Startup Funding Outlook: The Angels Are Coming!
Attention, entrepreneurs: The planets have aligned for the right startups to find their angels between now and the end of the year. An incentivized and increasingly sophisticated angel community is making a greater number of investments and with a high degree of urgency.
The reasons why are varied, but significant:
1. Angel investors are taking advantage of federal and state tax breaks on small business investments. The Wall Street Journal’s Eleanor Laise points out, “…under a law enacted late last year, investors won’t have to pay capital gains tax on certain small-business stock they acquire before the start of next year.”
So the clock is ticking. There are certain requirements though, such as holding the stock for more than five years. Check the SBA Site for more information on the Small Business Jobs Act of 2010.
In addition to federal tax incentives, 18 states currently have angel investment tax credit programs. The incentives vary from 100% in Hawaii to 10% in New Jersey. States offering 50% or more include Kansas, Louisiana, Oregon, Arizona, Virginia, and West Virginia. The full report is available at Angel Capital Association.
2. The proliferation of angel networks. In the past year alone, the number of angel groups has grown to 340, an increase of 13%, according to research conducted by the Angel Capital Education Foundation. You can find an angel network by visiting the website Angel Capital Education, where they are listed by region.
3. It’s easier than ever to find investors. In the past, individual angel investors and companies seeking capital have had a difficult time finding each other. This no longer needs to be an obstacle with the proliferation of websites like AngelList, an online network that unites investors with potential investments. It’s similar to a dating site, with investors and startups searching for the perfect match-up. Equally important, the site identifies and profiles an ever-growing list of critical “connectors” — influential folks who play an invaluable role in connecting angels and startups. The site also shows the deals the connectors have helped make happen and where to find all the key players.
4. Innovations in portfolio management. A small segment of financial advisors are embracing a new investment approach called Hybrid Portfolio Theory (HPT). It is a new paradigm. It splits an investment portfolio into two components. The majority of a portfolio represents 75-90% of total assets usually consisting of short-term high liquidity, lower-yielding instruments.
The remainder representing anywhere from 10-25% is called Positive Asymmetric Outcomes (PAO). According to Venture Populist, a PAO is defined:
…by its ability to generate high double digit or multiples of return on investment, as can be achieved by successful investments in venture capital, private equity, direct (angel) private investment in start-up, small business, private manufacturing business, private real estate, private debt, franchises, operating cash-flow businesses, as well as, publicly traded emerging growth companies and leveraged option strategies or highly-specialized investment strategies such as managed futures.
These portfolio managers are competitively distancing their practice from the vast majority of investment firms by offering a distinctive value proposition. As a result, they are creating a new crop of angel investors and this trend is expected to continue.
Currently, there are more than 300,000 active angel investors in the United States. However, the potential pool is much larger since there are millions of wealthy individuals with the discretionary net worth to make angel investments.
Angel investors collectively invest around $25 billion per year in North America. That is as much as all venture capital funds combined. The average investment is anywhere from $25,000 to $250,000. And the majority of the startups they fund have no revenue at the time of the initial investment.
The use of the term “angel” to describe investors hails from the Broadway and London Theatres, where it was used as a term of endearment for the affluent individuals who invested funds in productions. The word, like the process itself, has since evolved to define those who invest their private capital in startup companies that have the potential for rapid growth. Considering the industry’s prosperity in the past decade, we can expect further advances in its sophistication as well as its increasing role in funding emerging companies. For investors and entrepreneurs alike, it’s show time.
Preventing Common Communication Snafus
The great Peter Drucker once said that 60% of all management problems are the result of poor communication. When employees and managers fail to understand each other, everything suffers-sales, service, safety, productivity and morale.
I was reminded of this while watching this year’s World Series between the St Louis Cardinals and the Texas Rangers. What happened has already become an instant baseball legend. Tony La Russa, the Cardinals manager, twice told his bull coach Derek Lilliquist that he wanted Jason Motte, a right-handed pitcher, to warm up. But because of noise in the park, Lilliquest did not hear the request to warm up Motte on the first call, and thought he heard the name of another pitcher – a pitcher who was only supposed to be used in case of an emergency. To further complicate maters, LaRussa could not see the bullpen from where he was watching the game so he assumed Motte was warming up.
