Exit Planning Tools for Business Owners

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The Sixth Entrepreneurial Sin — Envy

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This week we start on the two remaining deadly sins of an entrepreneur. Envy and Pride are the strategic sins. The first two (Lust and Gluttony) are operational; they interfere with how you function as an owner and leader. The middle three, Sloth, Wrath and Greed, are tactical. They interfere with how you run your business.

The strategic sins twist your vision and goals for the business. The first of these, Envy, is defined in the dictionary as a feeling of discontent with regard to another’s advantages.

In our business owner peer groups, we ask new members after their first Board meeting what they took away from the experience. By far the most common answer is “I thought I was the only one experiencing problems in my business.” That’s envy, an unrealistic belief that the face other owners show to the world is entirely true, and that you are the only one facing challenges.

envy whyYou are guilty of Envy if you think everyone else has better employees than yours. If you believe that other owners are making more money, or have a better work/life balance than you, envy is a problem. The common envious phrase that I hear is “My problems are different. No one else has a business that’s as difficult as mine.”

It’s not true. I’ve consulted in hundreds of companies, and I have yet to see one that didn’t hit bumps in the road. Each has its own special challenges.

Take the construction trades for an example. The roofing repair contractors say “No one else is as weather dependent as we are. When it rains, we can’t work. When the sun shines, no one needs us.”

Electricians are the first on the job (to run power for everyone else) and the last to leave (installing face plates on a finished project.) The window contractors have to provide a finished (and fragile) product at an early stage of construction, but are expected to have it still look perfect after months of everyone else working around it.

I’ve heard each say that their issues are unique to their trade, which is true. They also say that no one else has challenges as great as theirs, which isn’t.

The business virtue that counters Envy is Knowledge. Knowledge is a three-legged stool. You need financial knowledge, legal knowledge and business knowledge to succeed in business.

Financial knowledge grows out of meeting with your accountant and banker more than once a year. They can provide a lot of insight into your business if you ask the right questions. How are others in my industry faring in this market? What metrics do you use when judging the credit worthiness of companies like mine?

Legal knowledge comes from talking to an attorney when issues are small, not just when you are afraid of a lawsuit. Do I need a contract for this? What will my possible liability be in this situation? Are there regulations or laws I need to be aware of?

Most business owners acknowledge that they need legal and financial advice. The biggest remedy for Envy, however, lies in the third leg of the stool — business advice. Accountants and lawyers aren’t typically entrepreneurs. Good business advice comes from business people.

There are lots of places to find business advice. Your trade group or professional association is the first place to look. There you’ll find others who deal with exactly what you face. The business departments of local colleges, the Service Core of Retired Executives (SCORE) and Small Business Development Centers (SBDC), both sponsored by the SBA, offer free counseling in most cities.

After five years as a member of peer groups and another two decades facilitating them, I admit to a prejudice in favor of getting business advice from other business owners. There is nothing more valid than real-life experience from folks who have “Been there — Done that — Have the tee shirt.”

Eighty percent of running a business is common to all businesses. We all deal with employee compensation and incentives, new technology, changing market conditions, competitors, regulations, vendors and customers. The other 20%, the part that generates revenue, is all that is uniquely yours.

If you don’t have a safe and confidential place to discuss your business with others who face the same issues, find one. It’s the only cure for Envy.

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The Fifth Entrepreneurial Sin — Greed

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Few small business owners identify with the bloated income of Wall Street Tycoons. To accuse an entrepreneur of Greed brings up memories of the Gordon Gekko 1980’s, when “Greed is Good” seemed to be the motto of 30-something Boomers focused on the quest for success. in reality, most owners work very hard for a modest income, and feel that a little more would be amply justified.

(If you are reading Awake for the first time, this series on “The Seven Deadly Sins of an Entrepreneur” starts here.)

wrench and dollar signGreed in your business isn’t the quest for material success. That’s presumably why you own a business in the first place. Greed is a trait that prevents success. Greed is a foolish quest for more without knowing what more is. It’s focusing your efforts on cost and savings in the belief that you never have quite enough…of anything.

