountain climber, and every Friday, he wants to close his office because he wants to go mountain climbing,” Clark says. “That eventually becomes a part of the company culture. Maybe down the road, an exercise room is in the building built with a climbing wall. ... You have to know what it is you want your company to be and then execute around the things people can see and things people can touch and things they can just feel.”
For Clark, the design and location of her office says a lot about how she leads the way at Build-A-Bear. Clark’s office is at the center of the building and is painted yellow, matching the color of the company’s store locations.
“Whether we have one person in our office besides me or we have 15 or 150, we have open communication meetings,” Clark says. “My door is an open door. I sit in the middle of the building. People can always come in and talk to me. Everybody has total e-mail access to me. They have all my contact information. When I go out of town, I let everybody in this building know that I’m out of town and if they need me, to e-mail me.”
Clark says employees want to know that their leader cares just as much about the success of the company as they do.
“They’ll come to work, but it won’t be a fully contributing opportunity if they think you’re not serious about what you believe in and you don’t do it yourself,” Clark says. “People want to have people to look up to. They want to have heroes. Oftentimes, the only heroes they get to know are the people they work with.”
Culture is about more than how employees relate to and communicate with their leader. It needs to create an energy that employees feel when they come into work each day that will drive them to reach for success.
“You buy comfortable chairs for people and they realize that they are valuable and they take good care of them,” Clark says. “They are not just jumping up and down in their chair and then their chair breaks and you have to go out and order a new chair.”
Clark says simple things, such as having a recycling program to show the company cares about the Earth or hosting a Thanksgiving dinner where the company pays for the main part of the meal, help drive home the company’s culture.
“Sometimes, it’s the most simple thing,” Clark says. “It’s about how you look at the things and turn them into things that will energize your company, your vision and make the people feel good about themselves and feel responsible about the environment they work in.”
One of the best opportunities to show employees they are more than just a number on the ledger is to be there when they have a problem in their life outside the workplace. Clark uses the example of an employee who is coming to work late each day.
“Well, Susie is coming in late every day,” Clark says. “What you might have found out is she has to take the bus now because her car broke down and she can’t afford to get her car fixed. You look at it and say, ‘Gee, what’s behind this and what can we do to help?’ Maybe we change the hours because we don’t want her to be late. Now she comes in at 8:15 instead of 8, but she stays until 5:15. Work out things for people so that they can see that you do value their life and who they are as a person.”
Clark says having a culture where leaders care about their employees is something more easily communicated by action rather than a line in the company handbook.
“You just have to depend on the people that you’ve done the good things for saying, ‘Boy, I couldn’t get to work on time, but the company worked it out for me that I could still take the bus until my car was fixed,’” she says. “They feel good enough to share with others. That’s the best buzz that you can have about what your company culture is.”
Of course, if a company has a happy culture, but isn’t making money, the business likely won’t be around too long. And Clark says it would be a mistake, even for Build-A-Bear, to look exclusively for type A, shiny, happy personalities in each and every one of their employees.
“Everybody isn’t the same,” Clark says. “You don’t want it to be so homogeneous that nobody challenges each other. You don’t want it to be just like a lollipop cult where everybody is so happy. We value people’s challenges to our business. We want everybody to contribute. You have to accept people for who they are and help them be who they want to be not who you want them to be, but who they want to be.”
One of the best ways to get an employee working at their full potential is to lay out a path to get ahead in the organization.
“People should see that they can grow in the company,” Clark says. “When you do have internal promotions, make sure that everyone knows about it. They can see, ‘Hey, Don got promoted. I can get promoted.’”
Employees, whether they are new to the organization or have been there for some time, also have to know specifically what it is that they are expected to do at the company.
“I do believe that people come to work for a career, but they have to know from time to time what that career is,” Clark says. “If you don’t share that with them, they will leave. The people will go where they can grow. They’ll stay if they can see you’re trying to help them.”
A culture in which employees are encouraged to improve and are given updates as to how much they are improving also helps weed out troublesome workers.
“If a store manager has not had a lot of turnover, that’s a good thing,” Clark says. “It could be a bad thing, too. If they are not letting bad people go, then they are hurting their company. Good people don’t stay when bad people stay. Over time, if you have 20 people on your staff, and five of them are terrible, you’re going to lose five people because of it. That’s just the way it works. Good people do not want to work around people who are not making a contribution.
