Leadership – Five Easy Steps

“They are my people! I am their sovereign! I LOVE them. Pull!” – King Louis quote from “History of the World” by Mel Brooks

For many Brooks’ fans, this classic scene epitomizes what it is like not to be a leader; turning one’s subjects into human clay pigeons for sheer pleasure. Fortunately for all of us, there are many great leaders – – some of whom we encounter in our everyday lives and some who just seem to step up when a situation or opportunity presents itself. It is much more than just staying positive and checking your happiness quotient. I, and others, have blogged in the past about traits and characteristics that are common to both respected and poor leaders. But what about some simple, practical advice you can use every day to become more effective in a leadership role?

Here are five easy leadership steps to consider:

    • Know thyself – One of the best tools I ever employed was the Myers-Briggs test. Finding out my “personality” type allowed me to better understand why I acted and reacted in certain ways and helped me to modify my style. But more importantly, it allowed me to better understand my peers, colleagues and fellow team members and how to more effectively work and communicate with them.
    • Read, read, read – Delve into the case studies and books of those who were great leaders. Learn effective habits and traits to help you negotiate through difficult issues and roadblocks. You do not have to become a disciple of Covey, but understanding concepts such as his will make you stronger.
    • Have a style – You have to work in a manner which makes you comfortable. You may be more of a taskmaster or perhaps a cheerleader, but being consistent allows others to better understand you and builds their confidence in you. There is no need to drastically change to a style that is not you; others will see right through it and your effectiveness as a leader will suffer.
    • Hold others accountable – They say leadership is hard to define, but you know it when you see it. Holding people accountable for their actions and responsibilities is one way of demonstrating this. You do not need to micro-manage or constantly be on your team’s “case,” but a firm, periodic assessment of status goes a long way toward showing you are an effective leader.
    • Admit and address mistakes; celebrate success – Balance here is the answer. Too often, the person in charge spends too much time on one and too little on the other. Perhaps the most difficult but endearing trait is admitting you made a mistake. The typical excuse (usually self- imposed) is you will appear to be a less effective leader if you do something wrong. Keep in mind the famous saying, “That’s why they put erasers on pencils.” And celebrate the “wins”; everyone takes pride in an accomplishment.

So there you have it. Not exactly the complete recipe for being an effective leader but some simple, practical steps you can take each day on your journey to success.

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Leadership; You Will Know It When You See It

“I always admired a subordinate who could stand up and say ‘you said it, chief.’” – quote from a long-time entrepreneurial client

We have all had experience with leaders, and I would be the first to admit that I openly copied the leadership traits of those I admired. The above quote came from a client years ago as I was asking how he instilled the “followship” that is an important part of leadership. His backhanded comment was a reminder of the fact that without some respect (admiration and even fear), the effectiveness of a leader can be somewhat diminished.

I thought about this when I recently attended a session / presentation on leadership. A panel of successful leaders responded to questions and provided some guidance on this topic to the audience. As enlightening as it was, I was somewhat taken aback by the commonality of the message on leadership. While each took their turn at eloquently explaining what they believed a leader was, none captured more than one or two elements of what I thought made a leader. It was at that point that I realized that no definition could capture the wide range of effective leaders I have known.

What I also began to realize as I reflected on my role models was that it was an event or opportunity that allowed that person to become a leader in my eyes. It was action more than executive presence that defined them for me. While I had known most of my leaders and knew what they were capable of, it was an event that brought out their best. Two situations, both related to initial public offerings (IPO) come to mind.

If you have ever been involved in an IPO process, you know it is one of the most intense processes known to man. While not quite like sending someone to the moon, it relies on very timely coordination and execution from a diverse team to come to the right point in time where everyone can “sign off” and give the go signal. At times, that window is only open a day or two at best and if you miss it, you have to revisit the process. At the time of this decision, expectations are high as are the attendant professional fees.

In two separate cases, we were at that go or no-go point and each CEO stepped up and determined the time was not right and the deal was pulled. In one case, it was an experienced professional manager who had been through the process before, but in the other case, it was a business owner with a very unsophisticated business who saw certain parties in the process being pushed to the edge of the envelope. While he was not sure what was going on (and he had the most at risk) he sensed it was not right and stopped the presses.

