Organized Business

A Laissez Faire-y Tale

2012-01-29T14:06:00.001-08:00

Libertarianismand deregulation successfully trashed the US economy. Americans lost theirsavings, their homes, and their jobs in record numbers unprecedented since theGreat Depression. Former Federal Reserve Chairman Alan Greenspan’s libertarianphilosophy that markets know best is responsible for the U.S. financial crisisthat erupted at the end of George W. Bush’s presidency. Greenspan’s acolytes – TreasurySecretaries Robert Rubin, Larry Summers, and Timothy Geithner – also bearresponsibility for the existing international economic debacle. And it allbegan with Ayn Rand.

Rand immigratedto the United States from Russia in 1926, the year Alan Greenspan was born. Thecelebrated fiction author of the novels TheFountainhead (1943) and AtlasShrugged (1957), Rand championed libertarianism. She famously told MikeWallace in a 1959 CBStelevision interview that she believed in “the separation of state andeconomics.” She opposed all regulations of markets. Greenspan became her pupiland she was present when he was sworn in as President Gerald Ford’s chiefeconomic advisor. That she came from an oppressive government regime likelyexplains her extremist laissez-faireattitude – something that Republicans love.

By the timeRand became a Hollywood screenwriter, President Franklin Roosevelt signed theBanking Act of 1933 (Glass–SteagallAct). This New Deal legislation established the Federal Deposit InsuranceCorporation (FDIC) and introduced banking reforms to control speculation. Followingan era of corruption, financial manipulation and "insider trading"resulted in more than 5,000 bank failures following the 1929 Wall Street crash. The Glass–Steagall Act also allowed theFederal Reserve to regulate interest rates in savings accounts.

Deregulation fevertook hold in 1980 with the enactment of the Depository InstitutionsDeregulation and Monetary Control Act (DIDMCA) that gave the Federal Reservegreater control over non-member banks. Among other things DIDMCA allowed banksto merge, forced all banks to abide by the Fed's rules, and removed the powersof the Fed under the Glass–Steagall Act to set the interest rates of savingsaccounts. Ronald Reagan became president that year, famously saying thatgovernment was not the solution to the country’s problems, “government is theproblem.”

The AlternativeMortgage Transactions Parity Act of 1982 (AMTPA) removed regulations that barredbanks from making anything but the conventional fixed-rate loans. That gavebirth to the kind of mortgages that put borrowers in default situations; Adjustable-Ratemortgages (ARM), Balloon-payment mortgages, and Interest-only mortgages crushedborrowers. The option-ARM allowed borrowers to underpay by as much as they wantduring the first few years of the loan so that the unpaid monthly interest gottacked onto the size of the loan.

A $300,000mortgage could become a $350,000 loan. Homeowners could find themselves out ofequity, upside down, and into default.

As for AlanGreenspan, he continued to build upon his libertarian Wall Street-friendlyinfluence in Washington. On August 11, 1987, the Senate confirmed Greenspan as PresidentReagan’s nominee for chairman of the Federal Reserve. Paradoxically, the AynRand influenced, anti-regulation, free-market economist Greenspan became theultimate regulator as the head of the central bank. Two months later, on October19, the Dow Industrials' plunged 508-points and the New York Stock Exchange crashed.

But as adisciple of Ayn Rand, Greenspanpresumed that “the self-interests of organizations, specificallybanks and others, were such as that they were best capable of protecting theirown shareholders and their equity in the firms,” as he testified beforeCongress. He sought and attracted fellow believers in free-marketeering whogrew in their influence and power during the Clinton administration. Greenspan’sinner circle included Wall Street financier Robert Rubin, Harvard economistLarry Summers, and the Treasury Department’s Timothy Geithner. Each of thembecame Secretary of the Treasury.

The so-calledgo-go ‘90s seemed to confirm Greenspan’s hands-off approach to regulation. Butas a result the financial world suffered a fiscal heart attackin 1998.

Long TermCapital Management (LTCM) started to meltdown. The secretive computer modeldriven firm made huge leveraged bets on various forms of arbitrage, inparticular securities called over the counter derivatives. Derivatives made upan unregulated $27 trillion dollar international market. Unfortunately, LTCM’s proprietarycomputer models failed when a financial crisis in Russia fractured their virtualfinancial world and crashed those models. It took a private bailout, overseenby the Federal Reserve, to prevent systemic financial catastrophe.

Congresssummoned Fed chairman Greenspan. He again assured them that markets know best.He told them that he knew of no regulations that could prevent people “frommaking dumb mistakes.” So despite the systemic meltdown, Congress took noregulatory action. The following year Congress sent President Clinton the FinancialServices Modernization Act of 1999 (Gramm–Leach–BlileyAct) which he signed. The Gramm–Leach–Bliley Act allowed commercial banks,investment banks, securities firms, and insurance companies to consolidate.

From 1999 to2008 the grateful financial industry spent $2.7 billion on lobbying, whileindividuals and committees affiliated with it made more than $1 billion incampaign contributions. During this time, the banking industry hid its use of off-balance-sheetderivatives and its excessive use of leverage. That created a shadowbanking system in which the banksrelied heavily on short-term debt. The lobby got what it wanted and Greenspan gotthe praise. However, Greenspan's apparentsuccesses in managing the economy from 1987 to 2006 are a façade. Thatmanagement created the largest credit bubble in world history.

PresidentGeorge W. Bush awarded the Presidential Medal of Freedom to Alan Greenspanafter his 18 years at the Federal Reserve In 2005. Hailed as a financialwizard, Greenspan retired in 2006. Dr. Ben Bernanke, a Princeton University EconomicsProfessor, succeeded him. Goldman Sachs Chairman and CEO Henry M. Paulsonbecame Treasury Secretary. Greenspan’s protégé Timothy Geithner served as theCEO of the Federal Reserve Bank of New York. The U.S. housing bubble continuedto swell.

In 2008 asystemic failure like the LTCM meltdown a decade earlier hit the Wall Street.The investment house Bear Stearns began to meltdown. It imperiled the interconnectedglobal financial market, largely because of derivatives that had been created withtoxic mortgage backed securities. Federal intervention in the form of a loan toJ.P. Morgan Chase as an intermediary allowed Bear to be bailed out, but it didnot solve the underlying problems such as secrecy, avarice, and fraud.

Next, the epidemicmortgage crisis forced the Treasury to nationalize Fannie Mae and Freddie Mac,putting each of the mortgage giants into conservatorship. Secretary Paulsonsaid that "that conservatorship was the only form in which I would committaxpayer money to the GSEs [Government Sponsored Entities]." The Treasury committed to invest up to $200billion to keep the GSEs solvent.

Wall Street’sLehman Brothers faced bankruptcy next. Secretary Paulson decided to teach WallStreet a lesson. He told Lehman management that the government would not stepin. Lehman needed a buyer but found none. Forced into bankruptcy, thegovernment allowed Lehman to fail. With that, the systemic risk plunged Irelandinto trouble. The Bank of England had to start bailing out banks. Iceland wentbankrupt. China faced 0% growth. At home U.S. banks stopped lending. The worldfinancial system began to meltdown.

Then one ofthe world's biggest insurers, American International Group (AIG), fell victimto the mortgage backed security crisis. This time, however, the governmentdecided AIG truly was too big to failand seized control. The $85 billion deal demonstrated the government’s extremeconcerns about the danger of what such a collapse could pose to the financialsystem.

SecretaryPaulson and Fed Chairman Bernanke called congressional leaders to NancyPelosi’s office and bluntly requested $700 billion dollars to save the USeconomy. At first rejected by the House, the Emergency Economic StabilizationAct of 2008 was signed into law by U.S. President George W. Bush on October 3.It created the Troubled Asset Relief Program (TARP) which allowed the UnitedStates government to purchase assets and equity from financial institutions.

To solve thelending crisis, Secretary Paulson summoned 9 of the largest banks’ CEOs to theTreasury. He forced them to accept capital injections that made the UnitedStates a stockholder. To prevent the failure of Wall Street’s Merrill Lynch,Paulson arranged its buyout by Charlotte based Bank of America. Under TARP somebanksgot bailed out. Other banks were seized by the FDIC and placed intoconservatorship until they could be purchased.

In retrospect,many analysts and economists now blame weak Fed policies for the 2006–2008 housingcrash, the Wall Street financial crisis, and resultingrecession. Failing to take action to stem the bubble in housing prices,inadequate oversight of financial firms, and keeping interest rates low for anextended period are major contributors.

AlanGreenspan now says, "I made a mistake in presuming that the self-interestsof organizations, specifically banks and others, were such as that they werebest capable of protecting their own shareholders and their equity in the firms."He testified to congress that he “found a flaw.” Greenspan said the crisis hadshaken his very understanding of how markets work. He also agreed that despitehis former opposition to it, financial derivativesshould be regulated.

The Ayn Rand-inspiredlaissez faire libertarianism that Greenspan and his fellow US financialregulators practiced not only failed on a colossal level but led to phenomenalgovernment interventionism. Deregulation and the absence of regulating allowedfor massive investment fraud hidden in an opaque and secretive internationalmonetary system. It also concentrated Wall Street firms and U.S. banking, whichwill continue to pour money into opposing past and future regulations. Rand’sphilosophy emanated from a world coming into the 20^th century. It failedthe world coming into the 21^st.

Originallypublished as ALaissez Faire-y Tale on Blogcritics.

Budget: What Budget?

2011-12-29T13:50:00.000-08:00

The so-calledRyan budget that occupies so much news space, as its author does televisednews-talk shows to explain it, misses an important point. Its center piece is togo after one of the large transfer payment generating machines in government,Medicare. Government payments to individuals, whether they are mailed or directdeposited, are called transfer payments. Two of the other large transferpayment generators are the Social Security Administration and the VeteransAdministration.

The importantpoint to consider is that government programs are overhead and therefore arefixed expenses. While it is true that transfer payment amounts are trendingupwards and will continue to do so as the post-WWII generation reachesretirement age, they are still fixed expenses which are only part of a budgetequation. The other two parts of the budget equation are variable costs, alsoknown as the cost of doing business, and revenue. Business revenue comes fromsales. Governmentrevenue comes from taxes.

Budgets thatpropose to reduce revenue work when a business plans to downsize as a companystrategy. For example, instead of making a 2% margin on a volume of $20M inrevenue, a $400K profit; the downsize strategy is to make a 10% margin of $10Mrevenue, a $1M profit. You can see why a budget that cuts fixed expenses andreduces revenue is unsellable to a board of directors and to stockholdersunless the strategy is to downsize the business. So is the idea of downsizingthe federal government and reducing taxes. But that is a political digression.

A budget or thelack of a budget is an elephant in the living room of a business. Many times,as a management consultant, myjob has been to say to business owners, “Hey, you have an elephant in yourliving room. What are we going to do about it?” Then come the excuses that it’sin their head or that their accountant does it or that they have a spreadsheetthat they purchased with their business plan online or that they are working onit, etc.

Any planningthat a company tries to make without a budget is a shot in the dark or someother metaphor connoting guesswork. Many times entrepreneurs lack businesstraining per se, which is why they goto SCORE [Service Corps of RetiredExecutives] or they bring in a consultant. Many business owners make the faultyassumption that their accountant takes care of their budgeting for them. Theaccountant is a good person to ask about the arithmetic, but generally speakinga budget is not an accountant’s job.

Anaccountant’s job is tax, just as an attorney’s job is law. In my view, the onlytimes that a business owner needs advice from either profession is when theyare dealing with the IRS or dealing with contractual matters. They both are withoutdoubt the wrong professions to ask for business advice. Asking an accountant forbusiness advice is like driving a car and trying to see where you are going bylooking in the rearview mirror. An attorney can only tell you for certain whatroutes not to take and will find ones not to take that you never knew existed.

To be fair,the accountant and the attorney and the banker, for that matter, all look atthe same financial data. Each is a different audience, if you will. They lookat different things in addition to how they are going to get paid for looking,which is its own consideration. The major sections of the financial data thateverybody looks at are overhead, considered a fixed expenses, and costs, whichare considered variable expenses. Revenue is the paramount consideration forbusiness.

“Why are youin business?” is a straight forward question with only one correct answer: tomake a profit. You would be amazed at how many times business people tellelaborate tales in answer to that question about providing something for theirfellow human beings or some such thing. Others seek to revolutionize somethingor to create new atmospheres. It sounds good but it does not matter. Making andprotecting profit is the only thing in business that matters. Business cannotsucceed at that venture without a budget and an organized, annual budgetingprocess.

Butgovernment is not a business. Balanced budgets exist in business. Revenue minusexpenses minus costs equals profit. Prudent business management is all aboutbalancing revenue and costs to achieve profit. Successful management thinksinside the box, because that’s where the money is. Budgets make profits happen.