You can’t afford to raise wages because you need a little more revenue first. You can’t upgrade your equipment until you have a little more margin. You could be more competitive or expand your presence if you just had a few more good employees.

Greed shows its ugly face in a company where no expenditure is made unless it is unavoidable.

  • Technology is only replaced when it breaks, and then with the cheapest equipment that is the minimum necessary to do the job.
  • The office décor is a tribute to the durability of faux wood paneling.
  • No one gets a raise unless they demand it
  • Your website looks like it was done by a 14 year old (and perhaps it was.)
  • Maintenance and repair expenses increase every year.

Greed comes when an owner doesn’t know how to measure success. He or she can’t identify the most profitable lines of business, calculate underutilized capacity, or estimate return on investment for new equipment.

We previously mentioned that the business virtues that counter the sins of Lust and Sloth are Planning and Benchmarking. These need to be in place before you can defeat Greed, because its countering virtue is Budgeting.

Budgeting is the system by which you determine what success looks like. It starts when you define success, so build your budget from the bottom up. Begin with profit. Profit isn’t what is left over after everything else is taken care of. It’s the entire reason for your company’s existence.

From a target profit, work up through the expenses that will make it possible. How many employees will it require? How much raw material? How many transactions? What will each one cost; and what margin will it contribute?

Now you are ready to project the necessary revenues. Not the revenue you merely wish for (like “Ten percent more than last year,” with no idea  of where it will come from.) It’s the revenue you’ll need to make the profit you want, attract the best employees, and grow your business on something other than a shoestring.

Perhaps the revenue you need seems out of reach. In that case, you can make it into a two year or three year budget. The idea is to understand, in a concrete way, what will actually deliver the business and lifestyle you want. It’s understanding how that revenue will be created, ands what it will take to do it.

If all you know is that it’s more than you have right now, with no idea of how you’ll get there, you are guilty of Greed.

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The Fourth Entrepreneurial Sin — Wrath

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We continue the Seven Deadly Entrepreneurial Sins series that we started here. We’ve covered the two Operational Sins (Lust and Gluttony) that make you less effective as an owner. Sloth is the first of the Tactical sins; those that make your operation less effective. The second is Wrath.

wrathForget the dictionary definition of Wrath, although depending on how your employees see you, the part about “referring to divine retribution” may be appropriate. <grin> Wrath is, by anyone’s definition, created by a surplus of adrenalin.

If you are the founder of your business, adrenalin probably got you through long hours and late nights. It helped take your game to another level when failure wasn’t an option. It still comes in handy when you walk into the business tired or preoccupied, and find that you have to immediately launch into firefighting mode. But Wrath, depending on adrenalin to deal with problems, has no place in a well-run company.

Steven Covey said that the more time you spend in his urgent/important quadrant of task rankings, the less time you have for real CEO activities. Eventually you will only have time for urgent/important, moving from crisis to crisis with barely enough time to catch your breath in between.

When there are delays, or a flood of work that strains capacity, is your standard answer that everyone just has to buckle down and work harder? Do you worry about taking vacation because your employees will slack off without you there to drive them? Are you frustrated by their lack of urgency? Are you a willing listener when employees complain about each other?

Your adrenal glands (you have two) have a species-survival purpose. When faced with a “fight or flight” decision (“Uh oh, big animal, do I try to kill it or is it going to kill me?”), an adrenaline surge increases you heart rate and floods blood to the brain. You think faster, feel stronger, and are less conscious of pain.

This is a business, rather than a medical column,  so I’ll go lightly on the effects of Adrenal Fatigue; but it is a real syndrome, and I’ve seen may business owners suffer from it. Just like any other organ, adrenal glands can be pressed to maximum performance for only so long before they start to deteriorate. Once you reach the “burnout” stage of continuous exhaustion, and start having difficulty in making decisions, it usually takes six months or more to recover.

The Business Virtue that counters Wrath is Planning. We aren’t talking about high-level Strategic Planning. While that is advisable, no strategic plan can anticipate the day-to-day issues of running the company. That’s why Wrath is a Tactical Sin.

