Branch Mentality and Sanctuary Cities

Every multi-unit company suffers from branch mentality. I’ve worked with many, and no matter how much they promote a corporate culture and team spirit, branch mentality creeps in sometimes.

It comes in two versions; the outposts’ attitude and the headquarter’s complaint.

In the outpost, where service is delivered, it goes something  like this. “Those people at corporate just don’t understand what we do. They hand us rules that interfere with our ability to get the job done. If they knew how difficult it is to run operations on a daily basis, they wouldn’t burden us with these useless procedures.”

At the main office, the complaint is a mirror image. “Those people in the field want to do things any way they please. They don’t understand how important consistency is to our customers. When we ask that things be done the same way in each location, they act like we are interfering instead of just doing our job.”

Sanctuary Cities

In politics, the issue of Sanctuary Cities is similar. Since the founding of the United States of America, the individual states have resisted unity on many levels. I’ve often had to explain to businesspeople from other nations that they can’t just set up shop anywhere in the USA and begin selling nationwide.

Each state has its own licensing, taxation, consumer protection and labor requirements. These variances were accepted as a kind of background noise until the passage of the Affordable Care Act (“Obamacare”) where states were specifically permitted to opt out of a national law.

I’m certain that this high-profile exercise of states’ rights had a lot to do with subsequent movements to “opt out” of Federal statutes on marijuana and discrimination based on gender identity.

City dwellers have been increasing as a percentage of the total population for over a century. In some states, one or two large cities account for a majority of the state’s population. Sanctuary Cities are just one aspect of local representative governments now extending their lawmaking authority to opt out of regulations from higher up that their citizens don’t like.

Branch Balkanization

It may be tempting for an owner to let managers in the field go their own way. “You are closest to the customer, do what you think is best. As long as you achieve profitability and growth goals, decisions on the ground are yours.”

Choose a pathHow far does decentralized authority  extend? If a store can choose it’s own methods, why not allow the same authority to each manager? Certainly the clientele who shop or eat early in the morning differ from late night customers. Shouldn’t you then allow methodologies to be delegated to the lowest operational level?

Of course, you won’t keep customers very long if they don’t know what to expect when they walk in. That way lies anarchy.

The authority of central governance should be limited to what needs to be centralized. The way to combat branch mentality is to mandate those things that control your offering and presentation to the public. Those rules are inviolable. Flexibility in implementation is acceptable, as long as the most important features of the company’s offering never vary.

If a rule becomes merely a suggestion it is not only ineffective, but you could start a process that degrades other, more important rules along with it.

yem-flat-cover-smallThank you for reading!

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2 Responses to Branch Mentality and Sanctuary Cities

  1. John Lind says:

    In my other life, while being a Corporate person, I became completely entrenched in the Corporate philosophy based on expectations, performance, strategic direction, planning, bench mark standards, consistency of customer relations, product quality, performance guarantees, and team work and development of personnel. These points worked well and the Corporation met financial expectations in the marketplace and stayed ahead of the competition that was consistently on our heals. If there was a ‘sanctuary’ location it would have not worked… the same goes for cities that believe they should be ‘sanctuary’ city on the Federal dime. Cut off the Federal dime if they are allowed to maintain a ‘sanctuary’ city., Consistency should be paramount across the USA.

  2. Gordon Stuart says:

    John
    I think you left a key level off – that is multi – national. I used to work for an Australian Bank who we referred to as IAW – standing for “In Australia We” . This was how they started the sentence to talk down to you whether I was in London or Auckland.
    There is a whole subject here on cultural or market differences – my experience is Australia, NZ, UK, Canada and USA are all very different and despite being in the same industry you need to be careful with acquisitions!

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Exit Planning: Telling Secrets

Planning your exit from a business is a process of telling secrets. For many owners, it is the most terrifying part of selling.

A rancher in South Texas once said to me, “I’m going to tell you a secret, and you have to solemnly swear not to tell anyone. When you do, you have to make them swear the same thing.”

Most business owners are very cautious about with whom they share their exit plans. The logic is intuitive. The more the information is shared, the bigger the chance is that someone will use the knowledge against you.

telling-secretsCompetitors will tell customers, insinuating that your company will no longer be a dependable supplier. Employees might begin looking for greater security in other jobs. Vendors may seek another distribution channel. Your bank could start tightening your credit.