The idea of afederalbudget is relatively new. You will not find a federal budget mentioned inthe Constitution. The Budget and Accounting Act of 1921 created the U.S.General Accounting Office as part of the Legislative Branch to audit the federalbooks and prevent fraud. The 1921 legislation created the Bureau of Budget inthe Executive Branch to coordinate budget submissions by various departments andagencies. By the 40s, the idea of a balanced budget was so much old politicalrhetoric. Political parties say things they think that voters want to hear. Thatis what the Ryan budget does. That is all that it does.

Article first published as Budget: What Budget? on Blogcritics.

Sorry, Cain Fans

2011-11-26T14:46:00.000-08:00

Within the first few minutes of his appearance with David Letterman, Herman Cain told the host and audience two things that disqualify him for public office. First, candidate Cain proclaimed that he is “not a politician.” Second, he stated that the “country should be run like a business.” It does not work that way. If a person is not a politician, they do not qualify for an elected government position – appointed, maybe, but not elected, where being a politician is requisite. As to running government like a business, that is a false analogy. It does not work that way.

“Government is like business” is a text book example of the false analogy. In such an analogy, two objects, A and B, are shown to be similar. Then the argument is that since A has property P, B must also have property P. The analogy fails when the two objects, A and B, are different in a way which affects whether they both have property P. You have heard this populist argument that just as business must be sensitive primarily to its bottom line, so also must government.

The problem is that the objectives of business and government are completely different. Business is all about profit and governments are all about people.

Both business and the government have budgets. Budgets are based upon revenue and expenses. However, business revenue is based upon sales and government revenue is based upon taxes. The revenue mechanisms are entirely different, hence the false analogy. Governments can only increase revenue by passing laws to raise taxes, which may have irksome political implications beyond the grasp of the finest CEO. Businesses can only increase revenue by increasing sales.

In either case, reductions in spending do not increase revenue. Less spending only impacts margin, which is not a government consideration at all. The government does not have a Profit and Loss Statement or a Balance Sheet, where there is such a thing a negative equity. The concept of equity is not governmental.

The whole idea of a federal budget is relatively new anyway. The Constitution does not even mention such a thing. The Budget and Accounting Act of 1921 created the U.S. General Accounting Office as part of the Legislative Branch. Its purpose is to audit the federal books and prevent fraud. That 20s legislation created the Bureau of Budget in the Executive Branch to coordinate budget submissions by various departments and agencies. By the 40s, the idea of a balanced budget existed but was considered just so much old political rhetoric.

Speaking of the Constitution, the balanced budget amendment, H.J.RES.2, came to the House floor and went to committee last January. Last week Congress failed to pass it, as the Super Committee succeeded to fail.

Budgets that propose to reduce revenue only work when a business plans to downsize itself as a company strategy.

Let’s say that a company makes a 2% margin on a revenue volume of $20M, which is a $400K profit. The company’s downsizing strategy is to make a 10% margin on a revenue volume of $10M, a $1M profit. The $600K difference is sellable to a BOD because it cuts fixed expenses and reduces revenue. The idea of downsizing the federal government and reducing taxes may sound good, it is just that the government has no mechanism to reduce its size.

President Reagan said, “No government ever voluntarily reduces itself in size. Government programs, once launched, never disappear. Actually, a government bureau is the nearest thing to eternal life we'll ever see on this earth!”

Balanced budgets only exist in business. Prudent business management is all about balancing revenue and costs to achieve profit. That is why successful business managers, as Cain claims he is, think inside the box. That is where the money is. Likewise, successful politicians think inside the box, because that is where the votes are.

At his word, Cain says that he knows all about being a business person but not about being a politician. So, why should anyone vote for him? He is missing the point. Politicians do not just say things they think that voters want to hear. Politicians say things that are calculated to appeal to an electorate constituency. Candidate Herman Cain says things that may sound good to him, but they did not sound good to television show host David Letterman. Sorry, Cain fans, your candidate does not qualify.

Bragging about not being a politician and expecting to become president is like bragging about not being a business person and expecting to become a CEO.

Article first published as Sorry, Cain Fans on Blogcritics.

Easy To Buy

2011-10-06T13:47:00.000-07:00

Ten years after my first entrepreneurial failure, I had to force myself to learn sales, at which I seemed to have to work harder than everyone else. It was hard in a simple way. Like playing a musical instrument, it took a lot of practice. The sales cycle begins and ends with prospecting. The routine is seeing new people and following up on them. The difference between success and failure is the dogged tracking of everything and constant measuring of minutia. But, the thing that finally got my attention was easy to understand and embrace. To quote the psalmist Jimmy Buffett, “it was so simple like the jitterbug it plumb evaded me.”

Make it easy for the customer to buy.

Exceeding customer expectations, human connection, and relationship building are key components of making it easy. So, how about hardware gadgets and software applications? Does technology make it easier? My answer is a definite “maybe.” Let me make it easy for you to buy this essay on whether or not social media accomplishes my axiom. Remembering that hindsight is 20/20, let’s look at the innovations that founded our present situation.

Consider an analogue Internet connecting people by a web of railroad tracks and postal routes that allows for two-way communication utilizing printed multi-page websites. Welcome to the dawn of the 20^th Century.

President Abraham Lincoln signed a law on May 20, 1862 called the Homestead Act of 1862. Applicants who were over 21 and who had not born arms against the United States got a “homestead” or grant of 160 acres of undeveloped federal land west of the Mississippi River. They had to live on it for five years and improve [farm] it in return for a deed. Eleven states had left the Union at the time and there would be political and regional issues as a result, but aren’t there always when a government gives people anything? The point here is that the Act expanded western settlement which followed the growth of the railroads.

The postal system implemented Rural Free Delivery (RFD) in 1896. Since the country was literally wireless, telephone wireless, two-way communication was by post. RFD also made the mail order business possible. By permitting the classification of mail order publications as aids in the dissemination of knowledge, it entitled those catalogs a one cent per pound postage rate. That

made the rural distribution of catalogues quite economical while the railroads provided distribution to delivery points.

The Sears, Roebuck and Co. catalog called itself the "Book of Bargains: A Money Saver for Everyone," and the "Cheapest Supply House on Earth," claiming that "Our trade reaches around the World." At the apex for mail order merchandise, you have the model website for its time that included testimonials from satisfied customers. The catalogue made every effort to assure the reader that Sears had the lowest prices and best values. The 1903 catalog included the commitment, "Your money back if you are not satisfied."

The point is that it is not just one thing that makes a milestone, but a combination of things that is transformative. The combination of catalogue, RFD, and the rail system made it easy for customers to buy.

Talk about making it easy, here are some more combinations for consideration. The increasing use of the credit card from 1958 is a significant development for consumers and culture. Add that to the introduction of the American Telephone & Telegraph (AT&T) 800 toll-free service in 1967, so that subscribers like Sears could allow their customers to reach them without toll charges, and you have a milestone.

The next milestone occurred when the development of an Internet from 1957 is coupled with the relative affordability of the personal computer in about 1986. Add to that combination the growth privately owned shipping services with incredible logistics like UPS and FedEx and by 1994 the Dotcom bubble is on with the founding of Amazon. The next year brought Craigslist, Yahoo and eBay. That being noted, the milestone is that consumers could look at an online catalogue, call a customer service agent, process and pay for an order and have it delivered the next day.

Just for the record, Sears decided to quit producing its “Wish Book” catalogue in 1993 in favor of making it easy for customers to buy online.

We arrive, finally, at the business use of social media. I will argue that the first social medium is analogue – a bulletin board in a common area that uses paper and thumb tacks. I will further argue that Twitter and Facebook form the electronic generation of the same. How important are they?

According to Demandbase CEO Chris Golec, “Despite its increasing influence, it’s important to keep in mind that no business sale is made without the buyer going to the corporate website first.” In fact research shows that such sites are seven times as effective at generating sales leads as social networks such as Twitter and Facebook. 25% of survey respondents admitted the most sales leads came from their website, followed by 14% who selected email marketing campaigns. Online advertising followed that. Social media accounted for 3% of respondents’ recommendations. What’s on your website?

I am not suggesting that social media should be ignored. Neither am I suggesting that business has to have a Facebook page and a blog because everybody else does, although that is tempting. Instead I will argue that businesses need to think about implementing social media as part of its message mix, if for no other reason than to accomplish three things: engage their customers and exceed expectations, make a stronger human connection, and build better relationships. If those can be done strategically, by which I mean being able to measure the results, perhaps another milestone will occur.

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Article first published as Easy To Buy on Blogcritics.

The Human in Human Resources

2011-08-10T11:22:00.000-07:00

Assume you are the CEO, president, or owner of a company and you have the responsibility and authority to make decisions. Some of them can be delegated but the ultimate responsibility is yours. Your company has an executive management position to fill. In the Human Resource department of your company you have a person working for you with the responsibility for selection and placement of personnel. They have posted the position opening on an on-line job board. In this economy with its extreme unemployment rate, especially in the management ranks, that someone is now buried.

While they have merit and arguable utilitarian value, the number of Job Boards has increased dramatically since Monster appeared. That cute name brand has been copiously copied since 1999. Job boards now have boards. Just like everything else that started on the Internet as a free service, many job boards, such as Ladders, are fee based -- not free. For fees that range from low monthly rates to high single pay prices, the boards sell their customers résumé writing services to rewrite a job seeker’s copy using language that a person might read into language that a computer program reads.

Your responsible Human Resources person has received a plethora of applications and cover letters in response to the job posted on the job boards on your company’s behalf. You likely have some bright person in charge of the application screening process and they may be using some flavor of HR software to scan résumés and cover letters for key words and key phrases that display the highest probability of matching the criteria of the job description. The software helps HR people automate the selection process.

Job seekers know this and many spend money to have job board companies apply their résumé writers with their proprietary HR adapted software to make sure that the processed résumés that your person receives have the highest probability of making the probability cut. The software helps the job board people make résumés and cover letters more acceptable to an automated process. Think of it like homogenization. An odd word choice, perhaps, but forensically it’s true. Both postings and résumés become exercises in cliché as a result.

Bear in mind that the Human Resource function has other critical and largely legal ramifications for which HR software has become important. Document creation and filing, such as employee agreements and employee handbooks, are but two examples of the kind of paperwork that has become highly significant in our litigious society. Such documentation helps prevent an enterprises’ administration from accidentally giving away the proverbial keys to the company. HR is much more than just creating selection hoops through which prospective candidates must jump.

Depending on the level of the functional position, other layers of sifting through applications can be used to find the most desirable criterion matches. Profiling is another passive discriminator, as opposed to an active one which would be illegal. Similar to Myers-Briggs personality testing, or eHarmony profiling for that matter, corporations can pay outside HR enterprise companies to screen selected applicants and play matchmaker to select the best fit. Human Resource is not about dating, however.

The cost benefits of HR software applications and the efficacy of personality profiling as interesting topics themselves aside, sooner or later decisions have to be made about people that can only be done by a person, either you or someone you have designated to make that decision for you. There is no application for that other than, perhaps, a coin toss. It might sound facetious, but the cliché “all things being equal” is a circumstance in fact. If the automated process has done its job, presumably, you can pick a large coin and flip it. Throw a dart.

At the executive level in an organization the criteria changes. There are four areas at which successful management executives must demonstrate their skills: organization, delegation, functional management and supervision. Industry experience is always a plus. However, it is less important that the software business executive have experience writing code, or that the grocery business executive have experience in buying produce, than it is for the software executive to deal with the code writing manager or the grocery executive to deal with produce buying manager. Executive experience is personal.

Eventually, a name and phone number appears on the screen of a screener. At this juncture, a person talks to a person to arrange a telephone interview. From that point on the Human Resource function become human again. The idea of better technological hole and peg fitting process pretends to reduce errors in judgment. But do better holes make better pegs or vice versa? The fallacy of the idea is that the human quotient of Human Resources can be outsourced, and that turn-over and training costs will necessarily be reduced.

To me this is a case of if you believe it is so; you will buy in to it being so. I remain pessimistic about the increasing automation of the Human Resource process of candidate selection. That pessimism is based on what the ultimate management function is: making decisions. If something helps a decision makers make better decisions, I can support its use. By the way, there is an app for Monster, an application for the so-called smart phone, which is actually not a phone but a radio devise. However, as you may have gathered, I am concerned that software does not solve everything; people do, like the human in Human Resources and you.

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Article first published as The Human in Human Resources on Blogcritics.

Still an Analogue World

2011-07-20T14:30:00.000-07:00

As much as I use PowerPoint and Excel to make a point, I still think it is a good idea to know how to use a paper napkin or a white board. There is something almost magical in that kind of performance because it is personal, almost intimate, especially when you are dealing with professional sales people. If you are too cool to draw a picture, there are a lot of people you are going to miss. Lest we forget, for many people it is still an analogue world.