These miscommunications resulted in another pitcher being left in the game against Mike Napoli with the bases loaded. Napoli delivered with a two-run double that sent Texas to a 4-2 victory.
Similar communications miscues happen in companies every day. No one is being lazy-everyone is well intentioned and tries his best. We communicate a message and don’t have the luxury of seeing with our own eyes that that the right information is implemented in a timely fashion. The problem: A poor communications process.
What if the calls to the bullpen would have gone like this?
LaRussa : “Derek, get Motte warming up so he can pitch to Napoli”.
LaRussa: “so I want you to get Motte loose so he’s ready for Napoli”.
Derek: “Ok, Tony, let me see if I have it right. You want Motte warming up and ready to pitch to Napoli.
LaRussa: “You’ve got it Derek, I want Motte ready to get Napoli out”.
It’s critical to understand that communications is a two-way street, and if information is passed down several channels, it can become the equivalent of whispering down the lane.
Redundancy Rules!
Do you want almost zero communication errors in your business? Try this simple and effective process:
1. Tell; pass along the information – either verbal or written
2. Summarize; highlight the action or significant items
3. Paraphrase; have the other person respond in their own words their understanding of the communication
4. Repeat; Answer back with acknowledgement or correction
Think it sounds silly and even demeaning? It sure doesn’t to airplane pilots, soldiers, and operating room staff. IT WORKS and doesn’t need to be reserved for only life or death situations.
Establishing a culture of effective communications cannot be undervalued. We recommend that you teach everyone in your company the art of paraphrasing and make it mandatory. It goes like this. “In other words what you just said is that everyone in the company should repeat in their own words what they just heard.
Yup, that’s what we mean. Everyone should repeat what he or she just heard to ensure clarity.
Ask yourself each time you give a message is the message clear, and listen to make sure that it was totally understood.
Engage Brain Before Mouth
Think your thoughts through before you communicate.
Two friends were having lunch and shared an example of the dangers of not thinking through their communications.
“I made a Freudian slip last night. I called my husband by the name of my first boyfriend. It was embarrassing”.
I did the same sort of thing said the friend. “I meant to say to my husband, “Please pass the potatoes,” but I said “Die, loser; you’ve ruined my life.”
How much are communication errors costing you in money, time, or relationships? How much would your business benefit from eliminating miscommunications? Test drive the 4-step redundancy approach and see what it can do in your company. Get that? We are challenging you to try the 4-step communication process outlined above. Please let us know how it works for you!
image courtesy of flickr user, audhray
Building a Fast-Growing Company
“What is the single difference between a good and a great driver?” Phil Wicks asked us. Wicks has been racing small cars for 50 plus years and he owns the Phil Wicks Driving Academy. It’s not ability, experience, talent, or timing, though those are important. It’s focus — the ability to be 100% present to what you are doing now. The best drivers can totally focus just on the turn they are in, while they’re in it.
As he talked about racing, it occurred to us that racecar drivers and entrepreneurs have a lot in common. Here are five tips we picked up from the racetrack that are just as relevant for fast-growing startups:
Where you look is where you go
“Don’t look at the cones. If you do, you’ll hit them. Instead look between them, dead center. That’s where you want to go.” Often we are too focused on the obstacles, that we can’t see the path around them. As Debbie King, owner of DSK Solutions succinctly put it: “…quit fixating on the problem and concentrate on the solution.”
Don’t brake in a curve
“Slow down before you get into the turn, not in the middle of it.” The residential real estate market has always been a predictive indicator for the furniture industry. When Four Hands Furniture in Austin, Texas saw the housing market start to crash, they anticipated their sales would drop considerably. They reduced staff and production accordingly. Because of this preemptive move they were able to remain profitable when their sales inevitably declined.
