A Note on Self-Knowledge

Self knowledge can be sought by looking through distorted lenses, but it can only be achieved by looking through clear glass.

There are two different ways to understand self-knowledge:  (1.) learning about yourself by observing your inner experience and your transactions with the world. (2.) Challenging and eventually changing your mental models (similar to beliefs) to reduce the gap between your capacity and current functioning level. The distinction between these two is not easy to see but is critical to transforming your world in ways that can only be achieved by transforming yourself. An example from computer technology may help.

We are all born with a source code that represents our multiple potentials (capacity) yet to be modified by experience. There are two hard wired tendencies that come with our source codes: (1.) to interpret ambiguity as danger, and (2.) to increase the intensity, frequency and duration of our habitual responses in the face of stress. We are the descendents of ancestors whose brains honed and automated these tendencies. In the knowledge based world of the 21st century where long term vision, global perspectives, and innovation serve to create competitive advantage these very same tendencies can unfortunately limit our effectiveness. These tendencies are everyone’s default and learning when to be guided by them and when to ignore them is the result of emotional intelligence, a benefit of increasing self-knowledge. From the standpoint of neurobiology, growing into psychological and spiritual maturity involves engaging parts of our brain that are not fully developed (i.e. frontal lobes) until our mid-twenties when the frontal lobes become fully functional.

Our culture and early environments (especially family) serve as the basic software necessary to make our source code operational. But development is never that simple. Culture and family often have well intentioned agendas that are not always closely aligned with taking full advantage of our amazing brain. Often, even the best of intentions are fraught with software restrictions that result in having to give up too much access to our original capability and design. In essence, we say to ourselves, “The only way I can maintain a relationship with that parent (culture) is if I assume the role that is expected of me.”  We learn how to compromise who we are to negotiate these early experiences, often giving up what is possible for what is valued by others. With repeated rehearsals these compromise formations eventually become habits and solidify into enduring but often tacit mental models. Since these compromises are often at the expense of our true self they rarely if ever are genuinely fulfilling.

 As if this was not enough, there are experiences that damage our fragile models as well. The software itself can become contaminated by malware, viruses, or other interfering processes that force us to give up too much in order to make things operate at all. Unexamined mental models limit optimal access to our true selves and others so that the gap between our functional ability and our innate ability is simply too large and creates a sense that we are not fully alive. I was once asked by a bestselling business author who was interviewing me on her radio show what I thought was the greatest impediment to CEO self-knowledge. My answer was simple, “relative success”. The good news is that none of us have to settle for relative success, i.e. doing better than others but requiring too little of ourselves in the process. Fulfillment is everyone’s potential.

This website is devoted to the premise that we are happiest, most effective, and generally at our best when we are operating close to our capacity and experiencing flow. This also happens to be a state that has very positive effects on those around us.  A desirable byproduct of this often follows. The relationship between leaders and followers tends to improve, as purpose, commitment and creativity contribute to productivity with an energy that is impossible to achieve in any other way. All in the organization are energized as the space between capacity and performance becomes more evident and begins to narrow.

In the words of Marianne Williamson, “Our deepest fear is not that we are inadequate. Our deepest fear is that we are powerful beyond measure. It is our light, not our darkness, that most frightens us…Your playing small doesn’t serve the world.”

Used with Permission - Copyright 2011 William D. Anton, Ph.D. All Rights Reserved

Posted in Psychology of Business | Comments Off

Timeless Principles of Management

The following concepts are from Fayol’s General Principles of Management (1916). They could have been written yesterday, and are timeless wisdom.

1. Divisions of work: tasks should be divided up and employees should specialize in a limited set of tasks so that expertise is developed and productivity increased.

2. Authority and responsibility: authority is the right to give orders and entails the responsibility for enforcing them with rewards and penalties; authority should be matched with corresponding responsibility.

3. Unity of command: for any action whatsoever, an employee should receive orders from one superior only; otherwise authority, discipline, order and stability are threatened.

4. Unity of direction: a group of activities concerned with a single objective should be coordinated by a single plan under one head.

5. Remuneration of personnel: may be achieved by various methods and the choice is important; it should be fair, encourage effort, and not lead to overpayment.

6. Centralization: the extent to which orders should be issued only from the top of the organization is a problem which should take into account its characteristics, such as size and the capabilities of the personnel.

7. Scalar chain: communications should normally flow up and down the line of authority running from the top to the bottom of the organization, but sideways communication between those of equivalent rank in different departments can be desirable so long as superiors are kept informed.

8. Order: both materials and personnel must always be in their proper place; people must be suited to their posts so there must be careful organization of work and selection of personnel.