Crisis, personal issues, conflicts, financial distress, loss of major customer – – I have seen various owners respond to these traumatic events, but it was the true leaders who did not let the situation control them but stepped up to show they were leaders. It was obvious to all present that they saw leadership.

So, as an owner, be prepared to show you a leader. You may in fact be a good mentor and coach to your team, but when the opportunity presents itself, be prepared to step up and do the right thing. The ultimate success of your company may depend on it.

Kids in the business- Can it work?

“Kids suck” quote from James Beaudette – my very close friend

Jim and I have been friends for over 30 years. We first got to know each other when we began coaching our sons in soccer and our relationship has grown since then. We each had three children and many conversations would inevitably turn to something one of our children had done, which we would both find hard to fathom. The conversation would usually end with Jim stating his conclusion which we both share.

After 40+ years of consulting with family businesses, I could tell you stories about children in my clients’ businesses that would make your head spin. Some had unbelievable success; some abject failure; some were responsible young adults and others entitled brats, I have seen it all. I would almost be embarrassed to tell you how many times I had to lean in to a parent or parents and confide what Jim had taught me long ago.

But out of these experiences came some valuable advice on how to handle kids in the business. Now some of this will sound like motherhood and apple pie, but I have found that it does work. So here are three pointers.

The first is, family is family and business is business. I watched a young son take a $20 million business to over $1 billion in 20 years. Two young brothers who had worked part time in a business stepped up when their father passed away and turned it into one of the leaders in their industry. I also watched two brothers who were in dispute over leadership resolve their differences by craftily splitting the business resulting in two household name consumer products companies. The common theme here is while they shared that important bond of family, they never let family issues blur what they had to do for the business. It was appropriately striking this balance that resulted in each of their successes.

The next is when kids are in the business, be honest with yourself and your children. This is most important when you face major milestones and one that comes to mind is succession planning. I have done more than one succession plan where the end result of my work was that the oldest sibling did not become the heir apparent. They all ended with both successful transitions and with all talking to one another at Thanksgiving. I would love to take credit but it was the direct result of honest dialogue about the objectivity of the process and the importance of keeping the business sustainable. I have also walked away from assignments where the parents wanted me to “anoint” a family member as the next leader. To quote “In Living Color“, “Homey don’t play that.”

Finally, know the difference between being a mentor and being a parent. This is perhaps the toughest task of all. Too many parents make decisions as a supervisor (in one case to support the project a daughter was proposing that had little merit) with their parent hat on versus their mentor cap. This can enable bad behavior, lead to the ill-fated “bosses kid” syndrome and doom your child to failure. So while I am sure that on occasion you will reach Jim’s conclusion about your kids, try to be disciplined and follow some simple rules and you will find kids in the business can work and your family business will beat the odds of next generation success.

“Time Has Come Today” – Late 1960’s Hit by The Chambers Brothers

I saw a recent article in the NY Times where owners were lamenting their inability to buy out their partners.  As one who has dealt with entrepreneurs for many years, I really empathized with some of these cases.  It was particularly disappointing to hear of Partners who really could not work with each other but neither could afford to buy the other out. Perhaps the worst was the owner who gave substantial ownership to two Partners for some advice and connections in the early going.  Now years later, while their contribution was a distant memory, their ownership remained. To me, this was not really a buyout problem but an unfortunate use of equity.  I have probably blogged on this subject more than any other and it is painful to address it.

So, as your business grows, it is difficult to finance what I call the Big Three; namely increasing working capital needs, acquisitions and shareholder retirement. In fact of the three, financing sources despise the last item. In the first two, the money is hopefully acquiring something of value; not just going out the door to previous owners. In addition, the related accounting is usually just as bad; reducing the book value of the business. Talk about a double whammy.

Many (as this article did) suggest bringing in private equity and I have been involved in dozens of these transactions. It certainly is an alternative but it is naïve to think it does not come at an economic and times emotional cost. In many cases, dealing with your “new” partner is a lot different from dealing with the partner you are buying out. Please do not think of this in any way as an easy alternative. So what to do?