Races are won or lost in the turns
Downturns and business cycles are inevitable. They’re our “turns.” It’s how we handle these that will determine how we’ll finish. The trick is to anticipate the turn, adjust our speed before, stay steady through, then hit the gas coming out of the turn. In the heyday of sub-prime lending MV Acceptance, a division of the Arizona-based sub-prime lender Presto Auto Loans, held fast to its lending standards (subprime as they were) despite competitive pressures to be more lax. They remain a healthy survivor while many of their competitors crashed and burned. They are now at the front of the pack, poised for healthy growth.
Take a couple of practice laps
The purpose of the practice laps is to get to know the course and your competition. Test markets and pilot programs serve as practice laps. Learn as much as you can from them.
Boost Your Profits Today
Today’s post is the second of a three-part series where we look at how small changes can have a big impact on profits. Read the first post here.
In our last post, we showed you that when it comes to your business’s finances, 1+1+1 can equal 19. How? Once you pay for your overhead, every change you make affects your bottom line: All price increases and expense reductions — even changes as small as 1% — go directly to your net profit.
Last week, we showed you how to increase prices by 1% without adversely impacting sales. This week, we’re going to talk about simple strategies to bring down your cost of goods by 1%. If you have a service organization, don’t stop reading! You have the cost of direct labor required to provide your services.
So how do you decrease your direct expenses without sacrificing quality or service?
Strategy #1: Look at your processes and products with fresh eyes.
Past decisions were based on past circumstances. What was best then, may be germane no longer.
To illustrate, say a woman bakes a ham every Easter. Before putting the ham in the oven, she slices off the end. One year, her husband asks her why. “Because my mother always did it,” she says. She then calls her mother and asks the same question. Her mother gives the same reply: “Because my mother did it.” The woman then asks her grandmother. Her grandmother answers, “Because my pan was too small.”
Social scientists call this path dependence. It explains how the set of decisions one faces for any given circumstance is limited by the decisions one has made in the past, even though past circumstances may no longer be relevant.
Look at each aspect of your products or services and ask, is there a better way to do this today? When ATA Retail Services, a leading supplier of impulse merchandising systems for grocery stores, sought to redesign their displays, they discovered materials available today that made it possible for them to omit the metal rivets necessary in their previous design. The result was hundreds of thousands of dollars to their bottom line.
Strategy #2: Buy strategically.
To be a strategic buyer, you should first establish your strategy. Determine which materials are necessary to maintain your quality and which are commodities. For a furniture manufacturer, the wood and leather would be strategic. The packing materials and labels would be commodity purchases.
Re-bid commodity purchases frequently and among multiple vendors. A business that was using approximately $20,000 worth of plastic shrink-wrap per week was able to save close to $5000 each week using this technique. The pricing for shrink-wrap or pallet wrap is volatile as it petroleum-based. The variance per vendor was typically close to 25% on any given week. By getting price quotes from three or four trusted vendors every week, the company was able to add close to a quarter of a million dollars per year to their bottom line.
Look at your direct labor costs similarly. Are your high-level (and high-paid) producers doing low-level work? For example, a law firm went to a three-tier system by adding case managers to their paralegals and lawyers. The case managers had great customer service skills but no legal background, so the firm paid them a third less than the paralegals. By offloading the non-technical work, they were able to cut the cost of each case by hundreds of dollars.
Strategy #3: Design with expenses in mind.
Great innovation generally begins with the question: “Wouldn’t be cool if…?” It would be even cooler if the manufacturing, distribution, and pricing was considered in the creative process as well.
Strategy #4: Don’t just think outside the box — think about the box.
How are you delivering your products and services? Once, we ordered food to be delivered for a working lunch in New York. Our $30 lunch arrived in what looked liked $50 worth of containers.
Scrutinize your distribution. What can you do differently? This goes for processes as well as packages. Changes can as dramatic as the shift from hard-case CDs to music downloads. But they don’t need to be. After all, you are only looking for 1%.
