Who are the Real Business Performers?

Posted on June 20, 2011 by John F. Dini

A business owner told me a story the other day…

“After I was in business a few years, a large corporation made me a terrific offer to come work for them. I left my company in the hands of my manager, and accepted the offer.”

“A friend who works for a large corporation said ‘You will do a great job, but you will fail. You just don’t understand the politics.'”

“A few years later the company ran into some difficult times. We knew that cuts would be coming. I was unconcerned, because my team, despite being in the smallest market in the region, had generated 70% of the business that year. Two of us had produced twice as much revenue as the other eight employees combined.”

“So I was completely unprepared when the regional executive called to tell me that they were cutting one employee to save expenses; me!”

Fortunately, he still had his business intact, and returned to it successfully. Like many entrepreneurs, he is of the opinion that his performance wasn’t recognized or appropriately appreciated in a larger environment. The majority of business founders I know left a job because they felt that they could do better on their own.

So small business owners as a group see themselves as the performers, the ones who make things happen. They look at corporate executives and say “What’s the big deal about doing what you are told, and following the rules for an entire career?” Small business owners are the first to rant against outsized corporate compensation. Why should companies pay millions of dollars to people who have never missed a paycheck, and only been asked to create their own solutions without support or guidance?

I also know some corporate executives. They have climbed a tough and competitive ladder. At every level, they faced off against other talented, educated, ambitious employees who wanted the same promotion they sought. They see themselves as the winners, the best and the brightest, who have been honed in an unforgiving gauntlet.

Are the best and the brightest really more likely to be in the small business world or the corporate world? Are they just different kinds of people? Is it just luck or circumstances that sets them out on one path or the other? I’d like to see your comments here. Please identify whether you are an executive or a business owner, or if you have been both.

I’m also posting this discussion on our Linked In group “Small Business Owners Knowledge Knetwork.”

Posted in Leadership | Tagged , , | 1 Comment

One Response to Who are the Real Business Performers?

  1. Brad Elmhorst says:
    June 20, 2011 at 7:57 am

    John, well stated. You have captured the blueprint of most large corporations who hire managers with advanced degrees and book knowledge, who then manage teams of support staff or support suppliers that do the work. Change for the sake of change in support staff and suppliers is the largest erosion of corporate success which continues plague our American corporations.

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Profits and Savings aren’t the Same Thing

Posted on June 5, 2011 by John F. Dini

How much profit will you make this year?

If you are like many business owners, the answer is “We’ll see.” They consider profit to be the amount left over after all of the business expenses are paid. That’s an accounting definition, not a business definition. The accounting equation is R-E=P. While valid from an arithmetic perspective, that approach causes may businesses to look at profit as an incidental effect of cost control.

Intuitively, calculating profits as a remainder seems to make sense. It is how you approach your household budget. Your take-home income, less your living expenses, equals your savings. Household savings are available for unexpected expenses, lifestyle upgrades (a new car or home) and retirement.

Business profits are intended to be used. They aren’t a rainy day fund, nor are they a code word for owner distributions. Your distributions as an owner are part of your compensation. In the CPA licensed seminar “Making Your Business Really Fly” the Australian entrepreneur interviewee who is the subject of the video, Wally, says “If you are bearing the stress and pain of running a business, and all you are getting is a salary, then you don’t have a business, you have a job.”

From an accounting standpoint, profits fund owner distributions. That is a tax issue, not an operating methodology. Profits also allow the company to grow. They are spent to create more profits. They should be budgeted after appropriate distributions for ownership. Running your business with a philosophy that says “I pay the employees and other bills, and the rest is mine,” leads to two issues that hold back your company’s growth.

The first is starving the company of needed capital. Once you have done your tax calculations, it’s psychologically more difficult to let go of the money. I understand the tax advantages of reinvesting it as a loan to the business, but most of us don’t do that. We put it in our personal account, and withdrawing it from our “savings” to put it back into the company is painful. Most owners would rather cut expenses to the bone before reinvesting on a regular basis.

The second psychological issue revolves around the way in which many owners generate profits. They “squeeze” them out at the expense of good management practices. Employee performance reviews are delayed, because they are usually accompanied by raises. Technology upgrades are deferred or marketing is under funded. The resulting “savings” trickle down to the bottom line as “profits.” 

Your budget should have two profit lines. The first is the planned distributions you deserve as an owner. That should be an amount that gives you a risk-adjusted return on your investment, an appropriate bonus above your executive salary for meeting management objectives, and a payment on the deferred compensation (or sweat equity) that most of us put in at the beginning. That can be considered your savings.

The second line is company profit. That is the money you need to invest in the business for growth, regardless of how you handle it for tax purposes.

Unless your business can fund both profit lines, you really just have a job.

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The Third Factor- A Third Eye?

Posted on May 31, 2011 by John F. Dini

For several years my writing and speaking has focused on two factors that are indispensable for entrepreneurs; creativity and tenacity.

Creativity is the drive that not only makes entrepreneurs see opportunities, but also makes them consider every problem or challenge as solvable. It is the part of the business that entrepreneurs enjoy so much. That’s why so many of them are poor managers.