One of my clients was a digitally inclined auto dealer who employed 10 to 14 sales people. Automotive sales forces are of a variable nature because they tend to have a 30% attrition rate. It’s not for everyone. The client faced two major problems in sales. Basically, he hated his sales people and they hated him in return. It was a digital divide. The other problem was pricing. The client discounted vehicles below break-even and posted them on the Internet. Sales did not know about it but their computer savvy customers did.

The client invested in ten furnished computer cubicles with really nice big monitors, whiz-bang phones, and the super-duper training seminars that were included. His sales force grudgingly endured the latter and pretty much ignored the former, except for outbreaks of pornography watching and chat-room chatting. The client could not understand why “his guys” did not use the great tools he had given them. When they did use them, he said, “They’re like a bunch of monkeys with typewriters.” He told them that.

It didn’t help that the client had been through a Dale Carnegie sales training program. His framed certificate of training made him conclude that that he was a great salesperson. Unfortunately, he sucked air as a sales person. He genuinely lacked people skills. He did not know how to listen to prospects. That made him impatient with them. Nor could he understand how people refused to follow his robotic and raced through presentations. It did not help that the client told his sales people that they didn’t know what they were doing, which he did.

One thing that self-described great sales people like auto dealers have in common is that they are marks. They are called “lay-downs.” They will buy anything. They have no sales resistance. Because they are such great sales people, they overcome their own objections. They are especially vulnerable to the bane of all professional sales people existence called “Susie Sales Girl,” who is the willowy well-heeled blond who sells sales seminars, full-page color newspaper ads, websites, bus advertising that forgets to include the dealership phone number on a 30 vehicle fleet, novelty pens, and enough balloons and helium for the Macy’s Parade. When they sell computer hardware and software, clients can’t write a check quickly enough.

Dealers are not the only people who get sold hardware and software. Many business owners buy into the idea that software by itself can solve everything, or at least that it should. It is the using of the software, along with everything that implies that can be problematic after the sale. The biggest after sale problems are technical support and user training. Support and training are rarely onetime events but tend to be treated as if they were. However, when such a tool as a complex computer application cannot be used, the hardware might as well be a boat anchor. Except for sailors who just bought a new boat, no one wants to admit they bought a boat anchor for their business.

My client had purchased 10 boat anchors as well as a jumbo monitor for the conference room, where he routinely put his sales crew to sleep with PowerPoint presentations and webinars. That created a hate-hate relationship enhanced by technology.

Organization integrity was the management issue in this case. As an owner, the client had assumed to position of General Manager and Sales Manager. He employed a Service Manager, Finance Manager, Parts Manager, an Office Manager, a Personnel Manager and a Facilities Manager. But in those positions they had no one to report to because the owner was so busy in his area of least competence. So those managers were more or less on their own. The organizations’ lines of communication atrophied and business suffered as a result.

To correct this situation required me taking on the position as General Manager myself until a new GM could be selected and hired. Next came the tasks of appointing a Sales Manager and establishing a balanced management organization with a routine reporting and communication process. By establishing an organization structure that put a management buffer between department managers and ownership, it became easier to coordinate department functions to take care of the business.

I am not suggesting that it was easy. Routines had to be changed and there was a sort of smiling resistance. Everybody wanted to keep doing what they had been doing, such as the owner meddling with customers and sales people and department heads running their own shows. By the end of 13 weeks of regime change, the operation began its recovery.

About the sales department and the boat anchors, that issue was to get the sales people to see what was in it for them to use the tools that the business owner had purchased. As I explained almost daily to the client, his guys were good sales people. They were analogue people who were skilled at listening to customers and overcoming objections as if it was a game. All they needed was a product to sell, a pen to write with and a piece of paper to write on. What they needed to believe was that there was value in learning to make the “Internet machines,” as they called them, help them with their sales work – prospecting, following up and tracking results.

To do that required me putting a white board in my office so that my department managers and I could draw on them. It did not require telling them what I was doing as much as just doing it and getting them used to doing it. Together, we used the analogue tool to hash out what we wanted the digital tool to do for them. With time the managers began to own their Excel spreadsheets and use them in their reporting, as opposed to shoving programs down their proverbial throats. It also helped to supplant the jumbo screen with a jumbo white board and to make sales meetings more interactive. I replaced emitted light with reflected light. No one got sleepy.

Even the owner succumbed to something as simple and analogue as me writing on a cocktail napkin to demonstrate the difference between mark-up and gross margin pricing. I succeeded in showing him that MSRP (Manufacture Suggested Retail Price) was not a markup but a margin above the break-even point. All of the overhead costs involved in selling a vehicle, including the helium and balloons, were absorbed plus adding a gross margin. When I showed him how a mark-up price of a vehicle over invoice left money on the table, I got his attention. When he saw that discounting a price below his break-even cost him money, he picked up the napkin and put it in his pocket. The next day he showed me a pricing spreadsheet he created from the napkin. He still has it.

If there is a moral to this story, it is that how you get your message across is not important. Getting the message across is. The sales people took ownership of their workstations to increase their personal sales and quit resenting sitting in front of a monitor. The dealership quit leaving money on the table by pricing and discounting correctly. People developed new routines for a new General Manager to oversee. Whether or not those folks lived happily ever after I cannot say. What I can say is that software does not solve everything. People do. It is just that sometimes you have to draw a picture with them.

Article first published as Draw a Picture: It's Still an Analogue World on Blogcritics.

Family Advisor and Business Savior

2011-07-10T17:33:00.000-07:00

If you tell someone that you are a college professor, you get asked, “What do you teach?” If you tell someone you are a management consultant, you get asked, “What do you do?” In my consulting practice I organize small companies as the person they call in to get rid of former best friends, spouses or family members from the operation. Specialty: getting Pops to retire early.

The wife was in tears as her husband told me that their $17M a year international wholesaling company was tearing their marriage apart. She had been working as a registered nurse until a thieving employee, who the couple had regarded as part of the family, was arrested and charged with embezzlement. Now the woman in tears revealed that the arrested party had been the company bookkeeper and that she, the tearful one, had left the nursing profession to take the embezzlers place. The marital problems began about the same time, two years earlier, and the discussion of divorce had begun.

The owner’s son would not look me in the eye as his father explained how everything had been running along just fine in his $8M a year filling station franchises, one at each end of the town. The son had closed his own profitable motor cycle repair business to come into the family company and try to get the operation back into the black from red hole that was swallowing the family alive. The son took me aside later and confessed that he didn't know how much longer they could stay open that the banks were calling every day for loan payments. As to paying for consulting services to help save them, he didn’t know how the invoices could be paid.

The client’s wife and business partner in the $14M a year lumber company asked me if I was in law enforcement, as I walked through the office to step outside for a minute break. When I asked her why she thought that, she noted that I would ask a casual question each time we met and each time the questions seemed unrelated, but she was certain that they were related. Later, when the computer with the company books crashed, she retrieved a computer from home that had a copy of the books. Asked why she had been paying vendors from the client’s personal account, she mentioned the IRS lien on the business that had not been previously revealed.

These three cases are diverse but have elements in common that are typical of small multi-million dollar businesses. They all involve family members in some capacity or another. They are all on the brink of foreclosure, bankruptcy or collapse. They involve businesses that generate strong cash flow but produce a negative profit. In other words, they were all doing just fine and making money when they were million dollar companies and home life was good. Getting bigger was not better.

Incidentally, the three examples I have chosen are all from the pre-recession economy.

I have no objection to family members working for a company so long as the integrity of the business organization is uncompromised. To determine integrity I mean honestly answering some questions that need to be asked. Do working family members have job descriptions? Are they competent in their company position? Are they properly supervised? Do they conform to all company policies and procedures? Is their compensation appropriate?

These are the same questions that should be answered for any company employee, by the way. Look at it like this, Boss’s Spouse is not a job description. Being a business owner is not the same as being a competent business manager. Being a family member does not ensure proper supervision. Non-conformity to policy and procedure is what other employees look for, such as anything that appears to be special treatment. Working in a business without compensation is as bad a plan as being paid more than a non-family member would be paid.

A $100K a year salary for a $30K position looks like theft to employees. Not being paid for a $30K position is a terrible compensation plan and a false economy that is inconsistent with competent management.

The first case required solving the work-family boundary issues that created the marital problems. The second case required reorganizing the company and changing its management. The third case required law enforcement intervention. It is all part of being a family advisor and business savior. That is what consultants are.

Article first published as Family Advisor and Business Savior on Blogcritics.

Modern Business: Flintstone or Jetson

2011-06-30T14:55:00.000-07:00

Imagine getting off the train and lugging your suitcase without rollers. You are also lugging a locking latch briefcase with your monogram on it. It weighs about twenty pounds since it contains a field manual, your last project binder, a three-hole punch, box of colored pencils, case containing protractor and drafting tools, a sheaf of carbon paper, half a ream of lined paper, another half of white paper, a heavy duty stapler and staples, and reference material you have been toting along because you haven’t been home in three weeks.

You are looking for a payphone so you can “drop a dime” and make a three minute call to your office and you are lugging the newest and baddest gadget that transforms how you do your business as a traveling management consultant – the all new Remington Rand, full key-board electric adding machine. For $169.50 plus tax, this baby means you do not have to use your client’s equipment. It weighs a little, but the convenience is worth it. Your carry your portable manual typewriter in your suitcase for ease. You manually produce your spread sheets, pie charts and graphs.

The year is 1960. The average annual income is $5,600, according to the US Commerce Department, and you are making almost $10K after taxes. You travel by train because costs a lot less than air travel. For example, a round trip airline ticket cost about $75 to fly from Cleveland to Washington, D.C. That would be around $400 today. Your client got invoiced for it but they sure liked your electric machine.

In a world without apps, business had been expanding over the previous decade and saw the Dow Jones Industrial Average climb from just under 200 to knock at 700’s door, briefly. People, not programs, made investment decisions. Modern business was like passenger train service – 1960’s improvements to 1940’s technology.

People like George S. May realized that business was composed of algorithms. Ratios and percentages ruled decision making. That meant that newer and better technology was interesting but only in so far as it added convenience and expedience to decision making. The idea that business is business prevailed. Business did not care about anything except making and protecting profit. It is not that people were not important, they were. It is just that profit motive dominated business thinking.

Liberal minded humanists tended to resent the focus of the business community on profit over people. In every era they have raised their voices in objection to the perception that business exists only for profit and, in fact, they are correct. Successful business tends to be myopic because, as I say, business is business. That brings us to the latest breed of technical minded social networkers who see themselves as the new humanists and seek to transform the business community in modern ways.

So let’s consider Fred Flintstone and George Jetson. Brilliant creations of Hanna-Barbara, the characters are enamored of gadgetry in their respective gadget centric societies. They do their jobs working for companies run by bosses whose sole interest in making a profit. Business does not care about fads or gadgets. Just ask Fred or George.

Article first published as Modern Business: Fred Flintstone or George Jetson on Blogcritics.

Are Their Lips Moving?

2011-06-14T13:52:00.000-07:00

The adage goes like this: How can you tell when a client/customer is lying? Their lips are moving. Adages come from somewhere, especially when they are deprecating. I do not know where that somewhere is. If I did I would tell you. I am not your client. Nor are my lips moving. And why would I lie to you? The reality is, however, that the adage must be based in some arcane fact because in my consulting practice I have found it almost painfully true.

The worst part of this bitter truth is not the distortions of fact but the lies that clients tell themselves so often that the falsehoods might as well be truths. I call this phenomenon “breathing one’s own ether.” I am not talking about the ether that was proposed by the Greek philosopher Aristotle and later used in optical theories as a way to allow the propagation of light, although I could. My ethereal euphemism refers to the ether usage during the 1930s that was the first anesthetic to make patients lose consciousness quickly and completely.

Clients slap on an invisible face mask, turn on the regulator, inhale deeply, and remove the mask from their face, lungs filled with the vapor. They look me squarely in the eye and begin to recite well-rehearsed lines from the abyss of falsehood. What is worse is the look on their face when the expect me to believe them and see clearly that I do not.

As a consultant it is not my job to believe anything that a client says anyway, unless it can be verified in writing. The absence of verifiable documentation is at least a good place to start. Even if there is documentation, its veracity must be challenged because to do otherwise is to engage in a world of ambiguity, which is something I expect from salespeople and the essence of another essay.

Here is an example. “Having my spouse work in the business saves the company money.” The false economy of having a family member work off the payroll creates other issues than a compensation plan that sucks. It compromises the integrity of the business, creates huge boundary issues between personal relationships and work relationships. Job description, supervision, company policy and procedure are all compromised. It is not a successful plan.

Let me cite a couple of television shows to exemplify what I mean. One is a comedy and the other is a reality show. One is about delusion and the other about denial. First, the comedy:

Breathing one’s own ether is the reason I have a hard time watching The Office. Its central character of the American version, Michael Scott is played so well by Steve Carell that it is painful for me to enjoy. The character is delusional. He believes he knows everything and that he is a great boss. Grant you, good comedy relies on a dose of pathos. If only Michael wouldn’t believe his own bull, but then the show would become a tragedy. In business, it frequently is a tragedy and Michaels exist more than you might think.