What You Need to Know If You’re Trying to Get a Bank Loan
In the fourth quarter of 2010 the FDIC’s list of “problem institutions” grew to 884 banks — the highest number since the savings and loan crisis in the early 1990s. It’s no wonder so many banks remain reluctant lenders to small businesses as they continue the scramble to shore up their portfolios.
The story isn’t much different with many of the smaller regional banks. Institutions that were aggressively writing loans only 18 months ago now want only companies “willing to wait a year or two to prove themselves in order to get financing.” (That is a direct quote from a loan officer at a well-known regional bank.) In other words, they want your deposits now and will lend you money later — maybe.
Plus, many lenders are applying more “aggressive pricing” with their small business customers. A recent American Banker newsletter (sorry, no link) encouraged member community banks to raise loan fees and interest rates for small firms. The reasoning? Most companies only change banks when they experience poor customer service, so they will absorb the increased fees without much resistance. (Check your statements to see if your bank followed the advice.)
In short, it’s rough out there. If you’re going after a bank loan, you better know how to position your business for this lending environment.
We have three suggestions for you. They’re best practices under any circumstances, but absolutely critical right now.
1. Investigate the health of the bank.
You won’t find the FDIC’s list of problem institutions. It’s kept secret; otherwise it would be a self-fulfilling prophecy. But you can get a pretty good idea by asking these questions:
- Have they posted a profit or loss in the last four quarters?
- Are their earnings decreasing or increasing?
- Does the bank have adequate liquidity?
- Are they in the middle of a merger or have they recently been acquired?
These online resources may offer enough answers to give you either a level of comfort or an action item: moneyandmarkets.com, banktracker.msnbc.msn.com, thestreet.com, bankrate.com, fdic.gov.
2. Don’t be blindsided.
Don’t take your current banking relationship for granted. Banks are far less forgiving than they were in the previous decade and more and more are exercising their “fine print” policies. A good payment history alone may not be enough to protect you.
We worked with two clients, a software company in the Midwest and a large ($100 million plus) service firm, that learned that lesson the hard way. They had perfect payment histories, but their loan covenants required them to maintain certain levels of receivables and inventory. When the recession hit, sales slipped at both companies and their inventories and receivables fell below the necessary level. This had happened from time to time in the past, but their bankers overlooked it then. Not anymore. Due to the increasing number of business failures and the greater scrutiny of their own portfolios, the bankers did what they had to do.
For the software company, it meant an interest rate hike from prime plus one to 10%. The service firm wasn’t as lucky: The business lost its line of credit. Both businesses were forced to seek other banking relationships at a time when they were in a weak bargaining position.
The lesson: Read your covenants carefully! If you are out of covenant, beware and be aware. Make a business plan to get back into covenant as quickly as possible. If you do get that ominous phone call or letter, presenting that plan and showing your progress can help buy additional time.
3. Follow the money.
Consider establishing a relationship with a back-up bank. Smaller, more aggressive, local banks tend to stay current on state, local, and particularly the federal programs that are or will be offered to stimulate the small business market. This is likely to be the winning combination for the near future.
Jim Chessen, the chief economist at the American Banker’s Association, said recently that the improving economic outlook is convincing banks to lend at terms that are more favorable to businesses: “Bankers are optimistic that loan quality to businesses will improve in 2011. Eighty percent of the banks expect loan quality to large and mid-sized firms to improve, and 70 percent expect an improvement in small business loan quality. No banks expect business loan quality to decline in 2011.”
We can interpret this in one of two ways. The first is that if bankers believe that they will be making better loans, they’ll likely make more loans. The second is that they’ll be more discriminating in order to make only high-quality loans. With either interpretation, the fundamentals for approaching banks remain the same.
Do the work to find out who is aggressively courting the business market you are in. The following is a list of potential sources that can help you compile an initial target list. While you may not need all of them, you can’t go wrong if you tap a healthy handful of them:
- Major customers
- Suppliers, vendors, and professional service providers
- Business peers (this may be your best source)
- Trade associations
- Online resources such as ibank, sba.gov, LinkedIn, or just a plain old Google search
Last, but certainly not least, put your financial house in order: You want the bank to look favorably on your company, but disorganized financials is no way to court them. If you haven’t already, give your bottom line a good spring cleaning.