Yet your buyer wants to verify due diligence information. He wants to talk to key employees and customers. Lines of supply and the solidity of relationships have to be confirmed.

Some owners are unduly afraid of letting anyone know their plans. Sooner or later everyone will know, but when they should be informed is an important part of your planning. Controlling the distribution of information might have dramatic impact on the value of your business.

Those who should know about your plans can be placed in three groups.

Round One

Key employees: Whether they are slated to be the next generation of owners or not, key employees should be the earliest group informed of your plans. Of course if you are contemplating an internal sale, their willingness and ability to buy the company requires disclosure. If you are planning an external sale, their cooperation in preparing the company for a buyer’s due diligence will be critical.

Consider having the employees sign a new non-disclosure agreement. Even if you have confidentiality provisions in your employment contracts or policy manual, it serves to emphasize the sensitive nature of exit planning information.

Round Two

Going outside your trusted inner circle is a big step, but you should consider it once you have a solid buyer in place. Sharing earlier, rather than later, makes due diligence easier.

General Employees: Employees can usually be informed fairly early in the sale process. Explain that the transition of the company is a normal part of its lifecycle, and that you are taking steps to ensure that it is done with an eye to their continued  employment. That will go a long way to making them feel more secure. If you treat it like a dark secret, they will have greater concerns about the inevitable rumors.

That’s why I suggest you inform the employees before you tell vendors and competitors, from whom they are likely to hear it anyway. Bringing them “in the know” will also help forestall any hiring attempts by other businesses. Inertia is a powerful force. Usually after a few weeks with no major disruption, the employees just accept your exit planning as a fact of life.

Critical vendors. If you have an exclusive distribution or supply relationship with some larger companies you may already be fielding requests for a documented succession plan. Many suppliers appreciate the forethought of exit planning because it ensures the stability of their distribution chain.

One area of caution. Watch out for a vendor’s loose lipped salespeople, who may regard news of your pending departure as hot gossip for the rest of their customers.

Round Three

Customers: Most customers should be told as late as possible before the transaction closes. If informed of a fait accompli, they are likely to stick with the relationship long enough to gain some experience with the new owners. If informed too far in advance, customers will logically begin to look for alternative sources of supply.

Lenders: While many bankers and other lenders will say that they ought to be informed as early as possible in the process, it is often not a great idea. They may seek the opportunity to finance a transaction, and certainly would like to begin a relationship with any new owner as soon as possible, but they also have a primary responsibility to protect the assets of their institution.

That means they have to worry about the security of your personal guarantees, and whether they see any risk to their capital in your business. Discussions with your bank should include details about the future of your banking relationship.

Due diligence is only one step in the process of telling secrets. Lots of other stakeholders will need to be informed. How and when you do that should be a formal part of your planning process.

yem-flat-cover-smallThank you for reading. If you would like to receive free, pre-publication excerpts of my next book, please register here.

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Resisting Technology

A substantial number of business owners are still resisting technology. Clearly, they can’t be doing so in the expectation that it will go away. The only possible rationale is that it could hurt their business.

One laggard in adopting technology was professional sports. For decades, sports teams tried to contain their exposure on television. Their logic was that if people could sit home and watch an event, they wouldn’t buy tickets.

The National Basketball Association is a classic example. Teams refused to allow the broadcast of home games in their markets until the mid 1990s. In fact, the “greatest sports deal ever made” revolved around television rights.

In 1976 the struggling American Basketball Association agreed to merge with it’s much more powerful competitor, the National Basketball Association. The deal that the NBA offered didn’t include everyone. They would accept the New York Nets, Denver Nuggets, San Antonio Spurs and Indiana Pacers. The Sprits of St. Louis and Kentucky Colonels, however, were not invited.

stlouisspiritsof1The Kentucky Colonels agreed to fold the franchise in return for a one time payment of $3 million. The owner of the St. Louis team negotiated a payment of $2.2 million and 1/7 of the television revenues attributable to former ABA teams in the NBA. In 2014, when the league finally bought out the contract, their total compensation for the buyout and the life of the deal approached $1 billion.

That was an aside, just because it is such a great story. The point is, the NBA remained a struggling also-ran in professional sports until they accepted television as a key component to their marketing. Since then, ticket prices haven’t fallen, in fact they are anywhere from 5 to 10 times their cost back in 1976. NBA players are the most highly paid athletes in professional sports. The league’s inclusion of international players  gives it a television fan base in dozens of countries.