Tenacity is the refusal to accept failure. Any successful entrepreneur has been told at some time that it just won’t work. Most have felt at some point that things were hopeless. The phenomenon is widespread enough to have axioms that entrepreneurs use frequently. “When the going gets tough, the tough get going.” Or Nietzsche’s “What doesn’t kill you makes you stronger.”

These two traits come together often. Let’s call it “tenacious creativity.” When faced with challenges, entrepreneurs think of solutions. If the solution doesn’t work, they think of another, and another, and another. That’s how they survive long enough to become successful.

The Third Eye
The other day my friend and client, Steve O’Donnell of Hill Country Bakery, offered a third required trait: the ability to navigate in the fog. What a great way to phrase it!

Some folks call it vision, but it is more than just knowing where you want your business to go. It’s knowing how to get it there without sign posts. It’s understanding innately what will get you closer to your goals and what won’t. It’s knowing when to listen to advice, and when to ignore it. It’s having a sense of direction in your gut that lets you instinctively choose the right path.

Many religions have the third eye concept. It appears in Taoism, Hinduism, Confucism and Gnostic Christianity. It refers to an instinctive knowledge that can’t be explained by the usual five senses. It may be clairvoyance, or psychic vision, or foretelling the future. It may be all of those things.

But the Third Eye is clearly part of what makes an entrepreneur successful.

Somehow, when Steve said it, I just knew he was right.

Posted in Entrepreneurship, Leadership, Thoughts and Opinions | Tagged , , , | 3 Comments

3 Responses to The Third Factor- A Third Eye?

  1. Bobbi says:
    June 13, 2011 at 5:29 pm

    What a great post! I’m currently working with an entrepreneur who listens to everyone but herself. I can’t seem to make her understand that, while it’s great to seek advice and suggestions, you can’t always listen to everything everyone says.

    Reply
    • John F. Dini says:
      June 20, 2011 at 6:06 am

      Thanks Bobbi. All too often a business owner tries to do everything that might work. The third eye is developed by creating both a personal vision (“What do I want my life to look like when my company is successful?”) and a company vision. Take a look at the Simon Sinek video at TED.com

      Reply
  2. Srinivas Daram says:
    July 28, 2011 at 9:19 am

    Great Tips, thanks for sharing with us. Especially the way you put together notes on third eye makes sense and in closing you were talking about religion, which brought many memories, where GOD has opened his third eye (my parents used to tell lot of mytholigical stories). Once again thanks for sharing.

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When a Good Employee Fails

Posted on May 23, 2011 by John F. Dini

One of the most difficult challenges facing any entrepreneur is correcting a prior promotion that didn’t work out.

Sooner or later it happens to every business owner. You promote employees because they’ve worked hard, were senior in their position, or showed a lot of ambition. You had an opening for someone who could handle more responsibility, and you tapped the best resource available. Before too long, you realize that you’ve made a mistake, and you’ve put someone in a job they just can’t do.

Perhaps you overestimated his or her abilities. Often the company has simply grown beyond them. Either way, is there any way to fix the problem without losing a good employee?

Faced with an uncomfortable situation, many owners choose to approach the problem obliquely. They restructure to shift responsibilities to other managers, who may resent having to cover for their underperforming colleague. Some owners let the problem slide until it is intolerable, and then embark on a progressive warning and discipline process, knowing full well that they are merely seeking an excuse to push the employee out the door without feeling too guilty about it.

Although either of these options is undesirable, every boss “knows” that you can’t demote employees and keep them happy and productive. Sometimes, however, it can be done. It’s not fun, and it isn’t easy, but you have to make a choice. Would you prefer losing a good employee, or facing a little discomfort to retain a valuable team member?

Handling a Demotion

The biggest obstacle in any demotion is psychological. Not only does the employee think he has been publicly branded as a failure, but you probably feel he’s let you down as well. If the demotion isn’t handled well, every additional day on the job can be a source of embarrassment for both of you in front of coworkers. By eliminating these psychological barriers to repositioning, you might be able to save a good worker who was a valuable asset in his or her former position.

First, accept your own responsibility in making an unsuccessful personnel move. You knew what was expected in the new position. Did you really analyze whether the employee had the appropriate skills, experience and temperament to handle it, or did you make the move because it was the easiest course of action? Did you objectively asses the employee’s ability and experience, or did you promote on attitude, hoping that the skills would catch up later?

The only possible way to reverse a bad promotion is to publicly shoulder the blame. You have to announce to the employees (and possibly to others outside the company) that you made a mistake. You took an excellent employee whom you wanted to recognize, and you put him into a position without the training and resources he or she needed to succeed.

Discuss the move with the employee first. Make it plain to him and especially to others that there will be other opportunities for advancement in the future. Thank him for his excellent work in the past, and express how happy you are that he will be once again playing a key role on your team, by using his abilities to the best advantage. Explain that you want him to succeed, and need him in a position where that success is assured.