Have a small business finance question for The Money Dept.? Hit the comments or email Rich and Mary using the contact form under their photo.
Communications World Series
The great Peter Drucker once said that 60% of all management problems is the result of poor communication. When employees and managers fail to understand each other, everything suffers—sales, service, safety, productivity and morale.
A patient can get sick or die if a hospital nurse can’t read a doctor’s handwriting and dispenses the wrong medicine or the wrong dosage.
Loyal customers are lost when an order is misfiled.
The Deepwater Horizon Oil Spill (aka BP Oil Spill), one of the worst oil disasters in history, can be blamed on; you guessed it – communication failures.
What about this year’s World Series? Could communication, not talent or teamwork determine the victor?
Two miscommunications in the 5th game of the Worlds Series between the St Louis Cardinals and the Texas Rangers could determine the series winner. What happened has already become an instant baseball legend.
Tony La Russa, the Cardinals manager twice asked his bull coach Derek Lilliquist, (for those that don’t follow baseball, a bullpen is a specific area for pitchers to warm up so they will be ready if the manger wants to bring another pitcher into a game. In baseball the team manager communicates to the bullpen through a phone line that is dedicated just for that purpose) that he wanted Jason Motte, a right-handed pitcher to warm up. But because of noise in the park Lilliquest did not hear the request to warm up Motte on the first call, and thought he heard the name of another pitcher on the second call – the pitcher who was only supposed to be used in case of an emergency. To further complicate maters, LaRussa could not see the bullpen from where he was watching the game so he assumed Motte was warming up.
These miscommunications resulted in another pitcher being left in the game against Mike Napoli with the bases loaded. Napoli delivered with a two-run double that sent Texas to a 4-2 victory.
The Cardinals commutations challenges were not uncommon to what most companies constantly struggle with. No one is being lazy—everyone is well intentioned and tries his best. We communicate a message and don’t have the luxury of seeing with our own eyes that that the right information is implemented in a timely fashion. What happened to the Cardinals was not a result of lazy communications; a poor communications process caused it.
What if the calls to the bullpen would have gone like this?
LaRussa “Derek, get Motte warming up so he can pitch to Napoli”.
LaRussa “so I want you to get Motte loose so he’s ready for Napoli”.
Derek “Ok, Tony, let me see if I have it right. You want Motte warming up and ready to pitch to Napoli.
LaRussa “You’ve got it Derek, I want Motte ready to get Napoli out”.
It’s critical to understand that communications is a two-way street, and if information is passed down several channels it can become the equivalent of whispering down the lane.
Redundancy Rules!
Do you want almost zero communication errors in your business? Try this simple and effective process:
1. Tell; pass along the information – either verbal or written
2. Summarize; highlight the action or significant items
3. Paraphrase; have the other person respond in their own words their understanding of the communication
4. Repeat; Answer back with acknowledgement or correction
Think it sounds silly and even demeaning? It sure doesn’t to airplane pilots, soldiers, and operating room staff. IT WORKS and doesn’t need to be reserved for only life or death situations.
Establishing a culture of effective communications cannot be undervalued. We recommend that you teach everyone in your company the art of paraphrasing and make it mandatory. It goes like this. “In other words what you just said is that everyone in the company should repeat in their own words what they just heard.
Yup, that’s what we mean. Everyone should repeat what he or she just heard to ensure clarity.
Ask yourself each time you give a message is the message clear, and listen to make sure that it was totally understood.
Engage Brain Before Mouth
Think your thoughts through before you communicate.
Two friends were having lunch and shared an example of the dangers of not thinking through their communications.
“I made a Freudian slip last night. I called my husband by the name of my first boyfriend. It was embarrassing”.
