Tons of downer news these days and many managers have faced/are facing the trauma of laying off members of the team that they’ve worked so hard to build, so I thought some upbeat advice/information and stories to help you do your job better managing would lighten your weekend.

Business Week was kind enough to offer up a trove of stuff worth reading.

Some of the smartest ideas came from readers such as Autumn Parrott at Frist Center for the Visual Arts.

“We had a 25% budget cut. To help people understand the budgeting process, we formed a committee comprising only people who are not senior managers. It started conversations between departments and created a greater understanding of how our money is spent. People serve for a year. Each department gives recommendations like ‘we’re spending $70,000 a year on cleaning, so now everyone should clean their own offices and only use a cleaner once a week.’ One benefit of bringing in a variety of people is you don’t come up with the same ideas over and over again.”

This is a real winner. Sharing financial information below executive level is anathema to most bosses, but doing so increases employees’ sense of ownership which usually unleashes a barrage of cost-saving ideas.

There’s a great piece on trickle-up innovation where low-cost products developed for emerging countries are being tweaked for sale to affluent ones—the opposite of typical development.

There’s a lot more, but one in particular I’d like your opinion about before I say anything.

Please read Making the Case for Unequal Pay and Perks, come back and tell me what you think.

I’ll be posting my thoughts in a couple of weeks.

Image credit: flickr

Usually I only offer up one link when the reading is heavy, but today I have two.

The first is a book I read about on Expert CEO.

How We Decide by Jonah Lehrer is an exploration of “the neural machinery behind our decision-making processes: a network of dopamine-sensitive cells in the brain’s emotional and cognitive centers, which tie feelings and reason together so closely that the two operate almost as one. According to Lehrer, correct decisions require an awareness of both halves of the equation — and a perfect balance of visceral response and cognitive knowledge.”

I’m so far behind on my reading that I don’t know when I’ll get to it, but if one of you wants to do a guest review for Leadership Turn I’d be delighted.

The heavy reading comes from Max Bazerman, the Jesse Isidor Straus Professor of Business Administration at Harvard Business School. A working paper “shows that seemingly innocuous aspects of the environment can promote the decision to act ethically or unethically. Key concepts include:

• Once people behave dishonestly, they are able to morally disengage, setting off a downward spiral of future bad behavior and ever more lenient moral codes.
• However, this slippery slope can be forestalled with simple measures, such as honor codes, that increase people’s awareness of ethical standards.
• Moral disengagement is not always a necessary condition leading to dishonesty, but it may in fact result from unethical behavior.
• The decision to behave dishonestly changes levels of moral disengagement, and the awareness of ethical standards affects the decision to engage in unethical behavior.”

The paper is downloadable and I think you’ll find it interesting.

As always, your thoughts on the subject are of great interest, so please share them.

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I’m no happier about the AIG and other bonuses paid to screwed up Wall Street banks, but I’m not sure why any of us are surprised.

“In the largest 25 corporate bankruptcies between 1999 and 2002, while hundreds of billions of dollars of investor wealth and over 100,000 jobs disappeared, the Financial Times found the “barons of bankruptcy” made off with $3.3 billion.”

Giant compensation packages, guaranteed bonuses and platinum parachutes are excused by Boards and executives as necessary to attract the “best and brightest,” but here’s what’s really going on.

The ‘names’ demands outsize compensation/stock options/guaranteed bonus/etc. in order to validate their ‘brand’.

Those responsible for hiring not only meet the demands, but even exceed them in an effort to attain or sustain the company’s reputation as a better home for ‘stars’—the more stars you have the greater the bragging rights— mine’s bigger than yours in high school locker room talk.

Now let’s consider the folly of this attitude.

Those hiring often seek a name brand in the mistaken belief that the brand comes with a warranty that guarantees good results.

But no matter who you hire you’re actually paying for their past performance, which is always influenced by

• circumstances—boss and company positioning in its market and industry
• environment—culture and colleagues;

and let us not forget that minor factor

• the economy.

The hiring mindset is that everything the brand accomplished was done in a total vacuum and dependant only on the brand’s own actions, therefore changing every single surrounding factor will have no impact on performance.

Put like that it sounds pretty stupid, doesn’t it.

This is one of the prime reasons that so many CEOs bring their ‘own team’ over when they move, as do managers all the way down the food chain—they know they didn’t do it alone.

CEOs aren’t like movie and rock stars whose very names draw consumers into spending money—nobody ever bought a product from GE because Jack Welch was CEO, nor do they carry Jobs iPods—so why pay them that way?

