Monday, July 30, 2012

3 Questions For Entrepreneurs

The Entrepreneurs Mindset

Entrepreneurs make the world go around.  They have a special talent.  They interact in the world differently than most people.

At heart, entrepreneurs are innovators.  An HBR article in December of 2009 gave some insight into the mind of people who are capable of generating business innovations.  What HBR found was that innovators have five abilities they practice better than people who were considered “non-innovators.”  The five abilities are:
  • Associating:  Connecting data points that are seemingly unrelated.
  • Questioning:  Not having strong orthodoxies – being free to ask why.
  • Observing:  Seeing things that are concealed to others.
  • Experimenting:  Not being scared of big ideas – breaking ideas down into chewable chunks.
  • Networking:  Connecting with lots of people – in diverse areas.

We try to believe that anyone can learn these five abilities.  I'm sure they can be taught; however, my experience is that some people are more natural at it than others.  We all know people we go to when we’re looking for fresh thinking.

Once entrepreneurs have ideas they also allow their ideas to interact with other ideas to become even bigger.  Then voila, a product or service emerges that can be commercialized.  Often the idea person such as: Bill Gates, Michael Dell, or Jeff Bezos, launch a business around the idea.  

Obviously these people created huge businesses, but this is not always the case.  Most entrepreneurs only take their idea to a certain business level before it plateaus.   At that point they hit the entrepreneur’s dilemma – how to take the business “to the next level.”  The failure rate is high.

When entrepreneurs hit this wall I ask them the following questions.

       1. Is your business scalable?
Often the entrepreneur’s business hits a niche market.  It provides a special, almost personalized solution to a uniquely defined problem.

Consultancies are prone to a lack of scalability.  Founders can grow their business to about 50 people.  At that point the “cult leader” runs out of reach.  They can no longer grow sales and they can no longer maintain thought leadership as new people, and new ideas enter the business.

The call goes out to sell the business to gain access to larger sales channels.  But there’s a cost.  Along with the sale comes a demand to scale up the business for a mass market.  Quickly the core idea is lost, the business gets absorbed and disappears.

2. If you scale-up, will the big boys let you play?
Entrepreneurial businesses are safe when they are under the radar.  They can grow profitably when no one is looking.    But once they burst into the sunshine the game changes.  The big boys get them in their sights.  With the flick of a pen the big boys can unleash resources and steal markets.

I'm advising the CEO of a small software development company; less than 50 people and less than $5 million in annual revenue.  He’s brilliant and he has a talented team.  Every time they put out a new product one of the big software houses comes over top of him with an inferior product that they practically give away to millions of customers.

My client is in a spin cycle with no release point.

3. Do you have the mindset of a businessperson?
Entrepreneurs can be plagued by a love of ideas rather than a love of business. Entrepreneurs love to do what they do because – well, they love to do what they love to do.  This passion is compelling.  It attracts others to “the cause.”  It binds people together at an emotional level.  They become a family.

Employee (family) engagement is often the key to success within entrepreneurial businesses.  If the business is scalable and the big boys let it play, the question is whether the “family” can change?  

I’ve been working with a good sized family owned manufacturing business – more than 1000 employees and close to $100 million in annual revenue.  It’s time to go “to the next level.”  I was talking with the owner about how to create a “performance culture.”  I used one of the founding employees as an example of a low performer who should be released.  The owner refused to accept that type of action.  I asked why.  She said, “Because it’s wrong!”

These are three core questions.  If the answer to any of them is “no” then the entrepreneur has some serious thinking to do.  What do they really want from their business?
  • A life style?
  • An exit strategy?
  • An enterprise?
Entrepreneurs need to know what they have and what they’re willing to do.  Change always brings opportunity, but never without risk.

Wednesday, July 25, 2012

Aurora - Shooting Our Own

Dressed to Kill

Well, America is undergoing another week of self-therapy and self-loathing.  The tragic mass murder in Aurora, Colorado has re-opened a deep wound (not a pun) carried by this country.