The reality show about people breathing their own ether is Kitchen Nightmares. Gordon Ramsay’s confrontational style aside, his clients are beyond delusional, they are in denial. It is kind of like watching grown people having their faces rubbed in their own poop by the genial bombastic “Chef” with a capital C. The owners that Ramsay confronts have signed on for abuse when they insist that wrong is right. Although I have entered the frontier of outright confrontation in my practice, you do not get letters of endorsement with bombast. Nor am I producing a reality style show.

Whether it results in delusion or denial, the problem is that the behavior becomes an obstacle to success. Michael Scott and Ramsay’s restaurateurs are in their own way.

If I were to produce a show about the management consulting practice, I would call it Extreme Make-Over: Business Edition. Come to think of it, let me slap on my own invisible mask and take a snort or two. Heck, I could sell it to Cadillac, or Donald Trump, or Budweiser, that’s it. I could star in it too; I used to be a TV weatherman and was every bit as good as David Letterman. It will be perfect for Fox or the Learning Channel. We’re talking, you know. Are my lips moving?

# # #

Originally published on Blogcritics, June 11, 2011

Factory Tours and Facts

2011-06-04T10:24:00.000-07:00

When politicians and pundits talk about small businesses and job creation, many of them seem to rely on Chamber of Commerce created public relations photo opportunities and televised factory tours for their information rather than finding out the facts. Here are some facts that most politicians and pundits ignore in their fantasy world of U.S. businesses.

The Small Business Administration defines a small business as “one with fewer than 500 employees.” Here is the short version of what the SBA says is important about small business to the U.S. economy.

Represent 99.7 percent of all employer firms.
Employ just over half of all private sector employees.
Pay 44 percent of total U.S. private payroll.
Have generated 64 percent of net new jobs over the past 15 years.
Create more than half of the nonfarm private gross domestic product (GDP).
Hire 40 percent of high tech workers (such as scientists, engineers, and computer programmers).
Are 52 percent home-based and 2 percent franchises.

Want to astound your friends? Ask them, “Who produces 13 times more patents per employee than large patenting firms?” The answer: US small businesses do. Furthermore, you can add, according to the SBA, “These patents are twice as likely as large firm patents to be among the one percent most cited.” You’ll get “wow” and puzzled looks. But I digress.

The National Association of Self Employed adds that of those businesses employing less than 500 people

77.6% are non-employers, or self-employed.
17.3% employee 11 to 19 people.
2% employ more than 20 folks.

Some perspective is in order. Go to the sports page and think about Pro Football for a minute. I am not talking about the sports teams themselves, but about the financial impact the NFL wields on franchise towns like Green Bay, which is not a major market. Business News Daily says an “NFL Lockout Could Sack Small Businesses.” According to the Daily, “The livelihoods of thousands of small business owners and their employees are at stake in each of the NFL’s 32 cities. Restaurants, bars, team apparel stores and other small businesses located within walking distance of NFL stadiums are bracing themselves for a potential lockout and the ramifications it may have.” Would you like to talk about a seasonal business?

So let’s talk about Washington political rhetoric. It continues to suggest that the slow recovery is because banks will not lend to credit worthy borrowers. According to the non-partisan National Federation of Independent Business, that is not the case. The NFIB reports that the economy generated a lot of jobs by making bad loans and they are gone now. Community banks across the country have plenty of money to lend, but “the pipeline of good applicants collapsed in the recession.”

Remember the football lockout I mentioned? The NFIB says that on the job side “it is going to take a rebound in consumer spending, particularly in the service sector to make a significant dent in the number of unemployed. The manufacturing sector is doing very well, but it does not create many jobs.” Factory tours and the Chamber are good for television, not so much for business facts. Facts are boring.

Article first published as Factory Tours and Facts on Blogcritics.

Screw the Unemployed

2011-05-13T10:52:00.000-07:00

The House of Representatives is finally getting around to jobs, the number 3 thing on its 2010 campaign agenda. House Ways & Means Committee Chairman Dave Camp (R–MI) has introduced the legislation, “To improve jobs, opportunity, benefits, and services for unemployed Americans, and for other purposes.” The bill does not have a number yet but according to its text may be referred to as the ‘‘Jobs, Opportunity, Benefits, and Services Act of 2011’’ or simply the ‘‘JOBS Act of 2011’’. But it does not have to do with jobs; it has to do with unemployment benefits. It cuts them back.

Despite the noble wording of its title, what the bill does is to encourage states to whittle back their unemployment insurance systems. The bill gives states the option of using federal unemployment-benefit dollars to repay federal loans or provide tax breaks to businesses. Not continuing to pay jobless benefits to long-term unemployed people somehow counts as “job creation.”

Representative Sander Levin (D-MI) put it this way, “This is the opposite of a jobs bill — it is a hatchet job on the unemployment insurance program.” The Ranking Member of the Ways & Means Committee, Levin said, “With this legislation, Republicans are proposing to end this year’s guaranteed benefit for the long-term unemployed.” If states follow Michigan’s example by cutting benefits and instead using federal dollars to repay loans rather than providing weeks of aid, it could take billions of dollars away from jobless Americans.

Even though federally extended benefits could stay in place for the remainder of the year, some states let those benefits expire, benefits already budgeted and paid for in Washington. By not passing simple legislative measures to ensure that the federal government’s share of weekly benefits continues, a number of states failed to extend those benefits, as Missouri did on April 2. North Carolina, Tennessee, and Wisconsin followed suit on April 16. As a result they all denied 20 weeks of federal benefits to their jobless women and men.

Last week Florida’s Republican-controlled House and Senate passed a compromise measure, just before the session expired at midnight, that would cut maximum state benefits from 26 weeks to 23 when the state jobless rate is 10.5% or higher. Florida has one of the highest unemployment rates in the country, 11.5%. It also has some of the lowest unemployment benefits. Republican Governor Rick Scott is expected to sign the bill.

New claims for unemployment insurance are again going up and 13.7 million Americans are looking for work. According to the Congressional Budget Office, federal unemployment insurance kept about 3.3 million people above the poverty line in 2009. Job growth is weak. At the current monthly rate, it would take more than five years to return to the pre-recession unemployment rate of 5%, back in December 2007. While more aid to states could help stanch job loss, legislative fixation on the federal deficit has silenced talk of more fiscal stimulus.

On election eve the new Republican House Speaker Boehner promised to hold weekly votes to cut federal spending, make jobs the top GOP priority and fight to repeal the health care law. Representative Darrell Issa (R-CA) called the election vote a "mandate" on limited government. Issa said the message to Washington was, "Advance an agenda that will create real jobs, not government jobs, but real jobs to get our economy moving again.” So far that has not happened.

As abortion foes continue to lobby Congress, the Republican House majority has been at odds with itself on handling the deficit and raising the debt ceiling, ignorant that the near-term fiscal situation that embroils them is largely unimportant to investors. The US Treasury has no trouble selling debt and is still able to borrow money quite cheaply. It can do so because investors continue to have high confidence that debts will be repaid in full. The make-believe fiscal crisis is largely made-for-television to create celebrities out of elected politicians.

The real crisis is unemployment. Our political class does not seem to understand that it is the millions of American men and women who cannot find work that needs their attention, not the defunding of anything having to do with abortion or repealing the Health Care and Education Reconciliation Act. America’s future is at stake. According to New York Times columnist and Nobel Laureate Paul Krugman, “The longer this goes on, the more workers will find it impossible ever to return to employment, the more young people will find their prospects destroyed because they can’t find a decent starting job.”

Congress has passed at least 113 bills so far and sent them to the Senate. Not one of them mentions of the words “employment” or “unemployment.” Only two resolutions contain the word “jobs”, as opposed to “job-killing,” and neither of them have anything to do with the public. Only the “JOBS Act of 2011” has a chance in the 112^th Congress because it does deal with unemployment. It screws the unemployed.

Article first published as Screw the Unemployed on Blogcritics.

Big Oil: Obama's Fake Debate

2011-05-02T11:05:00.000-07:00

Last year President Obama got on Big Oil over “environmental procedures for oil and gas exploration and development,” in response to the huge oil spill in the Gulf of Mexico. A year later he is on Big Oil’s case again over their “making huge profits and you’re struggling at the pump.” The president jumped their case in his weekly radio address following one of the biggest oil companies, Exxon Mobil, report that its profit rose 69 percent to $10.65 billion during the first three months of the year. Unfortunately, huge profits are different from huge oil spills.

In addition to Obama saying, “these tax giveaways aren’t right” and “we need to end them,” Senate Finance Committee Chairman Max Baucus (D-MT) released a plan to end “billions of dollars in tax breaks for large, multinational oil and gas companies.” Echoing the president’s charge with the headline, “Skyrocketing Gas Prices Necessitate Action to Address Energy Costs,” Baucus called his plan a blueprint for legislation that he intends to craft in the Committee.

Its first big bullet point is, “Repeal tax breaks for the largest oil and gas companies – end tax incentives for the five largest oil and gas companies that announced tens of billions of dollars in first quarter profits this week. This includes the elimination of the section 199 manufacturing deduction, reduction in the foreign tax credit for royalty payments to foreign governments and the imposition of an excise tax on certain Gulf leases.” It is the targeting section 199 of the tax code that makes the ensuing political debate a fake.

According to WTAS, one of the largest independent tax, valuation, and financial advisory firms in the United States, Congress enacted Section 199 in 2004 “to encourage the retention and growth of U.S. manufacturing without regard to whether the output of those manufacturers was exported out of the country or consumed domestically.” What it does is to reduce the income tax assessed on the profits of targeted industries, principally manufacturing, construction and natural resource extraction (oil and gas, mining, forestry, etc.).” In its newsletter WTAS also noted, “For good measure, software developers, filmmakers and music publishers were also tagged to benefit from the new incentive.” No one complains about their huge profits.

In a 2005 study, the Congressional Budget Office reported that capital investments “like oil field leases and drilling equipment are taxed at an effective rate of 9 percent, significantly lower than the overall rate of 25 percent for businesses in general and lower than virtually any other industry.”

But that is only interesting. Big Oil has big pockets. For that reason any efforts such as Senator Baucus’ to curtail the tax breaks are likely to face fierce opposition in Congress. The oil and natural gas industry has spent $340 million on lobbyists since 2008, according to the nonpartisan Center for Responsive Politics, which monitors political spending.

Other than the president and Senator Baucus, Americans are not complaining about profits or blaming Congress, which they dislike anyway. They are complaining about prices. A McClatchy-Marist poll reported that far more Americans blame oil companies for surging oil prices than they blame either political party. “Drivers split their blame, with 36 percent pointing at the Middle East and 33 percent blaming oil companies. Only 11 percent blame Obama and Democrats, while 6 percent blame congressional Republicans.”

Gallup began asking the "most important problem" question in 1939 and established monthly updates in 2001. Economic concerns became dominant for Americans in April 2008 and have since tied or outpaced non-economic concerns in all but four months and gas prices are not on the top of the list. “The top five economic problems named this month are the economy in general (28%), unemployment (26%), the federal deficit or debt (13%), gas prices (6%), and lack of money (4%).”

It should be remembered that 68% of the pump price for gasoline is the price of crude oil, which is a commodity. Refining, where most of the jobs are, makes up 13%. Taxes account for 12% and the remaining 7% goes to distribution and marketing, according to the US Energy Information Association. With the exception of diesel, pump prices have gone up more than a dollar a gallon across the US since last year. In California, we have been paying more than $4 per gallon since January.

My crude price analysis of a “Sampled History of Crude Oil Prices at The New York Mercantile Exchange” reveals the following. Five years ago the barrel price of crude cost $72. April 2007 it was $66, April 2008: $117; 2009: $52; 2010: $86; 2011: $114. Low prices below $50 occurred in November 2008 and remained there until March 2009 at $46. The record bottom was the week ending January 16, 2009 when it cost $37 a barrel. The public did not complain about Big Oil profits, although there were big profits anyway. By contrast, high crude prices occurred in February 2008 at $145 through September 2008 at $107. So far this year prices have averaged $111 per barrel. Accordingly, pump price is high.

By the way the record low was January 16, 2009 at $37. The record high to date was July 4, 2008 at $145. The cost of raw material is always passed along to consumers. Profit margins are not accidental.

Speaker John Boehner told ABC news, “I don't think the-- the big oil companies-- need to have the oil depletion allowances. But for small, independent-- oil and gas producers-- if they didn't have this-- there'd be even less exploration in America then there is today.” When asked about doing away with subsidies for Big Oil altogether, Boehner said, “We certainly oughta take a look at it.”