Any amount of planning will lower your adrenalin abuse. What would happen if your thought was; “I hear a noise around the next turn in the trail. It might be a big animal. If it is a deer, I’ll kill it for dinner. If it is a lion, I’ll run.”

Do you feel the difference in your reaction, even to this hypothetical problem? You are still ready to use your fight-or-flight mechanisms to react, but that little bit of preparation increases your feeling of control, and reduces the adrenaline surge.

I once had a manager who insisted on meeting me in the parking lot each morning with his problem of the day. I told him repeatedly that if he didn’t at least wait until I had a cup of coffee and got into my office, I would fire him. He never could get that. He thought his problem was the most important thing on the planet, and he had to tell me about it as soon as possible. So I fired him.

Planning starts with today. Consider a huddle in the morning with your key people to discuss their plan for the day’s activities. If most of your crises are passed upwards to you, have your direct reports start planning tomorrow’s activities. Once you get them in the habit of planning for a day or two, start them on planning for the next week. Most importantly, don’t fall back on Wrath when they are slow to get it.

I have a client who has built a number of successful locations for his retail business. He recently told me, “I worry that I’ve lost my appetite for risk. Years ago I would drive past a location I liked, and within a few months we’d have a new store there. Now I go through so much research and debate about traffic, demographics, return on improvements and lease negotiations. Have I lost my nerve?”

I pointed out that his increased reliance on planning likely came from some of his experience with the results of not planning. He agreed, and that made him feel better.

 

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The Third Entrepreneurial Sin — Sloth

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This week we begin discussing the tactical sins. They are those habits of a business owner that impact day-to-day operations; Sloth, Wrath and Greed. To read this series from the beginning, start here.

Few business owners would acknowledge that they suffer from Sloth. Most work very hard. To paraphrase an old New Yorker cartoon, “The thing I like best about self-employment is that I can make my own hours. I’ve chosen to work 24 hours a day.” (Also, see Lust.)

good enoughSloth in your business isn’t a disinclination to put in the effort. It’s the sin of settling for “good enough.”

If your sales are flat, margins are shrinking or you never experience employee turnover, you may be suffering from Sloth. If you accept financial reporting that is late (after the 15th of the following month), or worry that you wouldn’t know what to do if a major customer defected to a competitor, you are definitely guilty.

There are things you say to your employees that indicate Sloth. Listen for these clues:

  • “I know the order isn’t complete, but we are late already. Ship what we have.”
  • “Yes, that’s Bob’s responsibility, but I’d rather you handled it.”
  • “The bank wants to see our financials. When should I say they’ll be ready?”
  • “I think we are making a good profit. We are paying the bills.”

Managing your business isn’t a matter of finding the lowest common denominator. Just because you aren’t going broke doesn’t mean you are running a great company.

The “Business Virtue” that counters Sloth is Benchmarking; the ability to measure your results against a standard. Various management approaches extol Balanced Scorecards, and Key Performance Indicators. “Manage what you measure” is an axiom that is frequently quoted, but far less applied in day-to-day operations.

Benchmarking your company requires that you know how others in your industry or market fare. It doesn’t require industrial espionage. Trade associations, banks and accounting firms have statistical reports with financial metrics by industrial code and company size, most of which they will share on request. Knowing where you stand against other who run businesses like yours is a first step in knowing whether you are doing well, or just surviving.

At the very least, know where your company stands against itself. I’m surprised by how many business owners can’t tell me how their ratios look compared to last year, or the direction of their margin and expense trends.

Internally, Benchmarking requires that you set measurable standards of employee performance. Are your expectations made clear via goals and objectives with concrete deadlines? Is advancement tied to achieving these, or do raises and promotions come because someone is good enough? When was the last time you terminated someone for not improving?

I knew an owner who reviewed a lower-level employee. The worker had a specific job that only he did. He had production goals, which were met in the previous year and qualified him for a raise. The owner congratulated him, and then said “Let’s look at what could be better, so we will know whether you have earned your next salary increase.”