I'm a naturalized American having immigrated here from Canada in 1995.  America is a great country.  It has a patriotic spirit that fires innovation and entrepreneurship.  But it is also a society full of fear and full of guns.

In March I wrote about a shooting that I witnessed.  My wife and I were having dinner with some friends on a restaurant patio.  Twenty feet away, in the parking lot, gunshots rang out.  

Once the chaos settled down and my wife administered emergency attention to one of the victims we started to understand what happened.  Basically a man was stalking his wife.  They had been separated for several months.  She and some of her friends had come to the restaurant.  When they got back to their car the man opened fire on them before he took his own life.

It took many weeks before all of the facts were known, including the fact that the man’s wife is now confined to a wheelchair for life.

Now my little incident doesn’t compare to the shooting in the Aurora movie house.  But what I do know is that in the few wild seconds of the shooting in the restaurant no one knew what the hell was going on.  Most people didn’t recognize the “pops” as gunfire, and those who did were diving for cover under the dinner tables.

Even if you had been trained to recognize and assimilate the chaos you wouldn’t have had a clue of what to do.  This wasn’t a movie where you've been prepared and are observing the scene from a calm vantage point.  This was reality.  Who was shooting who?  How many shooters were there?  How can I stay alive?

This shooting happened in Texas where we have a concealed gun law.  That’s right, if you are licensed you can sit in a restaurant with a concealed weapon.  Many of my friends “pack heat”.  When playing golf I'm always leery when someone says “good shot!”

Now it is not unreasonable to think that there were several gun totters in the restaurant that evening.  Yet no one jumped up, gun in hand to save the day.  If there were packers in the vicinity they were obvious by their absence.

So what’s my point?  Well, I'm a gun guy.  I see value in guns.  I think there is a valuable lore around families and hunting; and I’ve always been a big fan of various types of target shooting.  There is something magical, powerful, and even primeval about shooting, even when the result can be fallen game.

I also empathize with the second amendment of the US constitution - you know the right to bear arms.  It does make some sense to me that the citizenry should be allowed to arm itself against unjust government – even if the gesture is simply symbolic.  The second amendment goes to the heart of America’s belief in itself.  It represents freedom and sovereignty.  Since it is a belief, it cannot be assailed by the arguments of logic.

But what about the flip side of the belief?  Did the framers of the US constitution want to protect the freedom of disturbed citizens who want to kill other citizens?  Maybe, but I don’t think so.

We seem to have over-interpreted the second amendment.  We are now saying that it’s ok for someone to legally buy 6000 rounds of ammunition, automatic rifles with clips holding 100 bullets, and body armor to protect them against retribution.

All I know for sure is that if the Aurora shooter had come to our restaurant instead of a crazed husband, we would all be dead.

If I have to take my shoes off at airports so people can feel safe, shouldn’t I feel just as safe while eating tacos?

Tuesday, July 24, 2012

5 Things I Really Believe About Change Management

Organizations are in constant need of changing what they do and how they do it.  

There is a generally accepted formula for change managememt that includes steps such as:
  • Setting a compelling vision
  • Chartering teams: executive sponsors, project teams, issue teams
  • Communicating to increase awareness
  • Getting short term wins to maintain momentum
  • measuring results
  • Integrating changes into the way that business is done

Ok, we all agree on this, but what’s underneath successful transformations?  What do we really believe?  What levers do we push when the change stalls?

Well, I’ve asked myself these questions and I’ve reviewed my work over the last decade.  I found there are some things deep inside of me that I believe.  I consolidated these into five core beliefs.  Here they are in shorthand to increase readability.  

    1.    Change Is A Function Of Resources
Change does not happen through good will.  Change is directly related to the amount and intensity of resources applied to it.  The corollary is that an organization’s immune system cannot fight concentrated resources.

To disrupt organizational inertia you need to dedicate resources outside the normal rhythm of the business.  Don’t “repurpose” resources and don’t let subordinate managers control change budgets.

Transformation requires that leaders make different decisions.  This can't happen with the resource allocation rules that are designed to protect the ongoing business.