“The best thing you can do for somebody who is not making the kind of contribution that they need to make is to help them find another job. I’ve said to people, ‘If you’re not happy here, come to me. Tell me. I know a lot of people. I’ll help you find another job.’ If they are a good person and they didn’t steal and they showed up on time and this just isn’t the place for them, there are a lot of other places that would be for them. Every company has its own little personality.”
Sorting out the good from the bad to come up with a cohesive team of employees is a constantly evolving process. The leader who ignores the importance of culture in building their business will likely find problems.
“It takes so many people to make a good company,” Clark says. “The competitive landscape is such that you’re going to be competing with people who are going to figure out that it takes people to make a successful business. ... As a leader, I think you can take people at least a few notches past where they ever thought they were going to go and maybe even farther. That’s the fun of it. It’s helping people grow to be all they can be.”
HOW TO REACH: Build-A-Bear Workshop Inc., www.buildabear.com
It’s long been common knowledge that employees need college degrees to succeed in today’s fast-paced business world.
Only now more than ever, that’s not quite enough. More and more positions are requiring knowledge and skills that can only be obtained from a graduate degree.
Having your employees enroll in graduate school is a great way to ensure that your team has the education it needs to make your business succeed, according to Linda D. Maurer, the dean of the business school at Fontbonne University.
“The first step is that employers provide encouragement for an employee to continue his or her education,” says Maurer. “That encouragement can be tuition reimbursement, flexibility in work schedules and/or recognition of the accomplishment, both financially and in advancement. As we know, the world is getting increasingly complex, so organizations need to create a culture of learning, making it abundantly clear that education is vitally important to the company’s growth and development.”
Smart Business spoke with Maurer about graduate programs, how to choose one and how an employee with a graduate degree can be a valuable asset.
How could an employee who holds an advanced degree benefit a company?
The employee is able to bring to the work-place the most current knowledge on the newest trends and issues that will impact the organization. The employee develops an awareness of how these trends and issues may challenge how the organization is currently doing business. This knowledge can provide that critical advantage of anticipating issues and being prepared for them. It can also create a competitive advantage for the organization that understands what’s behind the current trends and issues and responds to the deeper issues. Employees always seem eager to share what they are learning in the classroom with their colleagues at work. Therefore, these employees bring synergy to the workplace everyone is looking at his or her role differently. Beyond the actual knowledge the student acquires, he or she gains much more, such as the ability to ‘learn how to learn.’ Graduate students know how to use their skills to gain valuable industry information, and they possess the confidence to utilize that information.
What should a company look for in a graduate program?
A company should look for a program that will allow the employee to ‘stretch,’ both in the knowledge he or she obtains and in the understanding of the dynamics of the knowledge. The dynamics are the implications of what students have learned and how that impacts all parts of the organization. The decisions employees make are not in a vacuum but have implications for all parts of the organization. The employee will also benefit from a program that has a low instructor/student ratio so that he or she can receive personalized attention. A small class will allow the employee to develop relationships with classmates and the instructor, encouraging everyone to share his or her personal experiences, allowing the employee to examine issues from several perspectives.
I believe there is also value in programs that have a focus on the adult student. These programs provide very practical knowledge that the student can implement in the workplace the next day. These types of adult professional programs also recognize that the student has academic, professional and personal commitments. Each commitment is important and must be met. Often, small things that make the student’s experience more convenient can be a great stress reliever such as the ability to plan his or her complete schedule so he or she doesn’t get sidetracked. These programs should also provide flexibility if professional or personal commitments demand that the employee take a break.
Can programs be specialized to meet a company’s specific needs?
There is a trend that educational institutions develop partnerships with organizations to meet the organizations’ specific needs. The partnerships allow the two organizations to meet each other’s needs. Sometimes that can mean the development of a specialized program, a concentration, a set of courses bundled together to meet specific objectives or just modifications of format, such as having a break in classes geared for tax professionals during the tax season.
What factors need to be considered when a company is choosing a graduate program?