9. Equity: personnel must be treated with kindliness and justice.

10. Stability of tenure of personnel: rapid turnover of personnel should be avoided because of the time required for the development of expertise.

11. Initiative: all employees should be encouraged to exercise initiative within the limits imposed by the requirements of authority and discipline.

In the ninety years since these principles were formulated, much has changed in the work place. Nevertheless, these managerial principles are based on such solid thinking that they are still valid.

Posted in Business | Comments Off

Know Thyself: It’s good for Business

William D. Anton, Ph.D.

Lack of self-knowledge may well be the greatest counterforce to sustainable business success. Ambition, training, experience, business skills, vision, can all be undermined by behaviors linked to mental models held by leaders, workers, and customers. For many these models can remain outside of conscious awareness for a lifetime. Even genuine strengths by themselves are insufficient to overcome the loss of productive energy and genuine commitment that false self-perceptions create.

Self-knowledge is the best business strategy at all levels of an organization, but it is particularly critical for top leadership. The greatest leverage for change in organizations resides in top leadership, specifically chief executive officers, presidents, board members and owners. Because of the real or perceived power concentrated in these positions, top level leaders have a significant and disproportionate influence on creating and maintaining culture and affecting business outcomes. The leader who knows and accepts themselves as they truly are enjoys one of the most effective tools available in the business world. This leader has greater access to their internal resources (talents, skills, and abilities) and enjoys a level of personal power that cannot be taken away or copied by others. Combined with business knowledge, skills and institutional power she or he is in a position to replace envy with admiration, compliance with commitment and followership with leadership throughout their organization.

If influential leaders are not dedicated to reality (to include self-knowledge) at all cost, then the exercise of their power is likely to generate resistance throughout the organization and create greater unpredictability (i.e. noise) than is desired. These leaders are likely to think about reality as something external to them.  For example, they focus exhaustively on the business domains that they know well and operate as if these exhaust what is knowable and important. Typically these areas include understanding and mastering the business, developing mutually beneficial relationships that serve business ends, insuring business indices are accurately tracked, refining hiring practices, creating competitive advantage, and often keeping close track of their career path on a personal level. But, how effectively each is executed is based on top leadership’s self-knowledge and its consequences throughout the company. This is the point of maximum leverage for converting potential energy into kinetic energy throughout the workforce, and is usually the last to be addressed (if at all) in strengthening a company’s capacity to create its own future.

I counsel CEO’s of all size businesses, who realize that their organizations have experienced unintended consequences resulting from some element of self-knowledge that they believe they may be lacking.  Much of our work is designed to reduce the gap between organizational potential and functioning by advising CEOs, directors, and senior business leaders on people and culture issues. Self-knowledge is objectified and broadened by engaging top leaders in confidential conversations to enhance their understanding of complex psychological and cultural factors influencing business performance and morale. The structure of the relationships allows for the exploration of issues that cannot be readily addressed in internal or external business environments. Although the importance of these concepts to business is increasingly recognized, sophisticated application of this knowledge base to leadership personal mastery has lagged far behind. CEOeffectiveness.com was developed to introduce a broader segment of business leaders to concepts that are rapidly becoming indispensible to high performance organizations in the knowledge-based business community of the 21st Century.

 Copyright 2010 William D. Anton, Ph.D. All Rights Reserved

Posted in Psychology of Business | Leave a comment

The M & A Slot Machine–Gamble at Your Own Risk

By Dan Maloney CPA CFP CM&AA

All business owners eventually face the prospect of transferring ownership of their business.  If you ask entrepreneurs if they’re ready to sell their business, some will say they’re always ready if the price is right.  Some will say that they plan to sell in 5 years.  Others are in the “5 Years Forever” club, i.e., their answer is always “in 5 years”.  In today’s environment owners face a depressed economy and stringent lending standards.  With the concerns about excessive risk in today’s business world, beginning the M&A process can seem like playing the slots on a new slot machine category – the M & A Slots.  Even  procrastinators eventually enter the M&A casino.

There are three tumblers in the M & A slot machine.  The first slot represents the owner’s personal financial and life planning.  The second slot involves business strategic and operational planning.  The likelihood of these two slots lining up can be affected by proactive planning.  The third slot, market timing dynamics, is out of the entrepreneur’s control. The opportunity for astute entrepreneurs is to work on calibrating the first two tumblers as the economy works on the market timing tumbler.