2. Don’t Fight The Organization's DNA:  
Companies are successful because they have a DNA, a culture.  You need to understand this DNA if you expect to change the organization.  You need to know what the organization can be; not what it wants to be.

IBM transformed by selling off what it was and buying what it wanted to be.   That’s a great strategy if you have the leadership, resources, perseverance, and commitment to pull it off.  Most organizations don't.  Doing the “adjacent possible” is more realistic than “making the impossible, possible.”

Work on the right changes, not those driven by ego.  

3. Poke Someone In The Eye:  
The worst words in the transformation business are: integration, collaboration, and cooperation.  These are words of passive resistance.  You’re about to be coopted.

I'm not advocating nastiness, but I am advocating “discomfort.”  If people are comfortable they’re not thinking; if they’re not thinking they are not changing.

Leading change is tough work.  You must be an irritant - even if that puts you at risk.

4. Managers Resist Change – Not Employees:  
Employees do their jobs until they are clear about the alternative.  Not so for managers.  Managers are vested in the status quo.  They enforce rules that ensure: efficiency, consistency, and low risk.  

Sometimes “change management” comes down to “change – management.”  In reality many transformations rely on cycling people out of the middle of the organization to allow those with untainted ideas to rise and participate.

Move quickly on resisters.  Removing a band-aid involves the same amount of pain whether you rip it off quickly or peel it off slowly.

5. Change Is Not A Journey:  
It fascinates me that we tell clients that change is accelerating exponentially.  In the next breath we tell them that transformation is a long journey and not to expect short term results.  You’ve got to be kidding?

We need to prove ourselves everyday by contributing to: new and incremental revenues, increased customer loyalty, and improvements in the cost structure.  

If you're not providing value everyday then you become part of the furniture.  You’ll be eliminated as executives become fatigued.

So, there you have it.  Those are the core beliefs that drive me when consulting on organization transformation.

However, as my mentor used to say: “that’s just my opinion, I could be wrong.”

What do you believe drives organization transformation?

Wednesday, July 18, 2012

The HR Lament

When will Human Resources (HR) leadership stand up for themselves and their team and demand a seat at the table?

Recently I’ve seen a resurgence of commentary about HR “not being a strategic partner.”  I’m getting tired and bored with the whining.  We’ve heard this lament for more than two decades.  There is a reason that HR has not been, and is not yet a strategic partner within most companies, and here it is:


Long ago HR cut its Faustian deal with management and now it’s living with the consequences.

I worked in HR consulting for over a decade and have a lot of good friends and clients who are still in the business.  I’ve been watching from other perspectives for many years but find that at the end of this day HR still has not been able to turn the strategic corner.

Here’s some of what went wrong.  Early in the 1990’s companies became more focused on profits and shareholder returns.  When growth and pricing couldn’t provide the desired results, management then looked to reducing the companies cost structure.  In many organizations PEOPLE were identified as the biggest variable in the cost structure that could offer up short-term returns.

Politically, however, in most companies it’s just not acceptable for executives to say they will convert people into profits.  So, organizations came up with a euphemism by saying: “we have to become a performance culture and to do this we must break the entitlement mentality of employees.”  And even this statement, as indirect as it was, could not be used outside the management committee meetings.  The “cut heads” strategy became a covert operation mentioned only in vague terms in public statements and employee communications.

Despite the fact that execs were desperate for an action plan – any action plan – to improve results, they used the “entitlement mentality” to make aggressive headcount whacks while allowing them to sleep at night.  The assumption was that employees don’t perform because they are comfortable.  They know that every day they work improves their pension, benefits, and pay.  Why should they perform when their welfare is secured?  (Unfortunately no one tested the assumption.)  

In the quest to become a business partner HR leadership took on the assignment of dismantling the entitlement mentality.  Defined benefit pension plans became defined contribution plans; employer paid health insurance was downloaded to employees; and merit pay became performance pay.  Brick by brick the employee entitlement mentality (and loyalty) was dismantled – and the compliant HR staff wielded the tools needed to “make it so”.

