Saturday, December 25, 2010

Who's In Charge Here?

Whether you are a sole proprietor running a small company of family and friends or the president of a company that employs thousands of people, there is something called “depth of management.” It is similar to the military “chain of command” and can be diagramed in an organization chart. Research has shown that a supervisor is required for every three to five people performing a unit task. If there are three to five supervisors, they need a supervisor and so forth. The larger a company gets, the structure is more about managing the flow of information than the activities of employees, but supervision is supervision whether it is peoplework or paperwork.

A common problem for all is how they answer the question, “Who is in charge here?” An owner’s offspring is put in charge, a worker is promoted to supervisor, and a principal hires a friend or outsider. Negative repercussions can result unless those people who are put in charge of other people understand what being a supervisor is about. It is not about being “the boss.” Boss is not a job title or a position. Supervisor is a job title and the position is about getting a job done.

A supervisor is a person who is responsible for the work being accomplished by one or more employees.

The supervisor must have the ability to handle the function to which they are assigned and the ability to control and direct those employees whom they supervise, or subordinates. The capacity of supervisory personnel is largely dependent upon their personality, background, education, and work experience. Good supervisor are open-minded and alert to new ideas, allowing them to be flexible in handling varying situations that must be faced daily.

Successful supervisors display three main qualities: stability, decisiveness and understanding.

Emotional stability is essential. Good supervisors must be able to control their tempers under all conditions, especially when the going gets tough. They must follow an orderly, well-planned procedure that is flexible enough to permit changes when necessary. Decisions must be handled positively and quickly because shaky and uncertain decisions will cost the respect of both subordinates and other supervisors. Subordinates who are made to feel that they are understood enjoy working under their supervisor's steady and dependable direction.

The qualifications for supervisors include impartiality, leadership, confidence and balance.

Supervisors must be impartial and impersonal, not allowing their personal likes and dislikes to influence their decisions. Good supervisors are leaders rather than drivers. Subordinates take pride in their work when they feel it is worthwhile. Supervisors must be able to train subordinates in their tasks and be able to instill a feeling of confidence in their abilities. A good supervisor also knows when to praise a subordinate for work well done as well as to correct a subordinate privately for unsatisfactory performance.

The responsibilities of supervisors share core attributes regardless of their company size.

· Accepting and understanding all duties delegated to them.
· Developing recommendations to modify tasks assigned to subordinates.
· Establishing coordination and discipline among subordinates.
· Evaluating the performance of subordinates.
· Training subordinates at all levels and developing selected individuals to become assistants and to assume the supervisor's duties when the need arises.
· Simplifying all activities to necessary essentials by eliminating marginal work and non-productive effort.
· Maintaining operating records of the quality and quantity of work performed.
· Planning, and rescheduling work to obtain improved workflow and increased production.
· Performing the operations within approved standards by attending to all assigned duties and acting on matters as they arise.
· Observing and practicing all policies.

The authority of a supervisor includes responsibility, jurisdiction, and morale.

Regardless of the delegation of duties to subordinates, supervisors remain personally responsible for the proper performance of all duties assigned to the position and to the organizational unit they supervise. Under no circumstances should the authority of any supervisor be destroyed by the direct issuance of instructions to personnel under that supervisor's jurisdiction by other supervisory personnel, regardless of the organizational rank of the latter.

The supervisor must have exclusive jurisdiction and authority over all personnel, equipment, and facilities for which they are responsible. Supervisors are entitled to the full cooperation of their own supervisor in the event that an employee is judged unsatisfactory and must be transferred or terminated.

All supervisory personnel are expected to develop and maintain a high standard of morale and production in addition to being fully familiar with all company policies. Each supervisor may make recommendations concerning subordinate employees. However, only a functional manager has the authority to hire, promote, demote, discipline, or terminate any employee within the functional section.

Supervisors share some core administrative and general duties regardless of company size.

· Achieving a well-organized, smooth running unit by making competent selections, providing sufficient training, and closely supervising assigned personnel.
· Securing effective, productive use of all personnel, equipment, and supplies in their unit.
· Building and maintaining employee morale.
· Operating their unit within established guidelines and budgets.
· Maintaining productivity and improving methods and procedures whenever possible.
· Providing proper maintenance, control, and proper use of all equipment, including a preventative maintenance program when applicable.
· Ensuring strict adherence to safety rules and practices at all times.
· Reducing potential hazards in the work place.
· Reducing wasteful use of resources.