In playing the M & A slot machine, timing is everything. To maximize the value of the company and have a successful transaction, all three timing tumblers must line up.  If any one of the tumblers is out of calibration when the lever of the “One Armed Bandit” is pulled, the chances of success are diminished.  If the market timing slot shows up but either the entrepreneur or  business is not prepared, the entrepreneur risks having an unsuccessful transaction or a diminished cash reward.

 Entrepreneurs must be physically, mentally and financially prepared to act quickly when the market is favorable.  The business must also be prepared and have accurate records, policies and procedures, and motivated employees.  These issues should be addressed in advance of the time the entrepreneur pulls the lever.  If the first two slots are strategically calibrated when the market timing slot appears, the entrepreneur wins the jackpot.

The entrepreneur can greatly increase the odds of success.   Although there is luck involved in winning the M & A jackpot, the M & A slot machine isn’t 100% random. Entrepreneurs can “make luck happen” by focusing on the two tumblers they can affect.  Even if they are in the “5 Years Forever” club, attending to both the personal and business slots will help their business thrive and give them peace of mind as the market slot continually resets.

Posted in Mergers & Acquisitions | Leave a comment

Business and Human Health

Dan Maloney CPA CFP CM&AA

Business lifecycles can be compared to the human maturation experience.  Both businesses and people are born, go through growth stages, reach maturity, can get ill and decline.  A business, however, has the ability to continually regenerate its youth if basic concepts are applied to its vital processes, products and procedures.  Just as humans visit physicians for guidance on health, businesses should revisit the historical reasons for their success by dusting off their strategic plans.

Businesses are to startups as humans are to infancy.  Both need guidance, constant attention and nurturing.  Both learn to cope with their worlds by experimentation.  Babies are watched over and fed nutrients by their parents; startup businesses are watched over and fed cash by their founders.  Although babies receive constant care, often the food necessary to keep startups in business can get scarce.  They run out of food, i.e., cash, and thereby lose all energy.  When small businesses fail, lack of nourishment (cash flow) is often the culprit.

As businesses evolve into their adolescent years, they demand more time and money.  Parents of teenagers can understand this similarity, as allowances get raised and cars become a must.  In the business world, employees demand more money and benefits.  Both the teenagers and employees need education and training.  The need for mutual trust grows.  Management gets stretched thin.  Businesses have difficulty getting past this stage. 

In the late adolescent period, the need to learn budgeting principles arises.  Just as kids begin to leave home, lose their allowance and learn to manage their own resources, businesses must begin to generate cash without additional capital infusions.  Career options are explored by adolescents; processes are examined by businesses.  Documentation is a key to success. Many businesses become ill during  this phase since entrepreneurs are often averse to documenting processes and procedures.

This is a critical time for a business, because as it grows, it needs structure to survive.  This can present a Catch 22, since the entrepreneur’s preference for the lack of any rigid structure is often the primary reason for launching the business.  At this stage, entrepreneurs who are averse to structure may attempt to sell their business but learn that without structure, businesses are not sellable.  If not sellable, they may wind down, get ill and possibly die.

In the adult phase, business growth slows as markets mature and competition increases.  Just as human metabolism slows and muscles get soft, businesses also must refocus on getting lean.  Starting exercise programs can be strenuous.  Both humans and businesses should manage backwards from the future. They should envision what they want to look like in five years and work backwards from the future to get there.  If the business cannot manage for the future, it will become ill.

Entrepreneurs should examine the business from shareholder, customer, internal/operational and learning perspectives. They should examine communication mechanisms, alignment of processes, and work flow dynamics within the business.  Entrepreneurs must transform from being teenage technicians, to adult managers, to senior citizen strategic planners.

Businesses are like people. They are born, age, go through phases, get sick, and if not treated, they die.  Just as humans should monitor their health, businesses should regularly “see the doctor.”

Posted in Business | Leave a comment

When Performance Becomes “Good Enough”

John Morrow
President
Morrow Consultants, LLC

For many companies, competitive advantage is based on the ability to continuously and rapidly improve product performance for customers that both require and value ever-improving performance.  Sometimes, however, the time comes when product performance becomes better than what buyers need and are willing to pay for.  When this happens, a company can quickly find itself in an unfamiliar world where the ability to produce ever-improving performance is no longer important and new competitors surface that are optimized to deliver lower cost, faster delivery, easier access, etc. 

For a company that finds itself in this position, there are a couple of options that can sometimes lead   to resumed growth.  The first option involves finding a new way to compete. Unfortunately, many times this means that a company will be required to do business in a way that does not match its strengths (meaning its resources, skills, and processes).  For example, price is probably the most common alternate dimension in which to compete, but if a company is not wired to be a low-cost leader, it will find it very difficult to compete on price and still be profitable.