Did this make HR a strategic partner?  Hardly!  It made HR a servant responsible for the apathy we now see in the workforce.  I recently learned that studies indicate that non-business “web surfing” and social media use at work has tripled in less than a year; and that 25% of a corporations internet bandwidth goes to video streaming.  Is this our vision of a performance culture?

Well, HR might be able to save itself but it will take a huge transformation.  It starts with, but goes well beyond the simple wisdom that HR must get to know the business.  We’ve been looking under this rock for years.  It hasn’t worked.  We must look elsewhere. 

First HR has to accept that its principal mission is to contribute to the business by providing a “high performing work force.”  This is a long-term strategy that does not cater to the quarterly need to produce financial results.  We need to take some specific actions:

  1. Reorganize HR:  Take all of HR’s transactional business and put it under a Director reporting to the CFO, and give it a new (old) name: “Personnel”.  Assign the strategic work of building the workforce to a VP HR who has the horsepower to sit at the executive table.
  2. Dump Performance Evaluations:  Is there anything more bureaucratic and that adds less value to a business than performance management systems.  Decouple them from pay and simplify them.  Use them for development, not pay and promotion.
  3. Dismantle Performance Pay:  It has never worked.  It’s an escape for managers who want to be protected by an excel spreadsheet.  Distribute discretionary pay from a profit pool.  If you want to reward high achievers more than the pool allows, go ahead.  Managers are paid to make tough decisions and stand by them.
  4. Hire the Best Talent in HR:  Now lets be serious.  Where is the last place we put our top performers?  In HR, right.  And when we see a top performer in HR what do we do with them?  We raid them and put them in a meaningful business function, right?  Does this sound like a formula to build strategic HR partners?

My hypothesis is that HR is one of the toughest roles in a company.  Its job is often to get in the way of capricious line managers.  In its quest to help managers build a high performing work force HR often must say “no.”  When managers are faced with the trade-off between profits and people, they often make a sub-optimal decision that favors profit.  HR should be called on to save the long-term strategic interest of the business.  At the moment HR doesn’t have the vision, talent, or respect to do this.

It’s unlikely that HR will ever get an influential place at the table until it enunciates a value proposition that senior management recognizes and then delivers on the promise.  There is a huge opportunity today for an HR professional to step up to this challenge and show the world how it can be done. 

Thursday, July 12, 2012

Change Management and Incremental Budgeting

If you want to change your organization, you need to know how it allocates resources.

Change is a Function of Resources
Recently I worked with a big brand consumer product goods company.  Our team worked on increasing customer loyalty in a commodity business where global competition was accelerating.  

Early on it became obvious that we needed to shift the customer focus from the “rational” benefits of the products to the “emotional” relationship we could build with the brand.

We worked with client teams to better understand the needs of their customers and to develop ideas for new products, product extensions, and marketing.  Some of the ideas were brilliant game changers while others aimed at needed incremental improvements.

The client teams built business plans and submitted them into the formal decision-making process to get funding.  That's when the  wheels started to spin.  We were caught in the realities of incremental budgeting that had committed resources over long periods to specific responsibility centers. 

The brilliant political scientist Aaron Wildavsky taught us long ago that incremental budgeting works because … well, it works.  We know that 80% of what an organization needs to do next year will be the same as what it’s doing this year.  When you’re allocating resources it’s simple math to get from here to there.  The problem is that every year the 80% shifts.

The key is the 20%.  That’s where change comes from.  That’s the investment in the future.  That’s transformation and survival.  The question, of course is how to fund the 20%.  This is where incremental budgeting becomes a barrier to change.

Incremental budgeting strives for predictability.  It likes to lock in resources in multi-year plans for: operations, capital improvements, projects such as IT, and even R and D.  As line items get frozen in place they also have tacit approval to eat ever-increasing amounts of resources and push out the 20%. 