Proper supervision is the prime activity for top management. Its agenda is to operate an organization productively and smoothly. Supervision is the way companies obtain the necessary coordination, cooperation, and communication required to succeed. Supervisors must always put emphasis on the details of doing a job, not just on accomplishing the end result. That is what being in charge means.

Tuesday, November 30, 2010

Management Lessons [No Charge]

The job of many business consultants, in addition to invoicing their clients and collecting, is to appear to write management lessons for a substantial hourly rate. But I have rebelled against the practice and offer the following management lessons to you at no charge. Use them and prosper.

Lesson One

An eagle was sitting on a tree resting, doing nothing. A small rabbit saw the eagle and asked him, "Can I also sit on my ass like you and do nothing?"

The eagle answered: "Sure, why not."

So, the rabbit sat on the ground below the eagle, and rested. All of a sudden, a fox appeared, jumped on the rabbit and ate it.

Management Lesson:

To be sitting on your ass and doing nothing, you must be sitting very high up.

Lesson Two

A turkey was chatting with a bull. "I would love to be able to get to the top of that tree," sighed the turkey, "but I haven't got the energy."

"Well, why don't you nibble on some of my manure droppings?" replied the
bull. "They're packed with nutrients."

The turkey pecked at a lump of manure, found it actually gave him enough strength to reach the lowest branch of the tree. The next day, after eating some more dung, he reached the second branch. Finally after a fourth night, he was proudly perched at the top of the tree.

Soon thereafter he was promptly spotted by a farmer, who shot the turkey out of the tree.

Management Lesson:

Bull Shit might get you to the top, but it won't keep you there.

Lesson Three

A little bird was flying south for the winter. It was so cold the bird froze and fell to the ground in a large field. While it was lying there, a cow came by and dropped some dung on it. As the frozen bird lay there in the pile of cow dung, it began to realize how warm the dung was, actually thawing him out.

He lay there all warm and happy, and soon began to sing for joy. A passing cat heard the bird singing and came to investigate. Following the sound, the cat discovered the bird under the pile of cow dung, promptly dug him out and ate him.

Management Lessons:

(1) Not everyone who shits on you is your enemy.

(2) Not everyone who gets you out of shit is your friend.

(3) And when you're in deep shit, it's best to keep your mouth shut.

I hope this helps. Seasons Greetings.

# # #

Edited from an unattributed source as much management consulting dicta, only I admit it.

Sunday, November 7, 2010

Just Stuck in It

As a business management consultant, I would describe a lot of what I see in business families are people stuck in stupid. They are not stupid; they're just stuck in it. The primary reason they are stuck is their lack of flexibility, which inhibits change. Change, incidentally, is why people hire consultants in the first place.

I ask people "What do you do for a living?" Generally, they explain about some functionality or process they perform. I repeat the question until they to stop. "You make decisions," I say. Then I ask, “If someone is stuck in stupid, what kind of decision could they expect to make?”

Learning to ask questions is the first step out of the stickiness. For example, let’s say our Company is expanding its’ scope of work and over the next 6 months it wants to add 50% to its’ gross revenue.

The questions that need to be answered are:

· Does the Company have the qualifications to expand? [That should not be a problem if the company is currently performing in these areas.]

· Does the Company have sufficient capital or credit to expand? [A projection showing a Cash Flow would provide insight into what the cash requirements would be with the expansion.]

· Does the company have the staffing required to make such a move?

· Are additional employees required, are they available, how much training will they require, and what are the costs?

· How much competition does the company have and will the expansion enhance or hurt the Company’s position in the community?

Another issue with being stuck is what I call breathing your own ether. By ether I mean the things that business owners say to other people and to themselves like, “We’re doing just fine.” “I don’t need to write it down. I’ve got it all in my head.” And my personal favorite, “I’m an idea person.” [So are children in a playground.]

The best ether I heard recently came from a client who told me, with a straight face, that his spouse was working in the company without any pay or job title or job description. “It is saving us a lot of money because I don’t have to hire someone else.” Actually, the spouse does have a job title – Owner’s Wife. One thing is certain: the compensation plan sucks.