For this option to be effective, a company should stay as close to its core strengths as possible, find a dimension for competition where it will have a distinct advantage over other competitors, and have enough time to implement the necessary changes to its business model.  Taken together, this can be a very tall order.    

The second option involves finding a new market position where product performance is still not “good enough” and customers are still willing to pay a premium price for ever-improving performance.  This option has the advantage that the company can continue to compete using its current strengths, but has the obvious difficulty of finding a suitable new market segment.  One of the tools that strategists use in this search involves analyzing the structure of the company’s industry.  For instance, an examination of an industry’s value chain can reveal points where product performance is currently over-shooting or under-shooting customer needs, or is likely to change in the future. 

The “good enough” scenario is just one of the numerous ways in which a company can experience erosion of its competitive advantage. In all cases, however, it is important to understand the potential causes and signs of erosion.  Only then can a company have the advantage of time to find and implement an effective solution before its growth is impacted.

Posted in Business | Leave a comment

Florida Supreme Court Gaffe

  Author:  Stratton Smith, JD, LLM

 LLCs are often used for businesses because they offer dual protection:

  1. Limited liability of owners and managers for entity level acts;
  2. Limited ability to “take” an ownership interest away to collect for an outside personal liability.

Most of us have believed that a single member LLC (just one owner) was at some risk if a collection effort against the owner sought to take the LLC membership interest away.  After all, no one else would be affected except the debtor owner.  Regrettably, the decision of the Florida Supreme Court in Olmstead v. Federal Trade Commission, SC08?1009 (June 24, 2010) http://caselaw.findlaw.com/fl-supreme-court/1528945.html  has reached beyond that to frame a solution for an unasked question.  This decision places the protections of multiple member LLCs in serious question.

O.K., so what?  Damage to the fragile business climate of Florida is the WHAT!  That is not an overstatement.   LLCs are the most popular form of business today due to their dual protection attributes.  Justice Lewis in his dissent points out the numerous problems and errors of the position taken by the majority.  In particular, the issue was isolated to a the question of a single member LLC, but theCourt was excessivlely generous in its analysis, raising unasked questions regarding multi-member LLCs.  Justice Lewis’ minority opinion was sufficiently sharp  in tone to get a typical attorney disciplined, but he is an equal, a colleague on the Supreme Court, and can be sharply – and accurately - critical without risk.  It is a bad day, and we are seeking the best form of replacement planning for our clients.  No doubt that some businesses will reestablish in other, more protective states.  Even if they continue their business activities for now in Florida, state fees are going elsewhere.  Further, many businesses are able to move to other warm climates more favorable than Florida – can you say Nevada?  Even Outh Dakota is more favorable if not warm.

LLCs have been a very capable tool in estate planning as well, allowing the grouping of assets, structuring buy-sell agreements, providing for active business continuity, and providing for post-death control by the best equipped person.  That may move outside of Florida as well – and many times the families will follow.  Nevada has no income tax . . . . .

I can’t help but think that the Federal Trade Commission as a litigant somehow impressed the Court in favor of the FTC position.  Whatever the reason behind the faulty reasoning, the Court has erred.  Allan Gassman, a lawyer well versed in the use of LLCs in estate planning observes:  Well respected bankruptcy and debtor-creditor lawyers have commented that the Supreme Court will be severely criticized for this “non-business law savvy” decision.

In the meantime, if your planning is critical, you may wish to rethink your single member LLC to at least have another member, or to call your counsel to reconsider your plan as a whole.

Posted in Asset Protection | Leave a comment

How to Use The Recession

If you are like most business owners, economic conditions have complicated current and future decisions with regard to business operations and future exit plans. The good news is time can be an owners advocate when it comes to selling or transferring your business. While the “talking heads” tell us daily of the economic uncertainty that surrounds us, there are many who believe Now is the time to start the process of selling a company. This assume’s that a seller understands that rewards will not be immediate. There will always be a few sellers who will be fortunate to find anxious buyers who will ignore some of the apparent flaws. Buyers are attracted to companies which are sustainable, repeatable and transferable. It is also critical that all of these attributes are documented in your written business plan and financial statements.

The term that is frequently used to describe these desirable features is Value Drivers. Depending on which professional you are speaking with they all eventually get around to identifying and asking the following questions:

  1. What systems are in place to provide effective financial controls?
  2. What operating systems are you using to improve the sustainability of your cash flows?
  3. By what percent are your cash flows growing each year?
  4. Do you believe your facilities appearance is consistent with your asking price? What are your current plans to update or improve the facility?
  5. What is it about your customer base will lead a buyer to recognize that it is not only diversified but also solid? What strategies are you employing to make your product/services enduring so that your customers remain loyal?
  6. Would you share your written business plan that defines your desired growth strategy?
  7. What is it about the current management team would lead a buyer to believe that they are loyal, motivated and stable?