To accommodate the vagaries of the 20% organizations often claim that they will “repurpose” on-going resources, as the needs of change become known.  Don’t be trapped by this sirens call.  Don’t think that somehow managers will find sufficient resources in their base budgets to fund change.  Repurposing doesn’t work.  It’s a euphemism for “change is a good idea but we’re really not committed to it if we have to make tough decisions that affect our incremental plans.”

If your organization believes it must change then don’t even launch the initative unless you support it with the means to survive.  You need to understand how resources are allocated and you need to change the resource decision-making process to accommodate the 20%.    

Here’s what you need to do to fund your organization’s ongoing renewal:
  1. Carve out and dedicate resources for change.  Don’t fund change through the traditional, incremental budgeting process.  
  2. Use the skills of creative leaders to decide how to use the change budget.  Don’t rely on the power structure to make decisions about change.
  3. Use a “stage and gate” process to refine and develop change initiatives.  Don’t make big bets that stifle flexibility.
By definition, change is not the same as your ongoing operations.  If you don’t fund change differently it will be little more than rainbows and butterflies.

Wednesday, July 4, 2012

Corporations - Where Ideas Go To Die

How can we stop big corporations from killing good ideas?  How can they internalize an entrepreneurial spirit? 

I spend most of my time working with organizations to help them change.  I use a variety of levers such as: innovation, customer loyalty, or employee engagement.  However, the objective is always the same: to get people thinking so they can make changes to their business.

It's exciting to see people generate new ideas and use the ideas to develop new opportunities.  But implementation always lets air out of the balloon.  When I work with complex organizations we quickly make incremental changes; however, game changing ideas often end up in a graveyard.  Here are two of my recent examples.

The Swish.  I worked with a team of new hires in a technology firm.  Their social media idea was to "swish" content from one mobile to another.  Their thought was: "if you're in a mall with friends and you get a photo that you want to share, no need to send it - just "swish" it to your group."  

Great idea.  It needed some work and development, but quickly the team produced a prototype.  There was lots of excitement until we turned it over to the formal organization for commercialization.  Death!

Have you seen the new Galaxy S III?  Put two of them back to back and tap - you can transfer information from one to the other.  No need to send.  Sure, it's not a "swish" but we had a beta a year and a half ago.

The Relationship.  I worked with another team of young people who wanted to make "dating" more exciting.  They recognized the discontinuity in the market where people date long into their 20's and 30's.  Their idea was to build a special app to aggregate and share experiences for couples.

We refined and cycled this idea through the companies "innovation committee."  We needed a small amount of seed funding for experiments.  We never got the money.  The committee could not understand the need and constantly asked the team for proof that the idea would work.  Death!

About a month ago I was reading the Economist.  There it was.  The exact same idea.  A group of young entrepreneurs got the app to market and were overwhelmed with the success.  More than half a million accounts were set up in the first month.  Hey, we had that idea a year ago.

So, what's happening here?  I think that everyone recognizes the barriers to change in big organizations.  We don't create organizations for change, we create them for consistency, efficiency, and low risk.  To maintain the inertia of predictable outcomes we set up: silos, approvals, budgets, controls, reports, rewards, and metrics.  People don't resist change, they just do their jobs.

However, there are ways to overcome the inertia of risk aversion.  I've found that if I ask three precise questions in the right order then I increase the probability of success.  Here they are and in that right order.

  1. Who is the customer?  Do you clearly know the target for the idea?  How big is the customer population?  (The bigger the number the better.)  Facebook is aimed at billions of potential customers, not just six people down the street.
  2. Can you do it?  Can you actually do what you want to do?  Do you have the abilities?  Do you need to marginalize the idea to make it work?  Do you need to dilute your idea by taking on partners?
  3. Can you make money?  What is the business model?  
Yes, "money" is the last question.  Asking this question too early in the process will send the idea directly to the graveyard.  It takes time, effort, and resources to de-risk an idea before you can reasonably forecast its financial success.  

Big corporations don't have to be idea killers.  They can return to their entrepreneurial roots.  They just have to discipline themselves to ask the right questions - and in the right order.