Recognize that employees have varied learning styles, so different programs will appeal to different people it is not a one size fit all. Ensure that the institution is regionally accredited, and that the specific programs are accredited or in the process of accreditation. Make sure the academic institution has the programs that will meet your long-term objectives. Finally, find out what graduates of the institution have to say about their experiences and whether or not the institution has experience developing and maintaining these partnerships.
How does a degree benefit the employee?
An advance degree benefits the employee in several ways. He or she will obtain the latest knowledge in the field, gain greater personal development and fulfillment, show the organization that he or she possesses the personal and professional discipline to accomplish a difficult goal, gain confidence and engagement in his or her field, and has the opportunity for advancement.
LINDA D. MAURER is the business school dean at Fontbonne University. Reach her at (314) 889-1423 or email@example.com.
Born: St. Louis
Education: Bachelor’s degree, organizational psychology, Princeton University
What is the most important business lesson you ever learned? It would be to face reality.
What was your first job?
Working on a barge carrying coal on the Ohio River. It taught me that not all bosses were good. It taught me that people are happy to do things, but people don’t like to make work. They want to understand why what they do makes a difference.
Maritz on the attributes of a good employee: Intellect, intensity, dedication and decency. Those are the basic human qualities that we’re looking for in folks. We want smart people. We want people who have an intensity about them and who have an intensity to get the job done. We don’t want slackers. You want people who are dedicated. They are loyal to the cause, and they are going to stick with you. We want good, decent, nice honorable and ethical folks who will fit in around here. We don’t want any jerks. It’s a team sport.
Maritz on reputation: We didn’t set out with the idea that we wanted to establish a good reputation so that we could attract good people. We set out to be good. We try to be honest with people and try to treat them with respect and give them opportunities. When you do it for a long time, you develop a reputation for being a good place to work. I would counsel against trying to create a reputation for the purpose of trying to attract good people. If you’ve got a good culture and a good business, you will attract good people. It’s the equivalent of treating the disease and not the symptom. You really want to be it, not just claim it.
Maritz on customers: Without them, you don’t have employees or culture or anything else. Our people come second only to our customers. There’s a lot of things that internally require attention, but if they don’t ultimately have some impact on the customer, they are kind of beside the point.
Whether your company is starting out, expanding or opening a new location, the process of finding a space and getting moved in can be a difficult one. After scouring your area for the best neighborhood and the best space, your work is just beginning.
Getting from choosing your location to actually opening the doors involves several steps, all of which need to be monitored with painstaking detail. There’s negotiating and signing the lease; hiring a legal counsel; selecting architects, engineers and contractors; due-diligence concerns; and installation projects just to name a few.
“When you’re in the process of moving into a new location, you have to choose the right team,” says Brandon K. Mann, senior vice president of Colliers Corporate Solutions in St. Louis. “You want to be sure that every player has your best interests in mind every step of the way. No matter what you’re looking for broker, architect, general contractor, etc. you have to find the one that best fits your needs. There is no onesize-fits-all solution.”
Smart Business spoke with Mann about the process of getting your doors open, what to look for along the way, and the benefits and drawbacks of a complete turnkey solution.
What does a company need to think about once it finds a location?
First, you need a real estate broker to wade through the paperwork of the lease, negotiate the terms and get the deal signed. But, the broker typically doesn’t have full responsibility for the lease, so you need a legal counsel to review everything. You need to be sure your legal counsel has a good feel for commercial leasing, so this may or may not be your normal business attorney.
On top of that, you need to know how the space should be laid out, what improvements are needed and what architectural and engineering elements are involved. You then have to go through the process of finding the proper architects, engineers, general contractors, installers and movers. The key here is finding the appropriate ones who are best equipped to deliver the space.
Oftentimes a broker and a project manager handle the entire turnkey process. Is this always the best route to take?
If you have a broker and a project manager who are integrated, experienced and work together on the same page with the same goal, you’ll get a holistic solution. However, typically a broker just handles the front end [lease execution], and the project manager handles the back end [everything after the lease is completed]. This is where having a complete turnkey provider can be beneficial. This way you have one account or relationship manager who oversees every aspect of the process, from selection of brokers and attorneys to getting your systems installed and moved in.
What are the benefits/drawbacks of having an all-in-one solution?