I did the same sort of thing said the friend. “I meant to say to my husband, “Please pass the potatoes,” but I said “Die, loser; you’ve ruined my life.”
How much are communication errors costing you in money, time, or relationships? How much would your business benefit from eliminating miscommunications? Test drive the 4-step redundancy approach and see what it can do in your company. Get that? We are challenging you to try the 4-step communication process outlined above. Please let us know how it works for you!
Kat Edmonson Works with Bottom Line Up
Rich and Kat recently spent the day creating the budget for Kat’s second album which will be released in January, 2012. It was also a day of celebration. Working together with Bottom Line Up, Kat developed a strategy that successfully raised over $53,823 from 372 donations from her fans on Kickstarter.com. Kickstarter is an all or nothing proposition. If you don’t reach the target goal in the timeline you set, all the pledges are released. Kat was very aggressive asking for $50,000 in a thirty day time frame. The majority of the money came in the first and the last week. Mary and I held our breath as the deadline grow closer. We had recommended she ask for less. But Kat had faith in her fan base, and she was extremely confident that she would reach the goal. She reached it with a few days to spare.
Kickstarer.com is the largest funding platform for creative projects in the world. To learn more about Kickstarter and Kat’s successful campaign go to www.kickstarter.com/projects and to see the results of Kat’s site go to www.kickstarter.com/projects/katedmonson/kat-edmonsons-second-album.”
Managing People For Fun, Profit, and RESULTS
Our goal is to share with you and encourage you to implement an approach to management that will, over time, make managing people one of your favorite and most rewarding challenges and skills as a business owner.
In his book, The Official Guide to Success, Tom Hopkins states that unless you are willing to delegate, you can’t create much. The most successful business owners we have worked worth over the years have mastered the art of both delegating and managing people.
By learning how to successfully delegate large amounts of authority and responsibilities, they have gained invaluable time to focus on their own most productive and highest return talents.
Many business owners tell us that they would love to let go and delegate, but whenever they do, they are disappointed by the performance of their personnel, as well as by a lack of follow through and intelligent decision making on the part of the people they leave in charge.
We believe there are two Great Management Principals to success. They are:
1. You get more of the behaviors you reward; and
2. What gets measured, gets done.
In addition, it will increase the level of performance you can expect from the people who are fortunate enough to be part of your organization. And, yes, you will be able to delegate and sleep soundly.
Establish a “Can Do” Culture
The primary purpose of a business is to achieve results. Our focus as managers must be to reward the results we want. Ichak Adizes writes in Corporate Lifecycles, “Management theory is preoccupied with management by results, by objectives. My focus is on management for results, for objectives and by process.” If you follow the approach we are recommending, you will get the results that meet your objectives by following and ultimately embracing the process.
Many managers and/or business owners fall into the trap of playing a “cop” as “the best way” to eliminate nonproductive or even counterproductive behavior.
We have found that it is much more effective to be a “coach” to your employees. The best way to accomplish this is to identify and reward the behaviors that you do want, while encouraging your staff to aspire to even higher levels of performance. As a coach, you want to “catch ‘em doing something good” and let them know how much you appreciate their good work.
Psychologists have found that immediate positive reinforcement is by far the strongest method of achieving and maintaining positive behavior change. Punishment tends to breed paranoia and bad morale in the workplace, while negative reinforcement and lack of attention–to either good or bad performance–tell employees that the manager places a very low value on them and their performance.
This principal of positive reinforcement is what makes coaching work, and it is the reason that you get more of the behaviors you reward.
Good behavior is too precious to be taken for granted. As coaches, we want our employees to be positively clear on the results we want and the behaviors that produce them.
Establishing clear, measurable goals helps people see and appreciate their success. What gets measured not only gets done, but measurement also lets us see results in “black and white,” and, more importantly, how successful our results really are.
The first step is to identify the very best (or ideal) characteristics of employees in a given position. We have put together two worksheets that list all of the characteristics identified by a business owner who has a chain of custom frame shops. These worksheets can serve as a means of establishing clear criteria on which to measure the current performance standard of each employee. (These worksheets are at the end of the article.)