My great-grandfather had a similar expression to Boehner’s. An Irish immigrant and labor leader with the Congress of Industrial Organizations in the 40’s, when he wanted everyone think he was agreeing with them he would say, “Won’t it be fine when we do.” The translation is, “As if that’s going to happen.” Noted.

Article first published as Big Oil: Obama's Fake Debate on Technorati.

Not an MLM Anymore or Less

2011-04-06T10:37:00.000-07:00

Recently, a friend invited me to a local hotel to hear a presentation about a terrific work-at-home opportunity that reminded me of my former neighbor Carol. She always needed extra money, really wanted to help people and wanted to work from home. Every other month or so she would come over, bubbling with enthusiasm about some “great opportunity” she had been introduced to by new friends of hers. She couldn’t wait to “share it” with me. So I would get out my check book and ask, “How much this time, Carol?”

I always hoped one of those programs would work for her, as I made another contribution to her learning curve. As a former executive member of the American Marketing Association, my suspicions were always aroused when I would hear her repeat one of four statements that for years have been used to recruit people into Multi-Level Marketing [MLM]. What do you think?

1. [True] [False] The Wall Street Journal has said that by the year 2010, 60 to 70 percent of all goods and services would be sold through MLM.

2. [True] [False] Network marketing is taught at Harvard and Stanford business schools and in numerous other leading colleges and universities throughout the country.

3. [True] [False] Some 20 percent of all the millionaires in America were created through network marketing.

4. [True] [False] John Naisbitt, in his best-selling book, Megatrends, says network marketing is the wave of the future.

If you answered False to each of them, you are correct. If you answered Yes to any of them, you are certainly not alone. According to mlmwatch.org, the answer to each is False with a capital F. But you just can’t keep a good false statement down, as was the case with Carol.

The Multi-level marketing strategy is one in which a sales force is compensated not only for their personally generated sales, but also for the sales of others they recruit. That creates a downline of “distributors” and a hierarchy of multiple levels of compensation. Other terms for MLM include network marketing, direct selling and referral marketing.

MLM companies have been frequent subjects of criticism as well as the target of lawsuits. Herbalife, PrePaid Legal, Amway, Usana, and others have all spent time in court to defend themselves from claims brought against them, just as any other multi-billion dollar company. They have paid large financial settlements. They have also demonstrated that they are not fraudulent pyramid schemes.

Much of the criticism leveled against MLMs has focused on their similarity to illegal pyramid schemes, high initial start-up costs, and emphasis on recruitment of salespeople over actual sales, requiring salespeople to purchase and use the company's products. Cult-like enthusiasm techniques and exaggerated compensation schemes are not uncommon complaints either, especially from people who tried it but didn’t like it.

However, cases filed in United States Federal Court are quite different since verdicts can result in jail sentences, such as the Madoff verdict. Federal agencies get involved when the venire of legitimacy is removed from an MLM, exposing it as a pyramid scheme.

Some people believe that MLMs are nothing more than legalized pyramid schemes. So, what is the difference between a pyramid scheme and MLM? Pyramid schemes are a form of fraud.

The Federal Bureau of Investigation states, “Pyramid schemes . . . are marketing and investment frauds in which an individual is offered a distributorship or franchise to market a particular product. The real profit is earned, not by the sale of the product, but by the sale of new distributorships.”

The Securities and Exchange Commission says, “In the classic "pyramid" scheme, participants attempt to make money solely by recruiting new participants into the program. The hallmark of these schemes is the promise of sky-high returns in a short period of time for doing nothing other than handing over your money and getting others to do the same.”

The Federal Trade Commission warns, "Not all multilevel marketing plans are legitimate. Some are pyramid schemes. It’s best not to get involved in plans where the money you make is based primarily on the number of distributors you recruit and your sales to them, rather than on your sales to people outside the plan who intend to use the products."

The critical question for the FTC is, if I may paraphrase, do commissions come from selling the product or from selling the right to sell the product.

Ever hear of the Latin expression caveat emptor, let the buyer beware? It all boils down to you, as a consumer, to be wary of things that sound perhaps a bit too good to be true. Before you get out your check book and commit to raking in huge bucks for little extra effort in the comfort of your home, do some research first.

Find and study the company’s track record
Learn about the product(s)
Ask some who, what, when, where, how questions
Understand any restrictions, such as licensing
Talk to other distributors (beware of shills)
Use a friend or adviser as a neutral sounding board
Take your time
Think about whether this plan suits your talents and goals

As an income opportunity based on the mathematical idea of a pyramid, technically referred to as “an exponential expansion system”, MLMs have great emotional appeal to a growing number of people in our economy. Multi-Level marketing or Network Marketing opportunities appeal to a need for extra income for millions of households. Even so, regardless of celebrity endorsements, such systems promising financial salvation are not for everyone, especially for my former neighbor Carol.

Requiem for the May Company

2011-03-13T18:39:00.000-07:00

Here was my Tweet. “After 85+ years, George S. May Company is no longer in business. Perhaps the consulting company should have hired outside consultants.” I could have left it at that, but in the last ten years of its existence, this once great company churned and burned so many consultants and small companies, either you or someone you know has been touched by it. It touched me. Now it is no more.

George S. May identified business as a set of algorithms and began his management consulting business in 1925 with a consulting project for a company that would become Sunbeam, the blender maker. His new Chicago based company did so well that it opened offices in New York and San Francisco. Despite the Great Depression, May Company history includes its posting revenue of $1 million in 1937, more than $15 million today.

May himself became best known for getting golf televised, among other things. Post war America was good for his company, which advertised “Business Engineering” in leading business magazines and journals. He died in 1962 leaving the company stock to his family. In 1966 the May Company left downtown Chicago for the suburb of Park Ridge, where the 41-thousand square-foot world headquarters is now closed and for sale, price $4 million. More about the “Ridge” in a moment.

In the ‘90s the May company hit the $100 million revenue mark and by 2000 it began operations in Mexico, under Donald J. Fletcher, its third President. In 2002, Israel Kushnir replaced Fletcher. According to one of the companies last press releases, “The company’s former president Israel Kushnir has left his post to pursue his own ventures, but the company is in the best of hands as Mrs. Kerry Sam Jacobs, George S May’s granddaughter is overseeing the transition to ensure prosperity as the company moves forward.”

That expression, “. . . left his post to pursue his own ventures,” is usually a ubiquitous way of saying, “You’re fired.” The company’s Managing Director, Paul Rouseau, a frequent Fox Business News personality, is also pursuing his own ventures as are many other former top executives who presided over the May Company’s financial collapse inherited by Jacobs and the May family lawyers in 2010.

As one of the replacement senior executives put it to me, in an email confirming the company’s demise, “I left at the beginning of the year, but it was a slow, painful end to a once great company. 2010 was like sitting on the deck of the Titanic watching people rearrange the deck chairs while the band played on.”

The Ridge building has a cornerstone: “1960.” Eisenhower, a golf enthusiast, was leaving office. Cadillacs were 22 feet long. Gasoline cost pennies. Business had boomed. Inside the conservative office building, a photo mural of golf’s greats inspired awe. I never knew whether to genuflect or salute when I entered and breathed in that 1960’s air.

It has been said that the Kushnir-Rouseau regime monitored every phone call and every email. Yelling was the preferred mode of communication. The way they saw it, clients needed to be controlled by analysts and consultants. Intimidation meant control.

Israel Kushnir made an impression on me in an awkward moment at the Ridge, as I stood outside the training building on a cigarette break during a conference with a colleague. The dapper and bald gent strode across the parking lot and pointed at me.

“Stop smoking,” he declared, briskly.

“Grow hair,” I exhaled.

He passed me, smiled and entered the building. My colleague bit his lip, trying not to laugh. “Do you know who that is?” he choked. “That’s the president of the company.”

Paul Rouseau convinced me to pursue my own interests that Christmas.

There were others who worked alongside Kushnir and Rouseau who got sacked, albeit too late for new management to save May. Apart from a large headquarters staff of executives and support personnel, there is a telemarketing staff, a field sales staff, a field survey service [analyst] staff, a field consulting staff and a smaller client service staff that is now looking for work around Park Ridge, Illinois.

The Better Business Bureau gave the George S. May International Company an F before the company shut down. The company had previously boasted the Bureau’s Excellence in Ethics Award. The BBB also gives an F to May company rival International Profit Associates and its alphabet named clone companies. IPA is also the target of litigation by the Illinois State Attorney General's Office, but that is another story for some other time.

Rippoff.com and many similar consumer rating sites have been on the May company’s case for years. At a client meeting in Sitka, Alaska, a May analyst, a consultant and I, as Project Director, were met by police, given a cease-and-desist order and individual property restraining orders after our client had gone online and read Rippoff. The office in Park Ridge did not appreciate my report, I can assure you.

Evidently, what had been called “the May way” quit working. But, you know that your business is in the wind when Wikipedia deletes your page. It is really kind of sad. Business Engineering failed. One can only wonder what the May family will do with 85+ years’ worth of project binders filled with meticulous documentation. It is a Titanic load of American small business history.

Article first published as Requiem for the May Company on Blogcritics.

Borders: Was Bigger Better?

2011-02-24T12:45:00.000-08:00

What happened to Borders? It is a classic American business tale of rags to bankruptcy in little more than a generation. Their classic marketing plan, “Let’s Get Big,” made it happen. Here are some of the key details concerning it US operations.

Brothers Tom and Louis Borders founded their first bookstore in Ann Arbor, Michigan, in 1971. With its book wholesaler sister company, Borders primarily serviced more independent book stores than its own book stores until 1989 when company management decided to expand. It did and it got bought.

Kmart had owned the mall-based book chain Waldenbooks since 1984 when it bought Borders in 1992. But not long after, Kmart faced management and stockholder problems with its acquisition, not to mention fierce competition from rival Barnes & Noble. So Kmart spun off Borders and by 2003 the new Borders Group had grown to 1249 stores using the Borders and Waldenbooks names, worldwide.

In 2004, Borders reached an agreement with Seattle's Best Coffee to operate cafés in its domestic superstores. In 2007, Borders installed digital video monitors in select stores and in 2009, it offered customers a free WiFi network.

Borders went international in 1997 with expansion into Asia and the UK. However, by the end of 2009, all of Borders directly owned overseas locations had been sold or closed. Only the franchise stores in Dubai, Malaysia and Oman remain open.

The company showed its last profit in 2006. On February 16, 2011, Borders announced that it had filed for Chapter 11 bankruptcy protection and that it would be closing up to 275 of its 642 bookstores. All of the stores to be closed would be superstores. Borders listed $1.275 billion in assets and $1.293 billion in debts in its filing. It employs approximately 19,500.

It can be argued that Borders failed to respond correctly as the retail book selling industry has evolved. It is also true that as book sales have been in decline, books and other media have become more available online.

But the real deal is perhaps more like consummate book buyer and college professor June Sullivan told me, outside of the closing Borders in Union City, California, “They began specializing in best sellers, put in easy chairs, and offer coffee and free Internet. So now they’re like a public library where you pay to buy used books.”

A similar fate happened to Circuit City, whose core business included knowledgeable sales people, but its corporate management decided to replace them with wage-and-hour clerks to cut overhead. As the retail electronics industry evolved, the competition, Best Buy, clobbered Circuit City.

From my point of view as a management consultant, Borders’ failure reflects the faulty business plan of “Let’s get big.” One can do that as long as one is true to the core business that made it successful in the first place and resists growth, even though the money looks good. Bigger isn’t always better.

# # #

originally published on Blogcritics as Borders: Was Bigger Better? February 20, 2011

I Talked to the Spouse

2011-02-06T18:26:00.000-08:00

Sometimes we management consultants get caught up in the jargon of our profession – you know, the words that only another person in the same field uses that have special meaning only to them. Some consultants assume that our clients understand us as our peers do, so words like “strategic” or “implementation” and an entire lexicon from Six-Sigma get tossed about loftily, as if our clients are paying us for our vocabulary. Of course the more money we charge, the loftier that vocabulary can become. That is before we get to statistics and graphic analysis, always the life of the party.

Many consultants lose sight of the fact that our clients are looking to us to help them do something they do not know how to do and how to do everything else better. In running their businesses, just about the last thing our clients want is for us to give them large packs of paper to read after their day is done. In addition, there is so much written material available, it is almost too much. The job of a consultant is not to help his client read more stuff.

In preparing to update this website, I conducted an inventory of my clients over the past five years to see what leaped off the page at me. Doing a customer inventory is one of the practices I use with my clients when I am looking for more business. It helps define who I should be looking for so I can save both time and resources. Specifically, I was looking for what the clients with whom I had the most success had in common. What I found was so simple that it surprised me and I can sum it up in five simple words.

I talked to the spouse.