Of course, you will sacrifice some of your aura of owner infallibility. It often seems easier to just blame the employee, and remove your mistake from everyone’s view via termination. You have a choice between saving your own ego and saving a good performer who once had a positive influence on your bottom line. Which is more likely to contribute to the success of your business?

Open Communication

No one is perfect. You have control over the job, its duties, and whom you select to perform it. If a good employee fails, it’s because you made a mistake. I am excepting, of course, the occasional idiotic move of promoting a marginal employee to see if he “steps up” with greater responsibility. In that case, you made an even bigger mistake.

Communication is critical throughout the process. Tell the employee why you are advancing him or her, and exactly what is expected in the new position. Be honest with him (and yourself) about any weaknesses that need to be addressed for a successful transition. Meet regularly to give feedback and direction. If you do that, the employee is more likely to approach you with concerns about suitability long before you need to take uncomfortable action.

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Life Imitates Art

Posted on May 15, 2011 by John F. Dini

I finally got around to seeing “Atlas Shrugged- Part I” this week. I went with a friend who is as much a fan of the book as I am.

You really have to begin any critique of the movie by discussing its relationship to the book. Although Ayn Rand’s “Atlas Shrugged” is probably the most influential book in my life (I’ve read it 5 times), it isn’t great literature. The characters aren’t well developed. The heroes are larger than life, and the villians are without redeeming values. The plot is linear, and takes considerable time to develop the major points, sidetracked as it is by periodic polemics.

The second problem is the fan base and the rights ownership. The book is controlled by the Ayn Rand Institute, who has always insisted on substantial control of any movie. The fan base is fanatic. It shows in the critics ratings of 13% on Rotten Tomatoes, compared with the 11,000 fan ratings which average 81%. These fans wanted to see the book exactly as written, much like the followers of Lord of the Rings.

They got what they wanted with only some minor tweaking. Thank goodness the pseudo-rape scenes every time Dagney has relations have been tenderized. Necessary updates in technology are seamless. Cell phones are ubiquitous. (Why do Dagney and Hank drive an undisguised Toyota? A slap at the UAW?)

So what results is more of a book-on-video than something written for the screen. It’s like some older movies where a Broadway play is just acted out in front of a camera. This is a clearly a book where the characters “come to life.”

Compression of a huge book into a movie, even a movie in three parts, is always a challenge of editing and time. Parts of the movie feel like the plot is just being described. “Say, there’s Frisco D’Antonia” (a Mexican in the film) “He has the San Sebastian Mines. I invested because he always makes money.” (2 minutes later on TV) “Special News Report- The San Sebastian Mines have collapsed!”

It’s low budget ($20 million). The multiple helicopter shots of a train going through the mountains are filler. There are a few anomalies- like the first John Galt run being a modern Amtrak liner. One critic compared it to a made-for-TV movie. While some locations are really good, these filler shots sometimes give it that feel.

Official Movie Soundtrack

The politics, however, are just as fresh in the movie as they remain in the 54 year old book. There is less suspension of disbelief at the back room dealing, corrupt lobbying or blatant manipulation of the law to favor insiders than was needed in 1957. A lot less.

It’s also eerily familiar to watch the media witch hunt that surrounds Reardon Metal. No facts, no evidence, no real data is necessary to publicize the “opinions” of unnamed “experts.” Opponents with obvious political and financial agendas are given air time to describe their concerns about “the public good.”

This is where, I thought while watching, life most imitates art. The virulent trashing of the movie (it’s first week in release, the Rotten Tomato critic meter had it at 6% approval- an unheard-of low rating), was completely out of proportion to what it is. Here are a few comments:

  • “An eye-rollingly clumsy amble through a Middle Earth of Monopolists for the rest of us.”
  • “Ayn Rand’s monumental 1,168-page, 1957 novel gets the low-budget, no-talent treatment and sits there flapping on screen like a bludgeoned seal.”
  • “This Sharktopus-budget-level cheap, badly-acted, clumsily-written and stiffly-directed movie…”
  • “Serves up a perfect society based on abdication by the rest of us to a snobby affluent egghead elite, in a sort of brazen brainocracy.”

Wait a minute. What happened to the impartial expertise of the movie critic? Since when do they rant about the subject of the movie? In the name of free speech, critics are more than willing to forgive brutality, gore, sadism, rape, gratuitous sex, corruption and deceit. When did they start trashing a film’s point of view?

“Atlas Shrugged-Part I” isn’t a great film. It probably isn’t even a very enjoyable movie for non-Rand fans. It is not, however, “Ishtar,” “Battlefield Earth,” or “Heaven’s Gate.” It’s merely a simple story made from a simple (if exhaustingly long) book.

Could the fact that 85% of media employees self-identify as “liberal” have anything to do with it? Is this a Reardon-Metal style smear campaign to influence public opinion? Perish the thought. No one can believe that such things actually happen in real life…right?

Posted in Thoughts and Opinions | Tagged , , | 1 Comment

One Response to Life Imitates Art

  1. Joe Zente says:
    May 19, 2011 at 10:43 am

    John,

    Great article, profound observations, phenomenal book.

    Thanks for sharing…

    Joe

    Reply

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