In the beginning, the selection of players is key. You need a broker who has your fiduciary interests in mind, and one who has experience in the type of space and location you’re looking at. You need the proper architects, engineers and contractors who know what you want and how to deliver it to you. Having the right people in place every step of the way will help you ensure that problems are quickly spotted and resolved. Having that alignment is a clear benefit, and you know you’re covered every step of the way. Plus, you’ll generally see cost savings in every step, and you’ll usually get your doors opened faster.
The drawback of an all-in-one solution is if your provider is all talk. He or she may talk about turnkey solutions and promise big results but, at the end of the day, they’re just passing stuff off internally and things aren’t getting done. You need to know that your turnkey provider is focused on you and on your needs every step of the way.
What pitfalls should companies look for during turnkey processes?
Dealing directly with landlords and not being represented on the buyer or tenant side is something to avoid. Executing or negotiating a lease without knowledge of pre-existing conditions is another. You have to know what you’re getting into, what needs to be done and how it’s all going to get done. One of the biggest pitfalls I’ve seen is a company settling on what seemed to be a good estimate for services, only to get nickeled and dimed to death by change orders and additions. <<
BRANDON K. MANN is the senior vice president of Colliers Corporate Solutions in St. Louis. Reach him at (314) 392-2777 or firstname.lastname@example.org.
The 2011 insurance market seems fraught with both potential landmines and great opportunities. Al Tobin, managing principal at Aon Risk Solutions, says that although insurance companies did well in 2010, there are some factors that are making them cautious entering 2011.
“The more general your risk is, the more competition a company like us can bring to the table,” Tobin says. “More than ever, quality data is key to your renewal, whether it’s a property or excess casualty account.”
Smart Business spoke with Tobin and Jo Ellen Thelen, director, client services and brokerage, Aon Risk Solutions, about what to expect in 2011.
What does next year hold for the property, casualty and liability markets?
In 2011, noncatastrophic general property risks, general liability and excess casualty will be competitive. Most insurance companies don’t see a change in the marketplace coming from anywhere other than the catastrophic property side of the business. That means earthquake, terrorism event, or significant wind storm event.
The results from insurance companies are fairly decent for 2010 for two reasons. First, there were no catastrophic property risks in the U.S., outside of the oil disaster — no big hurricanes or earthquakes. The second is that there were a lot of reserve releases — the surplus an insurance company keeps to protect it from incurred but not reported (IBNR) losses.
Insurance companies are pretty conservative; they make sure they have funds set aside for unexpected losses, predominantly casualty-related losses. Last year, insurance companies came to the conclusion that things weren’t that bad on the casualty side, so they had too much money put aside. Their actuaries allowed them to release some of those reserves, which helped boost profits.
Many carriers have been releasing reserves over the last few quarters, which helped boost their profits for 2010. But they can only do that so many times, which is one reason they are saying that they cannot continue to see prices decrease in 2011.
When anyone makes money in any industry, it puts additional pressure on price. You can make the argument that price should continue to decrease in 2011 for most customers, but expect some serious carrier pushback because they believe their pricing has hit an all-time low.
What factors are affecting the market forecast?
As far as catastrophic property risks, the insurance companies review hurricane forecasts with great detail. If it is supposed to be an active hurricane season, insurance companies will become cautious. If it’s supposed to be an inactive hurricane season, they will be excited about potential profits. The forecasts are very active for 2011, which will concern them.
For catastrophic risks, there is one other potential change for 2011: new modeling. The insurance companies use a model called RMS, which changes every year. It is anticipated that the change in 2011’s model will drive insurance companies’ probabilities up.
The reason those model results are going to increase is because they will take into consideration storm damage from a hurricane that may penetrate the coastline. The damage hurricanes do to the coast is generally severe, but the damage that hurricanes can do with significant winds further inland wasn’t taken into consideration in the past.
How will insurance companies react?
On the board level, everyone will have the forecast. The boards will suggest the insurance companies be prudent in knowing the risks they underwrite and buying the right protective reinsurance program. This will just reinforce that.
The behavior it will drive is a conservative view for 2011 from a catastrophic risk perspective, specific to hurricanes. However, if the new RMS model increases an insurance company’s worst-case loss from a Category 3 storm from $1 billion to $1.2 billion, how will it respond? Will it write less business? Will it increase price?