To be sure I talked to family members in addition, but the discovery is certainly consistent with the studies having to do with small businesses in this country. Here is the short version of those party favors having to do with US business. According to statistics reported by the University of Southern Maine's Institute for Family-Owned Business: “Some 35% of Fortune 500 companies are family-controlled. Family businesses account for 50% of U.S. gross domestic product. They generate 60% of the country's employment and 78% of all new job creation.” Unfortunately, “only one in three family businesses succeeds in making it from the first to the second generation.”

There are lots of reasons for that phenomenon, but I am willing to bet that communications – specifically that between the family members from one generation to the next – has something to do with it. But I will save that for another article at another time. I want to stick with my “talked to the spouse” theory. Sometimes, it’s a tough job, but someone has got to do it. Let me share a couple of examples.

One client neglected to tell his wife that he had called me in to help him get his business in shape. The business had grown from a hobby and generated over $2-million a year when I showed up. I tried to get my client to arrange a meeting among him, me, his wife and anyone else who might have a stake in the outcome of the consulting project. The client kept hedging.

“She doesn’t have anything to do with my business [decision],” he insisted. But I insisted harder and the client relented. The next morning I showed up at the business site early, hoping to be there ahead of my client so I could better make my case as to what I thought we should do. My client was waiting for me – not a good sign. Then I noticed the tears in his eyes, definitely not a good sign. As I learned, he had gone home to tell his wife about the meeting the outside consultant wanted to facilitate. She hit the proverbial ceiling and the name calling began. It turned out that she had been paying the bills for the client’s former hobby and had not agreed to have anyone come in to help, especially at the hourly rate I had to charge for it. Harsh words turned for the worse, pushed turned into shoves and at the point of my discovery, my client was on his way to court and a restraining order.

The company I worked for could not understand why I could not get a working agreement [a contract for services] signed.

On another occasion, I started a consulting project’s opening conference one morning with my husband and wife team client, my company’s business analysts and project consultant and I to have the meeting get shaky from the got-go. It was another tear jerker. The clients kept interrupting each other to tell us how their crummy business was tearing their marriage apart and that they thought they just wanted to sell out and that they no longer saw any point in having consultants in to help. Oh, I talked to the spouses, alright.

I stood up abruptly and said, “Knock it off, both of you, right now! Who do you think I am? A marriage counselor?” Actually, in that case, I was. I stuck out my hand to the husband to shake his hand.

“Stand up.” He did. “You are the President of a multi-million dollar, international company that has been in business almost 10 years, right?” He shook my hand and nodded affirmatively. “Then act like it! And you,” I said as I turned to Mrs. Client, “What did you do before you got sucked into this company disaster?” She told me she was a Registered Nurse. “Good. That’s what you are going back to after we are done with this project.”

Sure, it stunned both clients and my company colleagues. You can imagine their faces and, if you can’t, let’s just say there were jaws that bounced off the floor. But, as I say, I talked to the spouses. It turned out that the clients had been victims of embezzlement and Mrs. Client came in to take care of the books because of the trust issues involved. My team and I prevailed, by the way, and so far as I know the clients and company lived more happily after the project concluded.

I have lots of other tales I could tell you that emphasize the importance of consultants talking to spouses, parents and siblings involved in any business, whether they admit to being in the decision making process or not. For one thing, each one is impacted by business decisions one way or another. For another, valuable information can be obtained from sources that are not familiar with the day-to-day activities in a company. Besides those considerations, a consulting project can be killed before it starts if family members are not taken into account from the beginning of an engagement.

Family businesses face a lot of problems, the family itself being a potential one. The reason is that family members all have names, as opposed to position titles, which can be difficult for them to comprehend. Another issue has to do with boundaries. At what point do people cease to be family members and become employees? Is it at home, on their way to the business or at the door? And there are a host of other issues, which I will get to another time.

Let me wrap up here by noting that effective communication is the key to business success, whether the topics of communication are statistical data, like opinion survey results and balance sheets, or they are people issue, like promotion decisions or embezzlement. Large corporations governance looks after the interests of the company’s stock holders just as family businesses operations looks after the interests of the company’s stake holders. Family business owners must expect that for a consulting engagement to be successful, the professional consultant they retain is going to talk to their spouse.

# # #

originally published on tmackorg.com

Who's In Charge Here?

2010-12-25T10:38:00.000-08:00

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.

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.

Management Lessons [No Charge]

2010-11-30T13:15:00.000-08:00

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.

Just Stuck in It

2010-11-07T11:58:00.000-08:00

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.

Margin of Error

2010-08-03T13:07:00.001-07:00

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

MARK – UP

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.

GROSS MARGIN

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.

Why Pre-Paid Legal

2010-06-24T14:44:00.000-07:00

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.

SBA Finance Assistance Scams

2010-04-15T11:05:00.000-07:00

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 (www.sba.gov). 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.

ID Thieves Bag Bernanke: Is No One Safe?

2009-08-28T17:14:00.000-07:00

“You’ve got to be kidding,” I said to my wife. “Incredulous. The Chairman of the Federal Reserve is the victim of Identity Theft. According to the Associated Press story, thieves got Bernanke to the tune of $2.1 million and the fraud involved at least 10 financial institutions.”

“Guess he didn’t have Identity Theft Shield, huh?”

I knew she was going to say that. I wanted her to say just that. As an Independent Associate of Pre-Paid Legal myself, I tell people all the time about their risk. But, people are people and they say what they say, like “my bank takes care of that” and “my credit card company covers me.” If that is what they want to believe and it works for them, great.

However, my banker and I had a chat when I opened Tommy Mack Organization LLC and it turned out that she has Pre-Paid Legal coverage as an employee benefit through her employer, or Financial Institution as they prefer. She had declined to take the Identity Theft Shield protection at the time she enrolled.

She got a letter from the IRS that claimed my banker owned them income tax on unclaimed wages. It came to be discovered that her ID was stolen and used by someone else to get work. She said that the FBI told her it could take 2 to 3 years to straighten it out. And just about everyone knows someone who has been a victim.

Back to the Bernanke case, the AP story quotes Brian Lapidus, “an identity theft expert with Kroll Fraud Solutions said it's not unusual to hear of high-ranking officials caught up by identity theft. His firm has worked with celebrities, senators and others who have been victims.” That company provides the PPD Identity Theft Shield product I recommend to my clients and friends.

The story also reports in small details the fastest growing ID Theft scheme – the synthetic person. “The scheme involved using stolen IDs, bank records, personal checks and other items to impersonate victims at bank branches, according to an affidavit signed by Postal Inspector William J. Aiello,” the article said.

How could organized crime be anything if not thrilled by ID theft? Other than plastic cards, what inventory is there in sets of numbers? It is impersonally personal as crimes go and a growing menace by all accounts.

There are other pretenders to ID theft solution; but they do not do what Kroll and Pre-Paid Legal Services can do – like have professional, licensed investigators go after the perpetrators. Go to my PPD website and look. PPD has been in business since 1972 and is publically traded on the New York Stock Exchange.

It would be an easy target to blame the credit card industry for facilitating ID Theft. It would be easy to suggest that the industry is actually legalized crime, but I will address that later. In the mean time, the PBS series Frontline did a revealing story about credit cards you may be interested in seeing.

I am sorry that Mr. Bernanke got bagged in an ID theft. But, if he is not safe, who is?

Take Out the Paper

2009-05-18T14:53:00.000-07:00

When the United States began, the press meant newspapers -- the venerable Fourth Estate. Attributed to British politician Edmund Burke (1729 - 1797), that synonym for newspapers has been broadened to include all of the mass media. The press is protected by law from Congress, but it is not protected from business or technology. Despite pundits’ predictions to the contrary, radio failed to kill newspapers and television failed to kill radio. Neither is the Internet killing its media cousins. As newspapers across the country fail or fold, bad business practice in the present bleak economy threatens all of the Fourth Estate, and this in turn threatens the country.

The story of the failing San Francisco Chronicle is just one example of a major metro-area newspaper having been managed into the dinosaur museum of media. It took the paper’s losing $50 million last year for management to make a remarkable grasp of the obvious. Its last-ditch solution is to slash expenses and purge the payroll. "Our current situation dictates that we accomplish these cost savings quickly," Chronicle Publisher Frank Vega wrote in a memo to the staff. "Business as usual is no longer an option."

The New York-based Hearst Corporation bought the Chronicle in 2000 in a $660 million deal and has been losing money ever since. The paper is the largest daily in northern California with a paid weekday circulation of 340-thousand and a work force of about 1500 people. According to the Wall Street Journal, Hearst said it will seek "critical cost-saving measures," including a steep reduction in the Chronicle's staff. If it can't reach its cost-saving target "within weeks," Hearst said it will seek a new owner for the Chronicle. If it cannot find a buyer, Hearst said it will close the paper. Bankers say there are no likely buyers for the Chronicle.

The list of new exhibits to the dinosaur museum of media includes other inductees such as the Seattle Post Intelligencer and the Miami Herald. After 150 years Denver’s Rocky Mountain News is history. Tribune Company, parent to the Chicago Tribune and Los Angeles Times, has filed for bankruptcy. So has Philadelphia Newspapers which publishes the Philadelphia Inquirer and Philadelphia Daily Journal. In fact, 33 newspapers have filed for bankruptcy protection. The American Society of Newspaper Editors has cancelled its annual convention for 2009.

Mike Hoyt is the Columbia Journalism Review Executive Editor. He says such losses are sad because newspapers are very tied in with their community. “When a city only has one paper,” Hoyt said, "you lose competition, and you lose the edge, and you lose energy. Competition is good. It sharpens the news gathering, and the investigative reporting." Reflecting on Denver and San Francisco, Hoyt said, "The daily newspaper in a major metropolitan market is the voice of a city. It provides a civic forum that everyone can relate to and come together to talk about. And it can take on complicated problems, and be a watchdog for the community . . . You need big institutions to cover big problems and big situations."

In 1787 Thomas Jefferson wrote, “The basis of our governments being the opinion of the people, the very first object should be to keep that right; and were it left to me to decide whether we should have a government without newspapers or newspapers without a government, I should not hesitate a moment to prefer the latter.” Jefferson regarded a free press as absolutely essential to investigate and criticize the government. It bit him. The press vilified Jefferson during his presidency. Nor would he be the last.

A hundred-fifty years after Jefferson’s presidency, Harry Truman joined a long line of presidents who worked the press. “Once a week the President of the United States faces the free press and endures a barrage of questions,” wrote Anthony Leviero in the New York Times in 1949. “It is the biggest show in Washington. It is also a great institution, uniquely American. It has become a factor in our checks-and-balances system of government.”

Then there was President Nixon who, after two years of bitter public debate over the Watergate scandals, bowed to pressures from the public and the press to become the first President in American history to resign the presidency. “We saw a president toppled by a couple of reporters, Woodward and Bernstein, who inspired thousands of young people to take up investigative journalism,” wrote the late author and activist Peter McWilliams. “Then, after Woodward and Bernstein were portrayed in the movies by Dustin Hoffman and Robert Redford, tens of thousands applied to journalism schools.”

The peril of our free press is that it costs a lot of money and there is not much of that to support it. “Journalists are the watchdogs, and being able to shine a spotlight on corruption or scandal is vital to our democracy," wrote Mike Hoyt. However, the impact of the recession on newspapers ad-based bottom lines has to do with business and not journalism. It is just that there will be less journalism.

The worst advertising climate in decades killed the print version of the Baltimore Examiner free newspaper on February 15, less than three years after its debut. "This is very disappointing for all of us. Obviously, this is not what we envisioned when we launched the newspaper," ownership’s CEO Ryan McKibben wrote to Examiner staff. The company will now concentrate resources on an Internet venture where it plans to add space, new columnists and Web editors.
Maybe that is an example of good business management. What about the journalism?

“Half-truths, obfuscations and apparent deceit -- these are the wages of a world in which newspapers, their staffs eviscerated, no longer battle at the frontiers of public information,” wrote David Simon in the Washington Post about his experience as a newspaperman in Baltimore. “And in a city where officials routinely plead with citizens to trust the police, where witnesses have for years been vulnerable to retaliatory violence, we now have a once-proud department's officers hiding behind anonymity that is not only arguably illegal under existing public information laws, but hypocritical as well.”

Rather than solutions, there are modifications to the newspaper business failure. The Duluth News Tribune and the St. Paul Pioneer Press, for example, will work with the University of Minnesota's School of Journalism and Mass Communication on a half-million dollar project. The idea of folding newspapers into endowment projects or university systems is being floated. There is my dinosaur media museum. In the end, business is business – enterprise has a market to support it.

Unfortunately, business being business, markets contract and companies cease to be viable. GM is a looming example of a failed corporation and yet some of its brands will continue to be be produced. I suspect journalism likewise will survive the fall of the big corporations as a hybrid form of credentialed web-print production, such as blogging with a hard copy back end. I will not be convinced that blogging is journalism, however, until I see a White House Blog Corps.