The best place to start is at the beginning with the old adage “don’t get into a deal unless you know how you are going to get out.”  Think of the exit before you sign the deal and along with it succession.  What happens under various scenarios?  Start with the worst first; what happens if a partner dies; do you want to be in business with that partner’s heirs?  Life insurance and non – voting stock are options that can be used to ameliorate this risk.

What about disability and who covers what that partner does?  Again insurances and appropriate provisions can protect the company going forward.  Pure liquidity for a partner who leaves remains as the issue.  I am not a fan of providing liquidity and you can finance the buyout with a long term note (I have seen 10 -15 years) but there always has to be the provision that note payments cannot kill” the goose that laid the golden egg.” Selling basically becomes the other option and we are seeing that option in more agreements if terms of a purchase cannot be worked out.  Price is also an issue and you can define it all you like; the only thing that works on basically all fronts is fair value.

So, this NY Times article would have had a much different tone had the owners considered their liquidity alternatives at formation. For the rest of you, the time has come today to address this before it is too late.

Teamwork – No Successful Entrepreneur Should Leave Home Without It

“We got the tools; we got the talent.” – Winston Zeddemore from Ghostbusters

I am often asked what makes one company more successful than another.  Many think it is the uniqueness of the product or the ability to obtain financing that results in success.  I am going to draw upon three decades of comments and discussions with Venture Capitalists to help form my point of view.

It was the early 1980’s and I was at Arthur Young.  We had started to focus on high technology startups and, in fact, our San Jose office had been formed to focus solely on this market (Apple and Genentech were early clients.)  We had a national meeting of about 70 people – including a group that probably represented a majority the Venture Capitalists in the country.  One of the partners from Welsh Carson was doing a presentation and we were all anxious to learn how this very successful firm selected the best technology prospects in the world.  The Partner said that was easy.  The first 5 things they looked at were management, management, management, management and management.  Pretty clear message.

In the 1990’s I had a chance to attend some sessions with the brilliant strategist, Brian Quinn, from Dartmouth as part of the Tuck Executive Program.  We were discussing successful strategies in what was (and always is) an ever-changing world.  Brian consulted with many VC’s and, based upon his experience, had one key piece of advice; without a successful management team, most strategies were doomed to execution failure.

A few weeks ago, I was at one of our favorite spots, the ER Accelerator in New York.  I was talking with the team there regarding their selection of participants for the upcoming session they sponsor.  So, what was their focus?  It was simple; a solid team and a fair product trumps a good product and a fair team every time.

Growing and maintaining a successful company requires a good team; that is obvious.  As the leader, the burden is on you to recruit the right people and, more importantly, to not allow a true non-performer to remain because it is too difficult to part with a friend.  So, a few ideas to consider:

  1. Never be afraid to hire someone onto the team who is smarter than you (or the other team members.) There is something to be said for having the best athlete on your side.
  2. Chemistry rules but conformity is destructive.  Don’t avoid having someone on the team just because they may not be like the rest of you.  I counsel with a number of very talented individuals who, at times, do not maximize their contribution because they feel they are left-handed people in a right-handed world.
  3. Get input from junior team members on selection.  I have had the chance to be the one in charge and have rarely hired a person when my administrative assistant or a junior staff member felt it was not a good fit.  That unfiltered view can be extremely valuable.

Recruiting the right team members is one of the most important contributions a leader makes.  Keeping the team motivated and working as one unit (once they join) is probably a close second.  Spend the time on these important tasks and have the patience to develop your team so you can help ensure your company will be a success.

Business Owners Separation – One Solution

“They say that breaking up is hard to do

Now, I know, I know that it’s true

Don’t say that this is the end Instead of breaking up

I wish that we were making up again”

Lyrics from the 1975 hit Breakin’ Up Is Hard to Do by Neil Sedaka

Let’s face it, whether it is a business or a personal relationship, breakups are tough.  There is usually some underlying issue or problem that could probably be addressed logically, but soon emotions take over which leads to the famed “irreconcilable differences” and before you know it, you need an intermediary; sometimes to avoid physical confrontation.