Now the NBA feeds social media live during broadcasts. It has retired stars doing twitter shows taking questions from fans and commenting live on games. It measures every move on the court with computers that feed mountains of statistics to couch-potato fans. And it sells lots and lots of merchandise.

Resisting Technology in Your Business

I think of what television did for the NBA whenever I hear a business owner tell why he is resisting technology. “Online catalogs just attract price shoppers.” “Facebook is for kids.” “No one looks at Google Maps to find our business.” ” Our customers don’t want an email newsletter. They get too much spam already.” “Half of our dealers don’t even have bar code readers yet.” “Tracking our delivery trucks would be like saying we don’t trust our drivers.” “I don’t believe in the cloud; I want my data where I can control it.”

Henry Ford said “If you do what you always did, you’ll always get what you always got.”

Ask the NBA owners, players and fans worldwide if they think they’d be better off without television.

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Bah Humbug! Remembering Mr. Fezziwig

To celebrate the holiday, I’m reprinting a post from 2012 about the underappreciated boss of A Christmas Carol, Mr. Fezziwig. I hope that you enjoy it. Merry Christmas!

Last week was the 170th anniversary of the publication of Charles Dickens’ A Christmas Carol (December 17, 1843). The immortal words of Ebenezer Scrooge are ingrained in the memory of the entire English speaking world. I’d venture to guess that “Bah, Humbug!” can be correctly identified as to source and speaker by over 99% of those reading this.

The novella, serialized in five parts, was not a commercial success. Unhappy with the sales of his previous novel (Martin Chuzzlewit– no wonder!), he refused his normal fee from the publisher in favor of royalties on the proceeds, which proved disappointing. Critical reception was favorable, although it didn’t catch on in America until much later. The New York Times first published a review in 1863, 20 years after its publication in England.

Like most of Dickens’ work, A Christmas Carol clearly includes an indictment of the social inequalities of the Industrial Age; child labor, workhouses, and debtors’ prisons. It stands out, however, because of the lessons taught by its memorable ghosts, and the redemption of its main character in only 113 pages.

During the Protestant Reformation in England and Scotland, Christmas had become a period of penance and reflection. A Christmas Carol is credited by many for leading the return to a celebratory holiday, focused on appreciation and thanks for family and friends.

Modern Ebenezers

Modern filmmakers have returned to the straight-ahead plot and uplifting story line (not to mention the recurring revenues available year after year) with a frequency that helps stamp the legend in our psyche. Starting with the 1938 Reginald Owen version (originally released as “Scrooge”) and the 1951 Alistair Sim classic, the character of Ebenezer has been tackled by actors ranging from George C. Scott to Michael Caine (with the Muppets). Patrick Stewart, Kelsey Grammar and Rich Little (in various celebrity impersonations) have taken a shot, as have Mickey Mouse, Mr. Magoo, the Smurfs, Barbie, Dora the Explorer and the Flintstones.

Let’s not forget the variants; Bill Murray in “Scrooged”, or Boris Karloff and Jim Carrey in versions of “How the Grinch Stole Christmas.” In all, IMDB lists almost 200 filmed variants of the story.

Unfortunately, the characterization of Scrooge has become ingrained in the minds of many as a stereotype of all bosses who dare to focus on margins and profit. How many employees identify their bosses with Fezziwig, who took pride in making his employees a happy group, even though Scrooge dismissed it as “only a little thing?”

FezziwigInstead of focusing on  the things that allow Fezziwig to spend lavishly on his employees (a motivated workforce, honesty, doing what’s right, profitability), we prefer to fantasize about a boss who expresses sudden enlightenment by unexpectedly bestowing gifts and extra days off. Fezziwig is relegated to an afterthought, an overweight doting uncle with no visible reason for his success.

Most of us are far more Fezziwigs than Scrooges. Oddly, if we celebrated the season of giving by handing our employees a list of all the extra things we’ve done for them during the year, we’d be considered more akin to Ebenezer. We bow to the popular myth, give even more at the holidays, and hope it has some carryover into the New Year.

Just remember to remind your employees when you are being Fezziwig the rest of the year. A Christmas turkey for Tiny Tim isn’t the same as being a good boss.