I think the answer is that only the best risks will be written. If you don’t have really good data, you are going to pay more for your insurance in 2011.
What can companies do to make sure their data is more accurate?
You need to know your facilities’ secondary characteristics — year built, type of roof, number of stories, etc. If you have 20 properties in your portfolio, you probably know your top five really well. You may not know the middle ones as well.
In that case, I would highly recommend at least a single year program in which a fire engineer visits the facilities to provide the data so your modeling results are more accurate.
If you don’t provide the information, the computer model defaults to worst case. So by providing the information, you improve the results.
What steps should companies take to prepare for 2011?
Make sure you understand the global insurance marketplace. There are more choices than ever for customers, so getting good advice from your broker is critical.
Look for a broker or agent who uses peer group benchmarking. There are actually situations where your broker may recommend buying less limits. That’s a great thing for a customer to hear in this economy, ‘You’ve been buying too many limits; you should buy less and save some money.’
On the technical property, catastrophic, toughest risks in the world, we rely heavily on benchmarking and modeling to give advice to customers. So doing your homework can really pay off.
In these uncertain economic times, cost is very important. Still, don’t trade a couple bucks for inadequate limits. There is a lot of pressure on risk managers to make sure they are buying the most cost-effective product but without giving up coverages.
You should not give up coverage. You might save a few dollars, but it’s short-sighted.
Al Tobin is managing principal and national property leader with Aon Risk Solutions. Reach him at email@example.com. Jo Ellen Thelen is director, client services and brokerage. Reach her at (314) 854-0710 or firstname.lastname@example.org.
James Cowan kept hoping that he had hit rock bottom with the layoffs at American Railcar Industries Inc. But as he made a third round of cutbacks in two years, it was getting really hard to believe that his luck was about to turn around.
“Part of the reason we went through it three times was when we did our first assessment, we thought the business was going downhill,” says Cowan, the company’s president and CEO. “Then a couple months after that, you realize once you are going through the first cuts that the dire strait is going to be more dire.
“So now you’re a quarter later, maybe four months later, [and] we thought we were going to get this order or that order and none of them came through. So our backlog continues to go down. Then you make the second wave of cuts. The same process. You go two or three or four months and you realize you thought it was going to get bad and now it’s worse than bad.”
Cowan is certainly not alone in his business struggles, but the railcar industry has been hit particularly hard by the weakening of the economy over the past few years.
“The whole industry is at 15 percent capacity,” Cowan says. “I didn’t foresee that two years ago. I thought it might get to 30 percent. When you go from 85 to 90 percent capacity to 30 in a year and from 30 to 15 in another year, that’s pretty brutal.”
So what do you do when it appears as though the walls around you are crumbling before your eyes and the business you’re leading seems to be on the verge of extinction?
“The hardest thing is to downsize a business,” Cowan says. “You don’t want to cut out the muscle. You hate to tell anybody that they are not needed in the business. But as the business starts to shrink, you have to consolidate efforts and make do with fewer people. Obviously, there is a cost to that.”
While railcars, by the name of the business itself, are obviously a core for Cowan, he needed to look in other directions to make ends meet.
“We’re good with heavy fabrications,” Cowan says. “So you take a look and see if you can make some headway in other markets there. Margins can be embattled and very thin, so it always makes you wonder. You can ramp down a business, but you still have to see profitability in your future.”
At 1,335 employees and $423.4 million in revenue at the end of 2009, American Railcar was down substantially from its revenue of $808.8 million in 2008. It really becomes about survival and your ability to make the tough decisions to stay alive until business begins to pick up again.Make the tough calls
When you’re in a situation when you know layoffs are going to be needed, you need to start asking everyone on your leadership team the same question over and over and over again.
“Does that activity add value for our customer?” Cowan says. “If it does not or if you’re not sure, you have to ask yourself, ‘Why are we doing it?’ The only thing we get paid for is providing a product or service to the customer. Do the activities we are discussing add value to our customer? We still hung in there with our innovation efforts and our customer solution efforts. We knew those either were going to add value to the customer or were about to add value. If it’s not adding value to the customer, consider it to be a wasted activity. It’s probably something you could survive without.”