Companies without infrastructure aren’t sellable. It is important to remember that owners who want to sell today, but who are not immediately successful should not blame the economic downturn entirely. The seller’s predicament should have been forecasted or foreseen, even at the peak of the market because the main lack of buyer’s interest are poor documentation, poor financials, inadequate strategic planning and lack of management infrastructure, all of which may occur in economies both strong and weak.

Luckily, there are those who forge ahead and follow a contrarian philosophy that makes them question the wisdom of many of today’s newspaper headlines and talk show commentators. They will be thinking:

  1. Traditional investment returns are down, and risks of the unknown and unknowable pervade the public markets and real estate.
  2. Closely held businesses generating a decent return in this climate show strength in the face of our current financial economy.
  3. This may be the time when the risk/reward profile will be favorable to a business sale or purchase, since other investments appear unfavorable.
  4. The Small Business Administration (SBA) is actively lending.

The ideas and suggestions listed below are based on solid principles and strategies that can be effectively applied in all economic conditions. They may help fortify your business and create a desired future for eventual sale, exit or transition.

Here are four ideas to consider and implement:

  1. Look at the weak competition
    1. Opportunity-for an acquisition
    2. Opportunity for a merger
    3. Opportunity for a joint venture
  2. Look at methods to protect your assets
    1. Put plans in place to downsize if economic conditions demand
    2. Update your contingency plan should you suddenly not be available to the business
    3. Review any buy/sell agreement to make sure it contains provisions for a decrease in value
    4. Review contractual agreements with employees to assure protection of intellectual property
    5. Review property and casualty insurance coverage
    6. Minimize tax exposure
    7. Minimize liability exposure (such as creating multiple entities)
  3. Update your strategic plan: Where are you? Where do you want to be? How do you get there?
    1. Reevaluate and define your competitive advantage so you may become the Best of the Best
    2. Tighten and document your processes and systems
    3. Review and enhance your value drivers
    4. Train your management to run the company without your day-to-day input ( you will know you have it right when you may leave for an extended vacation, WITHOUT calling the office everyday)
    5. Increase your gross margins
    6. Reduce your expenses
  4. Reassess your business exit strategy
    1. When do you want to exit?
    2. What do you want to do AFTER your exit?
    3. Who are the potential successors?
    4. How much income will you need and where will it come from? What is the number (of $) you need (i.e. total investable assets) to provide this income?

Use this time to enhance the value of your business, so when you choose, you will be better prepared to exit on your terms. Companies that follow or embrace these things now, whether they decide to sell or not, will be the dominant businesses in their field when the economy recovers. Gold medal winners at the Olympics always stress the preparation and training prior to their winning the gold.
Author: Michael C. Valdez, CFP, CLLF, REBC, AIF

Posted in Exit Strategies | Leave a comment

Make Your Company Attractive

If you are like most business owners, economic conditions have complicated current and future decisions with regard to business operations and future exit plans. Third Party Buyers are attracted to companies which have documented that they are sustainable, repeatable, scalable and transferable.  Making your company attractive is very important.

 Companies without infrastructure aren’t easy to sell. If Business Intermediaries discover poor documentation, poor financials, inadequate strategic planning and lack of management infrastructure your opportunity to find a buyer, at the price you are willing to sell, evaporates.

The ideas listed below are based on solid principles and strategies that can be effectively applied in all economic conditions to help fortify your business and create a desired eventual sale.

  1. Tighten and document all of your processes and systems
  2. Update your strategic plan: Where are you? Where do you want to be? How do you get there?
    1. Look at methods to protect your assets
    2. Put plans in place to downsize if economic conditions demand
    3. Update your contingency plan should you suddenly not be available to the business
    4. Review any buy/sell agreement to make sure it contains provisions for a decrease in value
    5. Review contractual agreements with employees to assure protection of intellectual property
    6. Review property and casualty insurance coverage
  3. Train your management to run the company without your day-to-day input
    1. Increase your gross margins
    2. Reduce your expenses
  4. Reassess your business exit strategy
    1. Timing of your exit
    2. “After business” income goals
    3. Choice of a successor
    4. Other income sources

Author: Michael C. Valdez, CFP, CLLF, REBC, AIF

Posted in Exit Strategies | Leave a comment