Moreover, assuming that performance occurring during an expansion is a valid yardstick for performance in general, let alone a downturn, is sheer idiocy.

You have only to remember the difficulties faced by people whose management skills were honed between 1991 and 2000, the longest expansion in our history. When the recession hit in March of 2001 they had no experience whatsoever of how to drive revenue or manage in a down economy.

That recession and the previous one in 1990 lasted only 8 months each. The longest recession we’ve had was 2 years, January-July 1980 and July 1981-November 1982, and that one had a 12 month break in it. This means there are a very small number of managers with any actual experience managing in anything even close to what’s happening now.

The current recession officially started in December 2007, so it’s already 15 months old and the end isn’t in sight.

What experience makes these folks the ‘best and brightest’ for today’s world?

Just what the hell are companies still guaranteeing oversized compensation and exorbitant exit packages when now is definitely the time to pay for future performance—no guarantees.

Image credit: flickr

The markets are in turmoil, the economy sucks, borrowing has gone the way of the dodo bird and businesses large, small and micro are looking to cut costs while still motivating their people.

For many companies this means a change in corporate culture, but which changes will have the most impact?

Short answer: creating/enhancing a culture of fiscal intelligence.

Long answer: a transparent culture that spends its money wisely, sharing the reasoning with its people, eliminating low ROI frills and cuts without selling the company’s future down the drain.

This doesn’t mean substituting crappy coffee for the good stuff and eliminating free soda or M&Ms as so many companies do.

It does mean listing all the frills—executive and worker alike—and polling your people to find which are really paying off and which can be scrapped—not a decision made by management, but one that your people hash out and agree to before it’s a done deal.

Sometimes good coffee and soda have a higher ROI morale-wise than you would think.

All this should be doubly true for startups, but it often isn’t. Yes, your money is banked and if you’re VC funded, as opposed to angel, chances are you’re pretty flush—but having it doesn’t mean you should spend it.

Any company that thinks cushy perks are attractive in this economy think again.

Think just how naïve/ignorant/arrogant a candidate must be to expect a large sign-on bonus or fancy perks given current economic conditions.

Not to mention how financially stupid any company still offering them appears to a candidate.

The smartest companies build fiscally intelligent corporate cultures from the beginning, so that when they have to tighten down they know exactly where to cut and their people aren’t surprised.

Throwing money around is always stupid, whether in business or personally.

I’ve heard from companies of all sizes and managers at all levels why this one candidate was worth X more than anyone else walking and how not getting her could deal a crippling, or even lethal, blow to the company.

If you ever feel that way, remember two inimitable truths.

• If not having that one specific person could bring down the company it’s probably going to crash and burn anyway.

• The candidate who joins you for money will always leave for more money.

Remember, the goal is a lean, mean, innovative, motivated machine—not a lean, mean, depressed one.

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Are kids learning anything from the economic meltdown?

Parents seem to be doing everything possible to avoid exposing their little darlings to a dose of reality.

Quotes in a December post highlighted parental efforts to fill Christmas wish lists and shelter their kids from the tanking economy.

A letter to Malcolm Berko asking for financial advice is another example of the lengths to which parents are willing to go, here is the key part.

“…Our son will graduate high school this May and we don’t have the savings to send him to the University of Florida, his chosen school where his two best buddies attend. Our combined 401(k) savings plans are worth $67,000 and they too took a big hit in the market. So we are thinking either of taking a mortgage on our home (we built it without borrowing money), cosigning a note at the credit union or cashing in our 401(k) plans for his college money. Or I could take a part-time consulting job…”

Berko doesn’t suffer fools gladly and has no compunction about saying what he thinks (I highly recommend his column). I’ve shortened his response, but it’s worth reading the whole thing.

“I’d be more concerned about adding money to your retirement savings plan than helping your son pay for frat parties, beer, sex and drugs at the University of Florida…I suspect he really wants to party with his buddies, and UF is a great party school.

Here’s my advice: Tell your son to join the armed services where he’ll mature in a hurry…Or your kid can live at home, attend a community college…and take a part-time job at McDonald’s. If he does well in community college, he can easily find the financial support to earn a bachelor’s or a master’s degree.”

One reason the Great Depression made a great impression was that kids weren’t sheltered from its effects. And although this isn’t a depression the principle is the same.

Saddest of all, preventing kids from experiencing and dealing with reality now cripples them in the future. They have a

• harder time in college;
• more difficulties when they start working and
• more problems in relationships and marriage.