Let’s ask some more questions:

· Doesn’t such a situation have the net effect of putting all of their eggs in one basket?

· Is the spouse qualified to perform the duties of her functional position, like book keeper or sales manager?

· Have the owner and spouse established clear boundaries? [At what point do their business and personal lives begin and end?]

The fact is that few people ever want to admit that they do not know what they don’t know. The tendency is to claim that they have been so busy working that they haven’t been able to take the necessary time to make that discovery. Unfortunately, there is ether.

Three choices are available in these situations.

· Keep doing what you are doing.

· Stop what you are doing and go back to school.

· Hire a competent business consultant to help you.

There are sub-sections of those three choices, but I am trying to keep this short and to the point. Part of the stickiness is not admitting that some outside advice might be helpful. A person’s ego saying “I can do this better” is what starts business ventures. The same ego saying "I don’t need anyone telling me what to do” is the glue that keeps business people stuck in stupid.

Tuesday, August 3, 2010

Margin of Error

How do we calculate a price for something?

More often than not business calculates the price of its products or services by some method of Mark-Up. It is a common practice that relies on the assumption that if you take the costs of labor and material and “bump them up” by some percentage, you will make the profit you want. However, Mark-Up pricing leaves “money on the table” and in some cases may result in what we will call a negative profit.

The reason for that is the assumption itself. Even though labor and material are considered Direct Costs, they are pretty much fixed. From an accounting point of view they are, anyway, but in life we know that commodities the prices for steel, petroleum, and transportation change, although they tend to go up more often than down. Our pricing has to absorb those differences as they occur.

We also know that the cost of labor is more than just the wage paid to an employee, which is the major part. Burdened wages include other costs, like SUTA, FUTA, FICA and paid vacation time. They also have to be absorbed by our pricing. Therefore, we have to look at pricing as changes occur and not assume that Mark-Up automatically recovers such costs.

My purpose is to introduce Gross Margin Pricing which prevents leaving “money on the table” by recovering all of our costs however they may change. In order to make it make sense, I am going to us a napkin on the table to illustrate the point. My theory is based on my experience which says that if it can’t be done of the back of a napkin, then it is too complicated.

Let’s look at the difference between Mark–Up and Gross Margin pricing. The following example shows the significance. To demonstrate, let’s assume a $7.00 product cost and look at the difference.

an analogue PowerPoint


30% Mark-Up pricing simply multiplies costs by 1.3: $7.00 X 130% = $9.10 revenue (price).
Revenue minus cost equals gross margin: $9.10 minus $7.00 = $2.10 or 23% gross, or profit.


This pricing system divides the cost by the reciprocal (100% - 30% = 70%) of the desired gross margin, the profit percentage you want.
Cost divided by the reciprocal of profit equals price: $7.00/0.7 = $10.00 revenue (price).

Using MARK–UP pricing rather than GROSS MARGIN pricing produces a suggested selling price that is 7% less than the correct selling price. Just to keep the numbers simple, on a sales volume of $1M that would be like leaving $70,000 on the table. It must be a big table.

You can make my napkin presentation into a PowerPoint presentation

The Mark-Up theory of pricing is the way the model worked from after WWII into the late part of the century. It worked because the other components of pricing remained less variable than they are today. There are lot more add-on costs today than there were for business in the 50’s and 60’s. However, Mark-Up pricing is inflexible and does not absorb all of the costs, which in turn erodes profit.

This goes to a quick discussion of how often should prices be calculated. Rather than say, “That depends,” which would be a cop-out, the answer is “regularly.” Every time something impacts costs, prices need to be considered and changes made accordingly. For example, in the aftermath of Hurricane Katrina, transportation costs skyrocketed to almost five times what they cost before, all of which had to be passed on to consumers.

I have a spreadsheet I use called “The Electronic Deal Napkin.” The idea came from working with people who did their calculations on paper napkins with a pen, instead of on a computer. The fundamentals are the same. By the way, a pen is a hand-held, friction-driven, fluid-medium, analogue, scribing-devise. It is now updated.

How does one price things? Don’t multiply, divide by the reciprocal. It works every time.