Effective Delegation

2009-03-09T19:25:00.000-07:00

An organization is defined as a structure through which individuals cooperate systematically to conduct business, and this is the purview of managers. It has been said that the best manager is the one who has the least amount to do. When you think about it, that axiom is true because a manager’s job is that of a coordinator inside an organization. To be effective, managers need to practice effective delegation.

The higher an owner or employee progresses in an organization, the greater their area of responsibility. There is a point at which the scope of their responsibility becomes larger than any one person can handle. That does not mean that they do not try, but another axiom says, “Don’t bite off more than you can chew.” At that point one must delegate authority and responsibilities to other people. Otherwise, meeting the needs of the business through proper performance is jeopardized.

Two major benefits of effective delegation are the distribution of the work load and the development of subordinates.

The best way to figure out what can be delegated and what should not is to identify the elements of the work at hand. From that identification the elements can be put in different classifications such as A, B, and C items.

· “A” items are the few duties that are the most important and cannot be delegated. Only you can perform them.
· “B” items are some duties that are important but not critical, so they may be delegated to someone other than to you.
· “C” items are the greatest number of duties that are necessary to the business but of lesser importance than the “B” items. These should be delegated.

In my practice I routinely teach owners, executives and supervisors the importance of learning how to manage through other people. To be successful it is essential to keep control by holding subordinates accountable for their actions. One must strike a balance. You do not get so close that you are looking over subordinates’ shoulders. Neither do you want to become so far removed that you do not know what is going on. The way to succeed at that balance is to develop a system for getting feedback.

I have worked in companies that had reports on reports and conducted meetings on meetings. I never liked it, so whenever I hear someone in business say that they hate reports and meetings, I empathize with them. However, what they are telling me is that the paperwork and the blabberwork have lost reason. Reports and meetings mean nothing unless they have the purpose of keeping you informed. The reports should provide you information at the right time. Meetings should permit dialogue on activities, accomplishments, and problems -- an important part of the communication process.

It is not so much that there are rules to follow as accomplishments to achieve. The first thing to accomplish is to make sure that subordinates clearly understand the tasks they must perform. A good practice is to have your subordinates describe what it is they think you want them to accomplish. You also need to make sure that employees have the skill, talent, and ability to perform their job. The last thing you want is to delegate a job destined to result in failure or frustration.

Another good practice is to allow your subordinates latitude in how a job should be performed. Your way is not the only way. Having said that, however, make sure that you provide all the resources necessary to successfully perform a job. Let your subordinates do the work, but make sure that you can provide them with help in getting the job accomplished if necessary.

Everyone wins when you make a habit of doing the following early and often:
· Delegate not only the menial, unimportant jobs but also the significant ones. Employees will see this as a vote of confidence.
· Remain accessible. Always provide a safety net for your subordinates. Be available as necessary, but avoid engaging in over-the-shoulder surveillance.
· When a job is performed well, praise the subordinates for their performance.

In my experience delegation is the hardest job that business owners and managers have to learn. They confuse delegation with giving subordinates many responsibilities but little or no authority. Success requires both the delegation of responsibilities and of the authority. Enough authority must be delegated to accomplish the following:

· To get work done
· To allow key employees to take initiative
· To keep things going in your absence
· To develop subordinates
· To establish accountability
· To free up management time for higher level activity

In that way your responsibilities and the needs of the organization are effectively met. The higher up you progress in an organization, the more important the practice of effective delegation becomes. It might seem contra-intuitive, but the old axiom applies. You want to be the manager with the least amount to do.

Who Is In Charge Here?

2009-02-12T20:27:00.000-08:00

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

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

Emotional stability is essential. Good supervisors must be able to control her or his temper 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.

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

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

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.

Broke Banks

2009-01-31T14:17:00.000-08:00

If ever there was an industry that needs some positive public relations, it is banking. Bank failures have become common place. In Georgia, for example, there have been five bank failures in the last five months and the hits just keep on coming. Another fifteen banks are expected to go under this year, more than twice the number that collapsed there during the savings and loan crisis twenty years ago. Until last year, California had seen only 3 bank failures during the previous decade – in 1999, 2000 and 2003. According to the FDIC, California suffered 5 bank failures in 2008 alone.

Banking is a highly regulated business. Despite news commentaries that bankers got greedy as banks were deregulated and became corrupt, bank consumers have protection. In the recent case of IndyMac Bank, the third-largest bank to fail in American history, a run on deposits and rising defaults made Federal regulators seize it.

The mortgage loan portion of the banking business earned derision for being lax and, in some cases, predatory in its lending practices. Federal Reserve Chairman Ben Bernanke says that a sustained economic recovery may require additional bailouts of financial institutions. However, the business loan portion of banking has become the collateral casualty that threatens the country’s economic recovery.

As a business management consultant experienced in dealing with bankers on behalf of my clients, it is clear to me that business loan criteria are in flux. Even clients with excellent credit, strong assets and positive history are being denied new loans and are incurring decreased credit lines. New financing does not seem to be happening. Does that mean banks are not lending money to small businesses? They say that they are but that assertion is inconsistent with my clients’ are experiences.

Banks make money by selling the use of money, right? “If the borrower provides the bank with both a belt and a pair of suspenders,” Joe Nocera wrote in the New York Times, “the loan is being granted.” However, “[i]n addition to not making new loans, the banks are systematically withdrawing commitments and capital from the economy.”

So what about the Economic Stimulus Package of 2008? It is about tax breaks for businesses that spent money on property and vehicles last year while their credit lines were getting trashed. According to the Package’s press release, “This new legislation will not only benefit small businesses in a variety of ways, but it will also provide an economic boost to the entire nation.” Bold words in that generalization do not change the fact that “there are exceptions and additional requirements.” Tax credits for small businesses that create jobs sound fine, but it takes money to make the payroll to pay for the jobs to qualify for the tax credits.

Bank accountability is about to change with the new administration. Specifically, the government might force banks to make loans they would otherwise avoid. It is certain that the Obama administration wants to avoid more stupidity, such as those of the Bush Treasury secretary, Henry Paulson “who sold Congress on an elaborate strategy for shoring up banks and then shifted to an entirely different approach before he even got started.”

Meanwhile, forces for the benefit of small business—the largest aggregate employer in the United States -- are seeking the administration’s ear. The National Development Council wants a $75 billion small business stimulus package and a Cabinet-level position to coordinate federal resources for small businesses. Additionally, the National Small Business Association is seeking congress’s ear, asking for 25 percent of TARP funds to be aimed at small business lending and a mandate that 23 percent of stimulus infrastructure funds be contracted out to small businesses. Both are debatable requests.

Small business needs direct financial help to grow our pillaged economy and to create the jobs promised by the new administration. Tax credits alone cannot make job growth happen. The new congress and administration need to hear from us. We will have to make prosperity happen. They will have to help us.

Your People Inventory

2009-01-22T19:09:00.000-08:00

Whether we like to admit it or not, we are you are in the sales business. Professional sales people know that there is something called the sales cycle. Think of the sales cycle as a circle that begins and end with prospecting. If you already have a client base, we are going to take an inventory. If you are just starting and looking for that first customer or client, we are also going to take an inventory.

Successful businesses maintain customer databases of various degrees of sophistication. The only difference between a customer and a prospect is history, a customer being someone who bought from us in the past. Satisfied customers make the best prospects. The more we know about our prospects, the better our opportunity for successful selling, and selling is the business we are in.

We want to create a prospect database that contains both quantitative and qualitative information. We will start with some initial questions about our prospects and work from there. We can always add more layers of sophistication as we develop our inventory. If you have existing customers, be as detailed in your answers as you can. If you do not have a customer base, look at who buys from your competitors.

· Who are your prospects?
· Where are your prospects?
· How many prospects are there?
· What do your prospects want from you?
· What do your prospects know about you?
· How much will prospects pay you?

Who are your prospects?

A prospect is anyone who needs what you are selling and can afford to buy it. Suppose you own a commercial cleaning company that does offices and retail stores. Prospect characteristics might include: people who own or manage buildings, have a budget for janitorial service, employ at least 5 inside people, have three lavatories, a kitchenette, a reception area, and a sales floor. They are serviced once a week after 7 P.M. by two people who and take 45 minutes on the job. Less than 10% are government accounts and about a third of them are retail operations.

Where are your prospects?

Prospects may be anywhere if we are selling online or by catalogue and delivering products by transportation we provide. Otherwise they usually live or work with a defined geographical service area, whether you go to them or they come to you. Assume you own a health club. Prospect characteristics might include: able bodied men and women, aged 35 to 55, who live within 13 miles of the club. Half of them want some training. Half of the men and a quarter of the women use free weights.

How many prospects are there?

This is referred to as market size. Do your homework and keep your estimates conservative because your projected sales will be based on your estimate. Whether your business is land based and dependent on traffic or it is web based and dependant in page views, you can search for and find data on the Internet. Another source of such data is your competition.

What do your prospects want from you?

Prospects want what you sell and they want satisfaction after they purchase. Regardless of product or service, prospects want quality, value and service. However, they want price as well, especially now. Warranties and guarantees enhance value and your prospects’ perception of quality. Sears Roebuck and Company understood the balance of perception by making the claim, “Satisfaction guaranteed, or your money back.”

What do your prospects know about you?

They know either what you tell them or what some else they know has told them. Professional sales people rely on an organized sales presentation to varying degrees. Such presentations contain facts about a product or service and the benefits to the prospect. The objective of the presentation is to build value and to get the prospect to start asking questions. When a prospect starts asking, they start owning.

How much will prospects pay you?

Prospects will pay exactly what they think the product or service is worth and not a penny more. Remember that price is relative to perceived value and to what similar products and services cost. That is called “what the market will bear.” Additionally, you want to be sure that you are not selling for a penny less than your product or service costs you. If a pizza costs you $10 to make, you do not want to sell it for $8.50. If that is all that the market will bear, find a way to make an $8 pizza.
Speaking about payments, prospects pay by check, cash or credit card upon receipt of your invoice or based on agreed, written terms. Otherwise they do not qualify as a prospect.

A sale is the process of turning qualified prospects into satisfied clients. The purpose of performing a people inventory is to be able to identify qualified prospects. Such identification helps us focus our efforts, streamline our marketing, and increase our sales – the business we are all in.

Make Your Message Clear

2009-01-14T19:35:00.000-08:00

My hat is off to the entrepreneur who saw the intersection guy with the cardboard sign that said “Will Work for Food” and turned it into a business. Nowadays what intersection does not have the sign-waver with a professionally produced sign? “Mattress Sale,” “Liquidation Sale,” “Condos For Less” and the like must be working. They are everywhere. The messages are short and clear.

Let’s consider our “Will Work for Food” example. The message is clear. It is exposed to a lot of views. The prospect is well defined – people stopped in cars that have change or a couple of bucks to spare. The location is important, facing the driver’s side of temporarily stopped vehicles. The sign holders likely look as if they can do some kind of work. The “for food” bit suggests barter is acceptable and looks better than begging.

“Will Work for Customers” is our message. We can apply this message to finding customers and clients: a clear message, frequent exposure, clearly defined prospects and an organized presentation. I am concerned that many business owners make this more difficult than it needs to be. They think that their message has got to be more messagey, whether it is their business card or website, which is a digital business brochure.

Here are some tips on getting your message across.

Less is more

You do not need an hour long documentary when all you need is a half-minute commercial. If you start with five hundred words to describe who you are, what you do and how to get ahold of you (and I hope you do start with 500-words), whittle them down to fifty.

Use a pro

Unless you, your spouse, child, sibling or in-law is a professional – i.e., gets paid regularly for their expertise – do not think you can save money having them create your cards, brochures, websites, logo or signage. By all means let them help with the 500-words but that is it.

Organize your presentation

The key elements to keep in mind here are that you sell what you show and that you want your prospects to ask questions. When a prospect starts asking, they start owning. Do not interrupt them.

Expose your business

Carry extra cards with you at all times. The person standing behind you in a line, the person checking you out at a counter, anyone you speak to is one of two people: someone who is a prospect now or in the future or someone who knows another person who just might be a prospect now or in the future.

Remember your name

Unless your business is named “My Company,” always refer to your business by its name. In fact, go out of your way to repeat your business name at least three times when it comes up in conversation and you offer your card. Make repeating your business’s name a habit. Rehearse it.

Share some enthusiasm

With whom do you want to do business – someone who has got a job to do or someone who enjoys their work? While you are rehearsing your business name, do it with a smile. If it seems silly to practice in front of a mirror, my advice is Get over it.

We are all in the sales business whether we hire salespeople or not. That is why it is of utmost importance that we have a clear message and get it across to people as often as we can. The effort takes practice and consistency, to be sure, but the rewards are gratifying when we do. You will see them on your bottom line.

Practice or Business: What’s the Difference?