At American Railcar, when the need for cuts was becoming clear, Cowan gathered his senior leadership team and met with them in the executive conference room.
“I showed them the top lines of the company and said, ‘Hey folks, here’s our build schedule going forward for six to 12 months,” Cowan says. “It was no surprise to any of them. They all knew it was gloomy and getting gloomier. We were kind of running ourselves out of business, and so, we had to slow down where we could.”
When you’re talking about the lives of your employees and their future with your business, you can’t afford to be anything but completely upfront about it.
“You have to set a goal,” Cowan says. “I told them, ‘Let’s see if we can do without 25 percent of our staff.’ And this isn’t all just people. You obviously have to take a look at other areas of the business where you can make some cutbacks that would be substantial. But people are a large cost, obviously.”
Once you’ve announced that cutbacks are going to be made, give your team members a chance to mull it over and think about what they can live without.
“Tell them in two or three days, let’s get back together,” Cowan says.
If you come back and you get the response that your leaders don’t feel like they can lose the number of people you believe they need to lose, you’re going to have problems.
“If that’s the case and your bottom line continues to deteriorate, you’re going to quickly get caught up with not having any customers, because you’re going to run yourself out of business,” Cowan says.
“I know a lot of people think business should be benevolent and be an employer first and a profit-maker second. But any business that is running red ink for a sustained number of months is heading quickly to going out of business. If that was still the case and you’re still drowning in red ink, you haven’t thought about what few customers you may have left.”
Fall back on your question about whether the activities in each department add value to the customer. Ask your team members who they can live without to keep the business going. Acknowledge that it’s a brutal decision to make, but it’s one that has to be made in order to keep the company in business.
“It all goes back to if you kept everybody and the business goes out of business, then we all lose our jobs,” Cowan says. “If the 2,500 can go to 1,500 and we can make it through the downturn, we can come out of it a stronger company. That’s certainly the goal you have in mind when you do start.”
If it’s your first round of cuts, you can certainly look at early retirement candidates and people who may be looking to leave of their own accord. You should also know who the people are that you truly can’t live without, who you’ll need to succeed when things do turn around.
“These are the veterans with tons of experience and tons of customer contact and tons of technical knowledge and brilliant accounting knowledge of how to finance and fine-tune a company,” Cowan says. “Those 50 to 100 folks, in any business, you better know who those top handfuls of folks are and be sure you protect them.Be professional
Your reputation can hinge on how you handle the act of laying off people. So make sure you’re clear with your people about how you want it handled.
“Any time we’re talking about cutting staff, until we’re ready to announce what the plan is going to be, it’s only fair that they hear it from management first and not through the rumor mill,” Cowan says. “None of us would want to be let go at the coffee machine or from the janitor. That will really get everybody in a panic. You have to announce that. Say it at the beginning of the meeting and say it at the end of the meeting. ‘This is truly confidential. It has to remain such.’”
If you do have leaks in your company about important items like personnel moves, you need to address them seriously and immediately.
“This is a terminating offense,” Cowan says. “When I say it’s confidential and you’re in the room and the door is closed, then you have to understand my trust in you and you keeping your mouth shut. We don’t want panic in the company. If I didn’t know who it was, I wouldn’t have the least problem telling them, ‘When I do find out who you are, you won’t be working here. You won’t be on the layoff list. You’ll be on the termination list.’ If that’s the problem, you have to put a bold, nasty statement out there.”
As for the actual announcement itself from the company to the employee who is being let go, it should come from the direct supervisor.
“Anybody that reported to me that I had to let go, I talk to them directly,” Cowan says. “If you need help with an HR professional, we have those on staff. It needs to be delegated. It’s part of their responsibility. It’s fun promoting folks and giving raises. But there are also people you have to fire, and sometimes you have to do layoffs.”Find reasons to believe
Survival has to be about more than just huddling up in a conference room to make cuts and then waiting for the economy to turn around. You need to make an effort to find opportunities for success and jump on them. You need to let your people know what these opportunities are, however limited they may be, and how to capitalize on them.
“You are the communicator in chief,” Cowan says. “You have to keep doing it. You have to talk about, ‘Yes, the times are tough.’ But you have to go out there and show them some rays of light, some hope that this too shall pass. The world isn’t coming to an end. Whatever cliché works for you. Here are the sparks.”