In order to ensure they are clear, it is important that we define or “benchmark” each one of these characteristics.
For example, we identified “creativity” as an important characteristic of a front room employee. Measuring creativity can be extremely subjective, and coaching it is an even greater challenge. The good news is once you define what you mean by creativity, over time it can be identified, taught, and encouraged.
A front room staff member can improve his or her creativity by experience, not just native ability. The frame shop owner describes the behaviors he’s seen in his most creative people:
* First, they have the communication skills to understand what a client is trying to achieve, and then add to that their own ideas, which have been learned from past experience (ideas that would apply to the situation at hand). This effort results in something even more exciting than what the client could ever have imagined on his or her own.
* They show a willingness to try new ideas and expand on them.
* He recommends that you give each front room person an assignment to be creative and let them “go to town on it. Give someone a chance to show their skills and show their stuff.”
Go through the many sample characteristics on each sheet and do two things:
1. As there are too many characteristics on the initial lists to really focus on all of them, determine the key characteristics that you would use to measure and reward your staff in your business.
2. Determine a list of the characteristics you feel are most important, with your description of each, for a specific job in your business.
Now let’s talk about how to use the forms and become a coach.
1. Explain to each employee, on an individual basis, your definition of each characteristic.
2. Then ask them to measure their opinion of their performance level in each category on a scale of 1-10, with ten being the highest. Their measurements should reflect how they compare with the consistently “best” performers. If they think they are the best in a category, they should give themselves a “10.”
3. Ask them to be as honest as possible.
4. You should rate them as well.
5. Ask other key employees/peers who work with them to also rate them using the same criteria. (Use your discretion to weed out any peer ratings with obvious bias.)
6. The purpose of you and your staff’s evaluations is to give a total perspective of the various perceptions of their performance, skills, and attitude levels at the time of the review.
7. In most cases, you will find that people will be far more critical of themselves in their reviews than you or their peers will be. If not, the other reviews will serve as a reality check.
8. If their self-reviews are realistic, then our focus should be on the role of coach, asking them how we can help them improve in each of these areas.
9. Offer to provide them whatever resources you can to assist in their improvement in each category.
10. Praise them for what they are doing well and ask them to make a commitment to improve in areas where they are weak.
11. Your goal should be to inspire, encourage, and create opportunities for your staff to grow. Make sure they understand that you are committed to helping them stretch and grow as people.
We believe these reviews should occur at least once a month initially. The problem with annual reviews is that a year is far too long to wait to tell someone where they stand. We all want to know where we stand every day.
This approach enables you to establish a completely different type of relationship with employees. It requires you to think of yourself as a mentor and to reward continuous improvement with encouragement and strokes. That, along with knowing where employees stand, is what is known as “psychic income.” Studies have shown that psychic income is far more valuable and motivating to employees than cash.
Your additional reward programs should be based on their continuous improvement and the results of their actions.
Being a coach also involves providing the right rewards for your employees and taking a sincere interest in them, both on and off the job. A coach recognizes that “life happens” outside the work environment and is there for his or her people when they have problems.
For example, a CEO in South Dakota has a fund put aside to help employees who develop financial difficulties caused by illness or other tragedies. This genuine show of concern touches and motivates all of their employees. The employees know they are seen as being much more than just a part of the bottom line.
A genuine personal interest in people builds the bonds of trust necessary for good teamwork. This is the one key characteristic of every successful manager we’ve worked with.
In his classic book, The Greatest Management Principle, Michael LeBoeuf, Ph.D., recommends the following:
* Your own behavior is the best way to teach people what you expect from them. You must walk your talk and lead by example in order to engender respect and loyalty in your staff. As Henry Gibson said, “A thousand words will not leave as deep an impression as one deed.”
* Don’t overlook complimenting the quiet, dependable people in your organization who demonstrate their commitment to your business by:
- Being rarely, if ever, absent.
- Working well under pressure.