Thursday, June 24, 2010

Why Pre-Paid Legal

Pre-Paid Legal Services Inc. (NYSE symbol: PPD) is one of the first companies in the United States organized solely to design, underwrite and market legal plans. PPD covers many personal, non-work related legal issues. The plan provides an employee, their spouse and qualified dependents assistance with personal legal issues including:

· Unlimited telephone consultations
· Free phone calls or letters from attorneys
· A free Will
· Contract and document reviews
· Motor vehicle legal representation
· Lawsuit defense
· IRS tax audits, discounts on divorce and post divorce related matters
· Real estate transactions
· Identity theft protection and restoration plans

80% of Europeans have some form of legal insurance. The idea is favored by many people in situations where they need a lawyer and find the cost prohibitive. Legal insurance is comparable to medical insurance by people paying a monthly premium for access to legal representation when they need it. It also eliminates the stress of having to find someone in desperate times.

From a business point of view, a prepaid legal services plan is cost effective for small business owners who need collection letters. Since collection letters can cost upward of $150 a piece, the monthly premium is significantly less. A well-chosen prepaid legal services plan can benefit a consumer with a known legal need.

One clever use of a pre-paid plan was by a real estate agent. He found a plan that covered the preparation of a deed for a real estate transfer. He would have his clients sign up for the plan, and they would then obtain the deed through the plan's attorney. The cost of the plan was significantly less than the attorney would otherwise charge for the deed. On top of that, the real estate agent received a commission on each plan sold.

The clients typically cancelled the policies after the first year.

The product PPD offers that is important to business professionals is Identity Theft Shield. At no charge, PPD will send in an Identity Theft Expert to help create a plan to safeguard non-public information. PPD provides the training and necessary written policy, forms and documents that demonstrate Good Faith measures to comply with FACTA, GLB, HIPAA and other laws. The documents provide proof that handlers of sensitive information have attended the mandatory employee training now required by the Federal Trade Commission.

PPD's program is not bulletproof insurance against lawsuits, penalties, fines or damage awards, but provides evidence that companies are doing their best to protect the sensitive employee and customer data they have.

As an income opportunity based on the idea of an exponential expansion system, it has great emotional appeal to a growing number of people distressed in our economy. Multi-Level Marketing (MLM) or Network Marketing opportunities, such as PPD, Usana, Amway and Herbalife, appeal to a desperate need for new or additional income for millions of households. However, such systems promising financial salvation are not for everyone.

Thursday, April 15, 2010

SBA Finance Assistance Scams

There is an old expression that states “you can’t cheat an honest man.” Whether one replaces “man” with “business owner” to be politically correct or not, there is a growing number of scammers out there preying on owners of small businesses. The Alameda County Small Business Development Council (ACSBDC) sent me the following letter from the Small Business Administration (SBA). Let us take heed.

The U.S. Small Business Administration is warning small businesses to use caution if they are contacted by firms offering to help them apply for funds available through SBA programs.

SBA and SBA's Office of the Inspector General have received several complaints from small businesses about abusive marketing practices, scams, and exorbitant fees charged by firms offering to help them obtain a loan, grant, or other federal funds.

Some of these complaints include:

• Firms charging small businesses high fees to provide assistance applying to SBA funding programs. Some firms allegedly guaranteed that the small business would obtain SBA funding if they paid the fee. SBA does not endorse or give preference to specific private companies or their clients.

• Firms charging small businesses for services never requested after the small business gave bank account and routing information to a caller claiming to be a firm offering assistance. SBA recommends that small businesses never provide social security numbers, bank account information, or credit card numbers to anyone; and, never over the telephone.

• Firms alleging that a small business would be issued a "forfeiture letter" that would make the small business ineligible for any SBA funding for three years if the small business refused to use the firm's services.

When electing to use a third party to apply for SBA funding programs, small businesses should also bear in mind:

• Small businesses can get free assistance in person or by calling one of the administration's district offices and from information on SBA's Web site ( They can also get assistance from Small Business Development Centers (SBDC), Women's Business Centers, Veterans Business Outreach Centers and SCORE Chapters, either free or for a reasonable fee. Location and contact information for the centers can be found on SBA's Web site.

• Small businesses should ask for references and confer with trusted colleagues and institutions, such as the Better Business Bureau, when selecting service providers.

• Small businesses should clearly establish and document: 1) What they are being charged; 2) When they will be charged; 3) What they must do; and 4) What services they will receive.

The administration's inspector general will investigate and respond to all complaints.