American Railcar looked into the more than 700 parts that make up a railcar.
“We only make a few hundred of them and we buy the rest,” Cowan says. “Where could we do more integration into our own internal supply? Where did it make sense to do that?
“Our innovation teams work on different components of the car that the customer is looking for improvement on,” Cowan says. “We’ve made all car types in the last 110 years. But with some, the market has been so depressed we haven’t made them or we’ve been out of them for a few decades. So we’ve gotten back into a few other car types. Those are areas where a team of folks have to get involved. The short answer is keep the people focused on growth and new exciting opportunities within the company.”
It’s not that you’re ignoring what happened and you certainly don’t want to discourage people who have questions and concerns from bringing those up with you.
“You can’t be afraid to talk about it,” Cowan says. “It’s the 800-pound gorilla in the room. You have to tell them, ‘It’s tough. We don’t like it. We wish it hadn’t happened.’ … Try to keep it as positive as you can.”
As Cowan looks to the future, being positive is beginning to get easier.
“I have $330 million of cash in the bank,” Cowan says. “We’re investing a small amount in India, and we’re going to build product that stays in India. It’s not going to come back here and displace American workers. We’ve also started to see some of the customers that normally only buy railcars every five to eight years realizing they had a great opportunity to buy at a fairly low price.
“We’ve had a lot of growth initiatives that our board has allowed us to pursue. We continue to look for other areas to excel and grow. We’ve broadened our product mix and our customer footprint from where we were two years ago. All of that is positive. It can make us a little more picky in terms of products we do produce. Hopefully, they’ll be at a strong margin for the company.”
How to reach: American Railcar Industries Inc., (636) 940-6000 or www.americanrailcar.com
Imagine for a moment that you are on a plane flying at 30,000 feet. As you cruise along, suddenly the door to the cockpit opens and the pilot walks back into the passenger compartment and starts getting drinks ready for the passengers and then leaves to deal with an unruly person in row 23. What would you think? First, you need to fly another airline. Second, why in the world is the pilot out dealing with things that are clearly the responsibilities of others?
There are two possibilities to this exaggerated example. Either the pilot isn’t very good and can’t focus on the task at hand or the people working with the pilot can’t get the job done on their own, so he has to come out and help. Either way, the plane doesn’t have anyone at the controls and the ramifications of that are very serious for everyone on board.
The answer is, probably no one, which also means your business is probably going nowhere fast, except maybe into a nosedive. The fact of the matter is, you can’t keep your business pointed in the right direction and navigate around hazards if you are distracted and forced to deal with issues that really belong to someone else. You have to have the right team to make your business ascendant.
Much like our mythical pilot described above, either the problem is you or the people who work for you. Either case requires you to take action. If the problem is you, then your management style needs to change. The only way you are going to be successful is if you start piloting your plane and leave the details to the people below you. At some point, you have to trust that they will get it done — maybe not the same way you would have done it — but done nonetheless.
If you talk to any successful CEO about what his or her average day looks like, it typically is all about strategic planning, meeting with investors, advisers or checking in with direct reports on key initiatives. Successful CEOs will not normally mention things like going on sales calls, troubleshooting a minor project or game planning about how to improve workflow within a department.
Why don’t they mention these types of activities? Because they aren’t doing them. If they were “down in the weeds,” dealing with details, who would be piloting the company from a strategic standpoint? The moment they started getting lost in the details is the moment the company would start to drift off course, because no one was there to steer it.
If the problem is your people, then that’s another issue. If you’re trying to pilot the plane but you have no choice but to go back and remind someone for the third time that you need some key piece of information or something else that should have long since been taken care of, then you may have a people problem. If you can’t trust the people below you to get the job done and they are doing poorly enough to where it’s a distraction to you, your only choice is to make a change.
That might mean training, it might mean moving someone to a different position better suited to his or her skills, or it might mean parting ways. But you can’t jeopardize the business by wading out into the weeds while the strategy goes on autopilot.
Being CEO is never easy. It’s up to you to decide whether the problem is the pilot or the crew, but one thing is for sure, you are never going to be able to pilot a plane if you are stuck in the weeds.