Thanks for reading! Please share Awake at 2 o’clock with another business owner.

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  1. Thank you John!

    Old Fezziwig has been a role model for me for years because of the way Scrooge explains to the ghost why Fezziwig was beloved. “He has the power to render us happy or unhappy; to make our service light or burdensome; a pleasure or a toil….The happiness he gives, is quite as great as if it cost a fortune.”

    What a privilege it is to give happiness to others!

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How Much Does that Gorilla Weigh?

How much does that (fill in your preferred number here) pound gorilla weigh?

I always refer to an 800 pound gorilla, but I’ve heard others use everything from a 400 pound gorilla (which is pretty close to their real size) to a 1,000 pound, 1,200 pound, and even a 10,000 pound gorilla (some folks will always think bigger is better). Regardless of the zoological accuracy of the metaphor, we all understand it. It refers to a person or organization who commands compliance by their size or authority alone.

Despite their fearsome demeanor, gorillas are generally peaceful. Their strength commands respect because they are powerful enough to do massive damage without intent.

gorilla weighIn business, gorillas come in many forms. They are most often customers, but appear frequently as vendors or competitors. Some gorillas are universal. When purchasing, for example, the Federal Government is the gorilla. Regardless of your size, product or services, you bid and price according to their standards.

Other gorilla  customers and vendors use their size to bully smaller vendors. They announce unilateral changes in payment terms, restrictive or expensive conditions of sale, or threaten to end a relationship over any variance in their preferred process.

Some gorillas seem unaware of their power. Decisions made by middle managers in giant vendors or customers can wreck a small business without any deliberate intent.

Many private companies have a gorilla relationship. Customer concentration is one of the most frequent reasons for reduced valuation in a small business. Owners say that they are going to build the rest of their customer base to balance the influence of the gorilla. In reality, just keeping up may take the majority of their attention.

Speed and Agility

How do you deal with a gorilla in your business?

In the wild, gorillas have only two natural enemies. One is the leopard. Although successful attacks by leopards are rare, they do occur. In a very few cases, speed and agility can prevail over brute strength.

The other enemy is man. Humans are the undisputed top of the food chain. Their superior intelligence allows them to trap or kill gorillas almost at will.

Similarly, some small businesses can prevail in an uneven relationship using speed and agility. Like leopard attacks, those victories are rare. Although owners say “Our responsiveness and flexibility will keep us in the game,” one well-placed blow can break your back.

Dealing with gorillas takes intelligence.

  • Expand your contacts so that one decision maker isn’t your only relationship
  • Customize your offerings in a manner that is hard to duplicate
  • Maintain your marketing, even in the most solid relationships. It never hurts to tell someone about what you have done for them lately
  • Remind the customer or vendor of how important they are to you. (Unless, of course, it’s a bully.)

A really large customer can propel your business to the next level, as long as they don’t accidentally swat you.

 

We’ve published this column weekly since 2008. Please share it with another business owner! Thanks for Reading.

 

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2 Responses to How Much Does that Gorilla Weigh?

  1. Eric Taylor says:

    This is a great post John.

    I think it’s fair to say that most of us in the small business community have had to deal with gorillas in our respective industries. They are usually customers, but can also be competitors or vendors.

    In the past year, we have dealt with many issues in which we have been dictated to by gorilla customers. One very large pharma company changed their terms to Net 90, another required us to pay a $2000 fee to order to do business with them, and another required us to pay for a system that they implemented that tracks their/our safety program.

    In all three cases, the outcome could have hurt us as a small business. Net 90 terms could crush us on large projects, the $2000 fee was more than the profit we would have made on the project, and the safety program requires considerable time and effort on our part in order to maintain compliance.

    In all three examples, we prevailed. Our relationship with the customers in all three cases was so strong, that all it took was a conversation with the local decision makers. They were sympathetic to our situation, and worked with us to come up with solution. In one case, they agreed to allow us to invoice them for all of the parts at the start of the project, giving us an extra 30 days, ultimately reducing the net 90 terms to net 45. In the other two cases, our local contacts allowed us to add the costs we incurred to the project.

    In my experience, when you explain the hardship the gorillas policies place on our business; reason prevails and an acceptable solution is the result.

    Happy Holidays,
    Eric

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