Succeeding in life requires knowing what to do and how to deal with things when they don’t go your way and are outside of your control.

But as long as parents keep shielding kids from the ups and downs of reality and are available to intervene and make [whatever] better then there’s no reason for kids to learn how to do it themselves, which will be a big disadvantage for them in the future.

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There are three universal functions that people at all levels do in the course of daily life and I bet that you can’t guess them.

Every day, no matter who you are or what you do you lead, manage and sell.

Most people don’t believe me when I say this.

Workers think they don’t lead or manage because they’re workers and non-salespeople, especially engineers, are usually adamant that they not only don’t, but couldn’t, sell.

The point is that these three functions have been swathed in enough mystiques that most people believe they don’t do them when, in fact, they do them daily.

You sell every time you convince someone to do what you want them to do.

You lead every time you take the initiative instead of waiting for someone else to do it.

But people hesitate to use words such as sales, manage or lead to describe what they do unless they’re in that profession or already at a certain level in the organization and that holds them back from growing.

We humans have a habit of assigning value to acts based to a great degree on the language used to describe them.

I’m not suggesting that you use this language for bragging rights, but you should use it inside your head when you think about what you do.

For instance, if you’re an engineer who, after thoroughly researching the subject, presents a compelling argument to your boss for buying a new piece of software or equipment and it is purchased as a result, then you sold your argument.

The same is true when your idea of where to have lunch or which movie to see is chosen—you sold it.

Or you’re the junior member of the team, but you take the initiative to research something that you think will contribute to the success of the project even though it’s not your responsibility, then you’re leading.

When it comes to managing most people realize that to get anything done anywhere in their life requires various management skills, but they rarely call it that.

But if you want to grow that’s exactly what you need to do.

Examine what you do every day, including the little things, and acknowledge each time you led, sold or managed and then use the correct language when thinking about it.

It’s what’s in your head, what you believe, that’s important, because no matter what others say, if you don’t think it you won’t believe them.

Image credit: flickr

Here lies Wall Street’s short-term thinking
That trashed our lives without blinking
Ethics and honesty it disrespected
Let’s hope it’s never resurrected!

Are you part of the problem?

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Image credit: Tombstone Generator

(Hat tip to Phil Gerbyshak for leading me to the generators)

Is it dead yet?

Image credit: sxc.hu

The foremost thought to hold in you mind when creating a positive and powerful review culture is that it’s similar to Chinese cooking—most of the time is spent in preparation, whereas the food cooks quickly.

(Note: terminology can be confusing; ‘goal’ and ‘objective’ are interchangeable as are ‘appraisal’ and ‘review’.)

Here are the underlying steps that you need to learn, practice and absorb into your MAP.

Annual reviews alone don’t work even when that’s all your company requires.

To succeed people need semiformal feedback each quarter along with constant, informal daily input and coaching focused on helping them achieve the goals set forth in the previous annual review. (More on goals later.)

Reviews are the same as every other management task—they require good planning, open communications and accountability on both sides.

The first step to painless reviews is to commit to doing

• one HR-blessed annual review, with full paperwork, during the last two weeks of December;
• four quarterly reviews within the first week of each quarter; and
• constant, informal, ‘how am I doing’ feedback all year long.

Remember that

• any time you set a goal it needs a delivery date to be real; and
• never make commitments you either can’t or aren’t planning to fulfill.

First tell your people what to expect, then post your commitment on the department intranet and tell every person you hire how it works—and follow-through.

When you commit publicly you make yourself accountable.

Good reviews aren’t about filling out a lot of paperwork, whether by hand or computer. Yes, you need to follow company guidelines and use company approved forms, but as stated at the beginning, those are the mechanics.

The secret of a positive review culture is defining exactly what you want a person to accomplish during the year, discussing the goals and refining them together, in other words, the heart is the interaction between you and each person on your team, because one size does not fit all.

The result is that your people not only know exactly what their goals are, but they own them.

Setting Goals

• The basic rule is to never set more than three to five major goals in a year and the exact number depends on their size and complexity.

• Annual review goals should be high level, complex, and take 12 months to accomplish. They can include hard skills, such as technical certification, and soft skills, such as improving presentation skills.

• All goals should be quantified. “Be more willing to share” is a self defeating goal because it offers no way for the person or you to measure improvement; it becomes totally subjective, a matter of opinion and a source of contention at next year’s review. Instead the goal might be “Increase time spent sharing knowledge 10%” and agree on what the baseline is currently.

• Work together during the discussions to break down large/complex annual goals into smaller, more manageable goals that can be achieved each quarter and still more bit-sized pieces for each month, week and even day.