I have been involved in countless shareholder disputes; many rather benign, but, also, a few doozies.  Trust me, I am not a lawyer and when the legal threats start getting tossed back and forth, I am one of the first to head for the exits.  I am not so naïve to believe I can reconcile irreconcilable differences; it’s just not what I do.

But, many situations can be negotiated out as long as there is some desire to reach closure by both parties.  I have watched a very good lawyer friend of mine do this many times under the guise that many differences can be reduced to dollars and cents.  Quite honestly, an objective issue (like money) is much easier to negotiate than a subjective one (like hurt feelings.)

Here is one technique that I recently used that seemed to work following this concept. Three partners in a business decided to go their separate ways.  Of course, there was no provision in the “shareholders agreement” to cover this eventuality.  Though often used as a solution, selling the business was not an option here.  There were also differences as to what each wanted to do in the future.  With all of the focus on each owners’ share of the company, there seemed to be a logjam in the separation process and it started to negatively impact the business.

I decided to bifurcate the focus into compensation for value contributed and ownership rights.  After consulting with a compensation consultant, we were able to get the parties to agree to compensation levels based upon job responsibilities and then two owners agreed to take less compensation for less time.  Next, we followed the concept of owners getting paid for any share of the business they gave up.  We set up some limited buyouts and after a few weeks of haggling, an overall solution was reached.

With hindsight, there was really no major dispute.  It was simply that a couple of owners wanted to pull back a bit but unfortunately, there was no framework to do so.  Once emotions were put aside, getting to a solution was not that difficult.

So, two simple lessons learned.  First, keeping a focus on measurable versus subjective points helps when resolving ownerships issues.  Second, and more important, the time to negotiate exit provisions is at the beginning of a relationship, not in the heat of a dispute.  Keep in mind the old adage… you should not get into a deal unless you know how you are going to get out.

Advise – Not Impose

Max Bialystock:  So you’re an accountant, eh?

Leo Bloom:  Yes sir

Max Bialystock:  Then account for yourself!  Do you believe in God? Do you believe in gold?…

From The Producers by Mel Brooks

 

So, I just had my second heated discussion (in three weeks) with another advisor about a mutual client.  Now, believe me, I truly respect the passion that an advisor can have for his or her point of view – I am guilty of that myself at times.  But, I draw the line when I have made my case and a client decides to do otherwise.  It happens and you learn to deal with it.

Though these were different advisors and clients, it was the same subject- providing liquidity for an equity-type plan in a mature private company.  First, let’s expand a bit on the issue.  Many owners receive advice that some type of plan which provides economic rewards for performance based on an increase in the value of the business is a good thing.  There is nothing wrong with that concept and the use of this technique (usually in the form of stock options) by public companies is rather widespread. But, public companies have a distinct advantage.  Those receiving the options can turn around and sell the underlying stock in the public market with no further cash outlay on the part of the company.  This is one of the advantages of being public.  It is when the company is not publically owned that the “rubber hits the road.”  Now, when that option is exercised in a private company, what does the new shareholder do to get liquidity?

So, why the heated discussion?  Well, in both cases, the other advisor stated that without liquidity, such a plan really had no value and when my clients in both cases weighed the risks and decided against liquidity, both advisors became adamant about it being required.  Both of my clients were ready to abandon their plans though they both felt they needed some type of plan.  When I asked each advisor how they would handle the liquidity requirement, one said that company A could borrow money to buy the shares back, the other suggested that company B could give the company the right to buy back the shares, when appropriate.  As my 8 year old granddaughter would say “really?”  Banks love to make loans where all the money that is borrowed goes right out the door to a shareholder and a shareholder is happy to wait until their company is good and ready before they buy back their shares.

So, let’s forgive the fact that I felt neither advisor had thought through then consequences of their advice (they did not account for themselves), it was them imposing on these clients a solution that almost caused the clients to abandon a technique that would help them grow their business.  By the way, we got rid of both advisors, developed an equity-like plan and a bonus plan and met the objectives the clients wanted.

So, if you are confronted with advisors who impose rather than advise, please be careful.  Advisors come and go, but you are stuck with the consequences of their actions.