2009-01-01T17:56:00.000-08:00

I have met many business consultants who are either working on a book or at least thinking about writing a book. I have known several who actually have a manuscript they tote with them from client site to client site. These consultants have two problems in common: having manuscripts does not necessarily make them writers and books do not sell themselves. The mental exercise of putting experience into words can be its own reward, but what it reveals is a personality trait that says those consultants would prefer a consulting practice to a consulting business.

There are two kinds of consultants: financial oriented people and management oriented people. Financial folks love spread sheets and can write love letters in Excel. They tend to have finance and accounting backgrounds; many are CPAs, others have MBAs, some have both. Management folks love organizational charts and can write sonnets as PowerPoint presentations. They tend to have corporate backgrounds; many have business degrees, some have MBAs. Others have been business owners and are former entrepreneurs. All are familiar with the relationships between finance and management.

Regardless of their orientations, consultants share one common trait – they dislike, or at least distrust, sales people as a group of slick-talking, promise-anything-to-get-the-deal, glad-handing, tap-dancing liars and thieves. What sales people think about consultants is similar, but that is not my point. The use of professional sales people to acquire clients characterizes the difference between consulting practices, which do not, and consulting businesses, which do. Neither approach is better than the other. The significance is the difference in overhead.

Other differences in overhead include advertising, depth and size of support staff, and location. They may have large corporate structures to serve corporate customers, such as publicly traded companies, that employ hundreds to thousands of people, generating many millions of dollars in annual revenue. Consulting businesses have greater resources than many consulting practices and may offer layers of specialty in the services they offer, such as proprietary software, IT, tax consulting and financing.

Consulting practices are more entrepreneurial in nature and structure. They may be highly specialized themselves, depending upon the orientation of the consulting staff they employ. They may also be general practitioners whose services range from QuickBooks to websites. Because of their nature, consulting practices serve entrepreneurial clientele, most often privately held firms, who employ less than a hundred people and generate less than twenty-million dollars in annual revenue.

From a consultant’s point of view it is not about the money. It is all about the work. As I have previously written, when I worked for consulting companies my clients ranged from restaurants to general building contractors, from convenience stores to slaughter houses, from liquor stores to RV dealerships. For anyone who wants to become a professional consultant, I recommend the experience with the caveat that the travel can be torture.

From a client’s point of view it usually is about the money, what they think they need and they think about the work that is performed. So what is the difference between a consulting practice and a consulting business? The difference is in the overhead and in the specialties. Change is the product that the client buys or is sold.

What Is Your Plan?

2008-12-25T14:43:00.000-08:00

Do you have a business plan? You might be surprised just how many businesses do not. They may have had one in the past but chances are that the business owners have been so busy that they have not written down much of anything. So if you answered “no” quietly and privately to yourself, understand that you are not alone.

Frequently, a business plan is a necessary evil that rears its head only when the business owner is told that they need one because they are trying to get money through something like an SBA guaranteed bank loan or a private investor. The problem is that the business owner is not in the business of writing such documentation. So what does an owner do?

There is the Internet.

One can search and eventually -- maybe -- find a boiler plate business plan for a company kind of like the owner’s business. A little change here, a little change there and a plan is born. However, banks and investors have seen the boiler plates before and have the pesky habit of asking questions about financial projections, ratios, ROI, assumptions, and the interrelationships between the numbers and profitability. Think of it as part of their language.

There is software.

Plug in some numbers and fill in some blanks and out comes a document. However, in addition to the cost of the program, the time it consumes in learning how to use it and the fact that there is a business to run, what does one end up with? Once again, bankers and investors are going to ask their questions. They will at least be polite when they decline the request for money.

There is the hired gun.

Plenty of ghost writers out there will be more than happy to write a plan for you using boiler plates and software. Just look on Craig’s list under your area, services, and “sm bz ads.” Then type “business plans.” Ghost writers are neither bad nor good, as long as an owner knows that questions will be asked, such as “Did you write this plan yourself?”

There are professional business consultants.

At this point I need to explain that the preparation of a business plan is a process. You should also think of a business plan in similarly to the way one thinks of an owner’s manual. Additionally, I also need to point out that a business plan is a working document, subject to change as times and circumstance dictate. At this time, for example, our economy has entered into a recession which is dictating that businesses need to reevaluate their owner’s manuals to adapt to the circumstances.

The purpose of hiring a professional consultant is to facilitate the writing process, not to knock out a binder full of paper and a PowerPoint presentation. A consultant is going to insist on the participation of everyone involved in the decision making process from owners to managers throughout an organization. A consultant’s job is to help owners think through and understand the concepts and assumptions that underlie a business venture.

A consultant’s role in the production of a business plan also is to teach owners and managers the significance of the business numbers and how those numbers affect profitability of the company, not how to build a spreadsheet. Do not forget that the objective of a business plan is to have a metaphoric owner’s manual that accurately reflects what the business is about. This should be addressed not only to a company’s stakeholders, but to people outside of the company in language that they understand, such as told by Profit and Loss statements and Balance Sheets.

The knowledge an owner derives from the process of building a business plan is empowering. It also reduces the cost of borrowed or invested funds.

While the Tide Is Out

2008-12-18T18:37:00.000-08:00

I do not know about you, but I am fed up with excuses and the fear those excuses are reinforcing. There are two biggies right now in the excuse department: the Recession and the Holidays. They are getting in the way of everything we think and contributing to a bigger lie – which is that no one is buying anything. Codswallop, I say. What if I replaced the word Recession with Low Tide and the word Holidays with New Moon? What big lie could that engender? After all, they are just words.

Granted the moon and the tides are related in that the periodic rise and fall of the sea level has to do with the gravitational pull of the moon. That relationship is not equal to the cause and effect of a holiday and an economic cycle. But making such a relationship is not my purpose. My purpose is to support two three-word ideas: Stop Saying It and Get Over It. Besides, there are a lot of things we can do while the tide is out and we do not need a lot of reflected light to do them. But let’s consider first things first.

Stop Saying It. Quit indulging in the blame game that the economy is somehow gypping everyone. It is not. There is just less money in circulation. It is nothing more than that. The gyp is the pernicious notion that economies are static, like water in a concrete pool. Granted such changes require some getting used to. At this time the paucity of cash in circulation has undermined some of our previously held, perhaps unfounded, political and market ideas. That is not my point. If you believe that something is bad, it probably will be. If you allow yourself to believe that something is good, it definitely can be. When prices drop, we call that a deal. Where is the gyp in opportunity?

Get Over It. All right, already, Merry Christmas, damn it! Besides, you know I mean well. It might be nice to have more cash or perhaps more credit, but other than consumption, what do cash and credit have to do with customs that were conceived and enjoyed in utter poverty? Now is the time to re-evaluate how we celebrate our hallowed days. While we are at it, we might as well start planning for next year in our homes and our businesses.

So what can we do while the tide is out without a lot of reflected light? We could scrape barnacles off the bottom of our boats. We could fix the dock. We could do some crabbing. The operating word here is We. In business, for example, we can readjust our business plans. We can rethink our pricing. We can reconsider our advertising and sales efforts. If people are not buying, it is because we are not making it easy for them to do so. When we do, they will. That is worth celebrating.

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This posting also appears on my other blog, The Premise Loft, which focuses on commentary and public opinion.

Stranger From Afar -- But How Far?

2008-12-11T15:30:00.000-08:00

When I worked for the big dollar consulting companies, I began to believe that travel was a form of hazing. As a Project Director for one of those companies, I could be found in an airport at least three times a week. I picked up and delivered three rental cars. I drove an additional average 250 miles a week. I checked in and out of three or more hotels.

As a Senior Executive for another company, if they had no assignment for me on Saturday afternoon, I reported to the airport on Monday afternoon to call the office every fifteen minutes beginning at 5 pm, bags in hand. No assignment meant checking into a hotel near the airport and performing the same ritual the next afternoon. Of course, I thought the arrangement was better than the first since I only had to fly twice a week. Less was more better.

I said that travel was a form of hazing because it is in addition to working a ten-hour day. As a Project Director, I averaged 4 to 5 hours of sleep per night. As a Senior Executive I probably averaged 6 hours per night. Those are considerations for you, should you decide you, too, want to become a “road warrior.” These people are easy to recognize. They wear suits at the airport, schlep at least two wheeled suit cases in addition to a laptop, and fall asleep in the airplane as soon as it reaches cruising altitude.

What does it mean to a business owner? It means an additional expense to a consulting project – 12% to 15% on average. The expenses are round-trip air fare, rental car and gasoline, lodging, per diem and incidentals such as printer cartridges and project binders. Take it from one who has served up a healthy $15,000 invoice for two days with three people on the project -- you can do the math. As a radio engineer of my acquaintance once wryly said, “A consultant is a salesman that lives 500 miles out of town.”

None of what I am writing is to impugn the quality of the consulting performed by “road warriors” from out of town. In fact such experience is worth the hazing for the person who wants to choose consulting as a career. It is a better credential than holding MBA or CPA credentials alone. However, for small to medium sized business owners the cost does not necessarily assure the best quality. The consultant you get may be just the next person on the bench or at the airport being hazed.

The consulting business is about selling consulting hours, just as Coke’s and Pepsi’s business is about selling bottled and canned products. The product itself is another issue. I have often said of the consulting business that when times are good, our business is good. When times are tough, our business is better. To a large degree that has been true. But today, times are hard. Just ask Detroit, where GM cannot borrow money and sales are puckered.

A similar effect is occurring in business consulting because the industry is not immune from the impact of this recession. Sales are down for their prospective clients who, as a result, are becoming more reluctant to avail themselves of consulting at a time when they need it the most. Consequently, sales are down for the consulting business. It is truly a vicious cycle.

However, this recession provides small to medium sized business owners, especially family-owned business, an incredible opportunity to reorganize themselves so that they can reap the benefits that will be realized in our economic recovery. The question then is not if they should retain consulting help from a stranger from afar. The question is “How Far?” and the closer to home, the better.

Silence Is Not Golden

2008-12-04T14:20:00.000-08:00

I recently read five basic questions in a consulting blog. It turns out that the questions themselves can be put together as follows:

The more you sit down with a client to have conversations, the easier your client can develop trust in you. The more trust that the client feels, the better the quality of the feedback you receive. The better the quality of the client’s feedback, the greater the value of your engagement. The greater the value that the client perceives, the greater the likelihood of positive change.

It is all about effective communication.

How you establish communication with your client in the first few minutes of your engagement’s opening conference determines how easy it will be to return the next day. Excel spreadsheets, Word bullet-pointed documents and PowerPoint presentations should be left in your computer bag in the trunk of your rental car for as long as possible, especially on the first day of an engagement.

It is necessary to jot down the occasional note but not at the expense of eye contact and observation. Bear in mind that clients are, despite what they say, like doctors’ patients -- rather afraid and somewhat intimidated. By asking more questions and making fewer assertions, you allow your client to enter a comfort zone. People like to talk about themselves, so stay out of the way and encourage them.

I have asked clients if they will exchange seats with me in the opening conference so I can “see what you see.” I ask about family, encouraging them to talk as much about themselves as possible. Sure, I am looking for “hidden agendas,” “deal killers,” “sacred cows” and other such influences on my client that might impede our progress, but I have a genuine interest in what makes my client interested.

Meet with your client early and often. It is important to understand that clients breathe their own ether: Without clear supporting evidence, clients convince themselves that specific business problems can be resolved with generic business solutions. This can also impede your progress, so it is important to establish your control.

How you conduct an engagement with your client also establishes your control. There are two important considerations that many consultants forget. The first is that you are an agent of change. The second is that every day you must earn the right to return.

Incidentally, you have noticed that I use the word “engagement” rather than “project.” They mean essentially the same thing, but the words evoke different contexts. Projects have deliverables and check points. Each engagement is a partnership, which is what we are creating when we enter the client’s office. Never lose sight of the fact that we are being engaged to partner with our client to implement change.

A recent client told me at the end of the first day, “I’m excited. I learned more from you today than I got out of two weeks with the consultants from YaddaYadda Company.” That moment made me proud to be a consultant. My point is that I practice what I am writing here. The partnership was established because I had left my computer in the trunk of my rental car and let my client do most of the talking. Silence is not golden but an effective working relationship is.

Stuck in Stupid?

2008-11-27T20:01:00.000-08:00

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 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 like “we’re doing just fine;” and “I don’t need to write it down. I’ve got it all in my head;” and “I’m an idea person.”

The best “ether” I heard recently came from a client who told me, with a straight face, that his spouse’s working in the company without pay or job description was “saving us a lot of money because I don’t have to hire someone.” Actually, the spouse does have a job description – Owner’s Spouse.

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, e.g.: book keeper or sales manager?
Have the owner and spouse established clear boundaries, e.g. 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. They claim that they have been so busy working they haven’t been able to take the necessary time to make that discovery. Fortunately, there is “ether.”

Here are available choices.

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.

Ego saying “I can do this better” is what starts business ventures. Ego saying "I don’t need anyone telling me what to do” is the glue of being stuck in stupid.