- Being willing to give a second effort whenever the team needs it
- Being able to be trusted to work just as hard in your (or in others’) absence.
- Consistently turning out high quality work on time.
- Helping others to do their jobs better.
- Producing more answers than problems.
- Regularly striving to improve their work.
- Fostering cooperation.
- Building morale.
* Good coaches expect their people to do what is required of them, and they hold them accountable for their behavior. Chronic complainers without legitimate grounds should be ignored (not reinforced). Don’t waste your time with game players.
* Focus your behavior on expecting and rewarding the behavior you want from others.
Conclusion
Coaching is an ongoing process, and with a little practice and patience, the techniques outlined above will become an easy, valuable part of your employee management process.
The Talmud says that believers never question and cynics never believe anything. Give this approach a chance, and you will become a believer.
Begin the process by creating time to let your employees know what they are doing well and to encourage them to do even better.
Pointing out errors that need correction is an essential part of management, but give criticism by praising the worker and criticizing the work. You can begin criticism by praising some of the person’s good points to avoid putting the person on the defensive from the start. After your praise, shift the focus to what needs to go right or to preventing things from going wrong in the future. (In order for this style to be most effective, however, praise must not always be followed by criticism or your staff will always be waiting for the other shoe to drop!)
Recently, a client we worked with called her office while she was on vacation and was told second hand that a project she had asked to be completed on the Monday she left was not actually finished until Friday. She was furious and ready to leave her vacation a day early in order to confront the situation. When she called and asked for advice, we told her four things:
1. Finish her vacation and enjoy her time off.
2. Find out all the facts of the situation before she criticized the person in question.
3. Identify 10 things this person did right while she was away.
4. Remember that she is a coach, not a cop. Rather than punishing the person, it turned out to be far more positive–and effective–for her to take advantage of what she discovered to be a simple mistake in judgment. She turned it into a learning experience so that the employee could learn and grow, while not being afraid to make future decisions while the owner is away. This is how the delegation process works best.
An important caveat is to clearly define the behaviors you want, preferably in terms that can be measured.
Good luck, and good coaching!
Staying Ahead of the Curve
In February of 2008, Starbucks reached the conclusion that the consistency and quality of their product/experience was slipping. As a result they made the decision to close all 7,100 stores throughout the world and hold a three-hour training session beginning at 5:30 local time. This reinforced Starbucks commitment to two of their guiding principles:
1. Everything Matters
2. Surprise and delight.
In July of the same year, Starbucks announced their plan to close 5% of their U.S. stores and 75% of their Australian stores. These were locations and locales the company deemed to be unprofitable. They acted decisively and made one big move. They knew they would take heat from Wall Street and they did. Wall Street stated, in essence, that Starbucks was no longer the fair-haired child who could do no wrong. Well, in fact, what they did was right. They were ahead of the curve regarding the economic meltdown. They made a sound business decision to cut their losses sooner rather than later.
They embraced an important Bottom Line Up rule – when you control your money, you control your future.
At a time, when being in a strong cash position was vital to every company, Starbucks was offering, through Costco, five $20 dollar gift cards for $80 dollars. The sales of these cards, even at discounted rates along with the fee to Costco, helped to strengthen Starbucks’ cash position. They certainly had the margins in their products to make the offer. Whatever success the promotion generated, it ended up being cash upfront sitting in the bank.
We believe these actions that Starbucks took at that critical time demonstrate why they are a dynamic and great organization.
To follow the lead of great companies focus on:
- Revitalizing your staff to create a great customer experience
- Eliminating unnecessary operations that are draining your cash
- Creating ways to generate upfront cash
Starbuck’s pro-active approach was and continues to be an excellent example of a company taking the necessary steps to ensure their brand promise, unique competitive advantage and strong cash position.
Tough decisions were made and acted on. Take a hard look at the economy and where your company sits in it. Take the required actions and you too can follow your star to the bucks.
How to Hold an Effective Daily Huddle
Rick Russakof shares some advice on focused daily huddles, that will start your day off strong and energize your team.