The employee exclaimed “You people are never happy. I quit!” and walked out. He spoke the truth, but the business was in the top 1% of profitability in its industry. They didn’t get there overnight. It took many years of looking for (and measuring) what could be better. Their quest for improvement would not be abandoned for an employee who felt that he was already “good enough.”

Sloth isn’t laziness. It’s the insidious creep that begins when an owner has too much on his or her plate, and lets slide the things that aren’t an immediate problem. Left too long, it may be the most difficult sin to root out of a company’s culture. That’s why we first discussed the sins that affect an owner’s personal performance, Lust and Gluttony. Only after you have tuned up your own efficiency can you begin to work on the issues surrounding you.

I hope you enjoy Awake at 2 o’clock? Please share it with other business owners.

 

The Second Entrepreneurial Sin – Gluttony

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This is the third in our series about The Seven Deadly Entrepreneurial Sins. You can start from the beginning here.

Gluttony is the second of the Operational Sins; those that reduce your personal effectiveness as an owner and the leader of your company. There are a number of indicators that you might be guilty of Gluttony.

  • You are the first person to arrive every morning
  • You’re the last one to leave at night
  • You work weekends, but your employees don’t
  • Your “to do” list can’t fit on one sheet of paper
  • Even when you use columns
  • You only work on the next deadline
  • All of the above

do everything notesThe glutton entrepreneur takes pride in being able to do every job in the company better than anyone else. His or her answer to problems and delays is “Never mind, I’ll just do it myself.”

The worst sign is when you cringe at a big new sale, because it only means more work for you.

The Entrepreneurs “Catch-22” goes something like this:

“I could make this company take off if only I had one more really good employee, but good people cost more than we can afford right now, so I can’t make that key hire until we grow just a bit more, but I can’t see how we are going to grow, because I’m working as hard as I can right now, and I can’t accomplish any more until I have one more good employee.”

If this sounds like you, then it’s a good bet that your employees have been trained to delegate up. Delegation is the business virtue that counters entrepreneurial Gluttony.

My thanks to Ken Blanchard and William Oncken Jr. For their book The One Minute Manager Meets the Monkey. Now celebrating its 25th anniversary of publication, it’s still one of the best “how to” guides on delegation. (and remains in Amazon’s top 10,000 sellers.)

Employees will delegate to you if you let them. It’s not like they say “Boss, I’m assigning this to you.” Instead, they appeal to your ego as chief problem-solver and decision-maker.

“Hey Boss, we’ve run into a problem,” “They still haven’t gotten back to me.” “I’m not sure what to do next.” “You know more about this than I do.” Rest assured, your employees have learned the code that makes you stop what you are doing and dash to the nearest phone booth (good luck with that!) to put on your Superman cape.

Blanchard and Oncken describe four simple steps for effective delegation.

Develop a straddle reflex, and define the next step. Be especially careful of the word “we.” If you didn’t have the problem before this conversation, why should it be yours when it’s over? Employees who aren’t accustomed to problem-solving can’t think through every iteration of possible outcomes. Start by getting them to determine the next step, so that the action required seems more manageable.

Assign responsibility. Sometimes it really is your problem. If not, get the employee’s acknowledgement that he or she is the one who will make the next (clearly defined) move.

Insure the risk. The outcome of every decision has implications. If the risk is low, tell the employee to act and then inform you of the results. If the risk is high, make sure you OK the next move before it is implemented.

Schedule the follow up. The employee should understand clearly that the next move has a specific time frame for action. Put a follow up meeting on the calendar (and stick to it.) If you feel the employee is procrastinating, move the meeting forward.

You have to take smaller steps at the beginning. As your employees learn that you won’t take the problems off their hands, they will bring fewer of them to you. As they learn to tackle issues in steps, they will be able to go longer between follow ups.

Building a system for teaching others to work without your constant input frees you focus on the things that will move your Personal Vision forward. Tackle Lust first, then Gluttony. You can only tackle broader challenges in your business after you’ve dealt with your personal effectiveness.

Next week we’ll start the Tactical Sins; Sloth, Wrath and Greed.

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