The cool thing is that achieving a constant stream of smaller goals keeps people motivated and prevents the large goals from overwhelming them.

And before you start complaining about the time involved, perhaps you should go back and read your job description or, better yet, go back a little further and think about all the lousy reviews you’ve had along the way, either because they didn’t happen or because they were all form and no substance.

Then think about, hopefully, the manager(s) who saw the value and used reviews to challenge, stretch and juice your growth, so you were ready for a promotion that put you in their shoes.

Then decide which one you want to be for your people.

Be sure to come back next week when I show you a simple, amazing tool that helps identify goals for each of your people and also has some terrific side benefits.

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Image credit: flickr

2008 – RIP Investment Capital.

The significant reduction of investment capital ranks as one of the major challenges affecting businesses in 2009. While 2008 may be the year that investment capital evaporated, we are only now learning to live with the loss.

The drought in venture capital has been well documented, with only seven venture-backed companies completing IPO’s in 2008, generating a meager total of $551 million in liquidity (Dow Jones VentureSource). Liquidity through acquisition also fell, by 50% from 2007, both in total dollar volume and in median price paid. In 2009 venture funding will be both smaller and more difficult to close.

Start-up funding from other sources, such as angels investors and friends & family has also plummeted, in direct relation to the decline in the stock markets. Bank credit, either from loans or from credit cards, has shriveled.  This deleveraging will become a permanent part of the economic landscape, for the next decade or longer.

Business Models for the New Decade—Small is Beautiful

In response, many small businesses are exploring new business models that do not depend upon external investment capital and long time horizons for liquidity. While these models are only beginning to emerge, a few trends are already evident:

• Immediate cash flow—without investment capital, cash generation becomes critical. The criteria for business investment shifts from total ROI to payback period, measured in weeks. New business models will generate cash almost immediately.

• Small scale—Scalability has lost its luster. First, there only limited investment capital to fund infrastructure for scaling. Second, the pressure for immediate cash flow shortens the window for investment in scaling. Third, the value of scaling is much lower when the traditional exits—IPO and M&A—are reduced.

• Multiple revenue streams—in the current risk-averse environment, multiple cash streams have strong appeal. Multiple streams can create challenges with business focus, but the combination of smaller scale and overwhelming drive for cash flow can help to keep the organization on track.
• Linked, but not integrated—Linkage generates benefits to the organization, but preserves flexibility and maintains focus for each individual cash stream. Tight integration, often a requirement for scalability, needs more capital and a longer time frame.

• High dependence on the owner/operator—this is a significant diversion from the venture capital business model, in which the investor/owner becomes a central actor in the success of the company.  In the venture model, the entrepreneur develops and prototypes a business concept, then raises venture capital. At some point, the venture owners often replace the entrepreneur with a “professional manager” to grow the company into an acquisition candidate, or rarely into an IPO. Then the “IPO executive” steps in to provide the leadership to close the acquisition or acquisition. Note that the venture investor / owner, not the entrepreneur, provides the continuity in this model.

Example—Building Contractor Reorganizes for Multiple Revenue Streams

The Texas building contractor we met in the last post refocused his business on restoring foreclosed houses owned by banks when financing for new home developments dried up. He targeted small investors searching for cash flow from rental properties. Then he assembled several small service teams to deliver a complete package to rental property investors:

1. house acquisition and restoration,
2. mortgage lender,
3. property manager, and
4. long-term maintenance service. Each team is a separate company and a separate revenue generator with a separate revenue source.

Two threads link these companies economically. First, they all focus on a specific type of customer—a private investor in small rental properties. Each company provides a separate service, but all the services are necessary to offer a complete solution for the customer. Each individual company succeeds better when the entire group succeeds. Second, each company owner has some ownership in the other companies. As a result, the companies are more than just mutual suppliers to the customer. From the customer’s viewpoint they function as a single operation. They are linked, but not integrated.

Build Your Business for Life—Not for the “Exit”

This is perhaps the single biggest change in the emerging business model.

There is no exit.

This is not a threat from Jean-Paul Sartre, the author of the depressing existentialist play No Exit. Rather it is the opportunity of a lifetime. The entrepreneur is a business owner for a long time, even for a lifetime. The rewards for building and owning the business must directly from the business. Any financial rewards come from a stream of profits generated by the business. Any personal rewards in satisfaction come from the business itself. This new model, surprisingly, leads us back to the roots of entrepreneurship.

Do something because you love it.

The rewards will come to you.