I’ve asked attorney and law professor Melanie Calvert to give us some pointers about legal considerations to protect your business during layoffs. Hopefully your business is thriving and there’s no need for this!
Keep in mind these laws are specific to the state of California. Though some labor laws overlap in various states, it’s highly recommended that you consult a labor attorney in your state for specific laws applicable to your business.
***
In the coming year, companies may have to continue down-sizing to stay in business, to maintain sufficient operating capital, or to obtain necessary bank funding. There are few considerations you should keep in mind prior to and during layoffs:
The employees’ job function. Employees should update their job descriptions and the time allocated to functional tasks. This will permit assessment of essential duties, duties which may be combined with duties of others and those duties which are marginal to business operations. Employers may achieve cost savings by consolidating employees’ duties.
Talent pool and experience. Employers should value seniority, job performance and special skills and job knowledge which employees have acquired from the job. If the economy improves, and employers need to hire again, it is expensive to train new employees and bring them up to speed.
Selection criteria. Employers should select employees for layoff based on objective criteria such as job functions, responsibility, seniority, performance, skills and knowledge. There are good reasons not to include an employee in a layoff. Since these reasons are too varied to enumerate, you should consult an employment attorney. Generally, employers should not lay off employees who have filed recent discrimination complaints. On the other hand, employers may (in certain circumstances) layoff employees who are on pregnancy-disability leave. Generally, employers should not immediately hire new employees to replace the laid-off employees. This undermines the economic reason for the layoff. For the same reason, it is probably unwise to give pay increases to the remaining work force. Again, each situation is factually specific and requires the advice of employment counsel.
Heads-up. California WARN law applies to certain layoffs, business relocations and/or business cessations at companies that employ, or have employed within the preceding twelve months, 75 or more persons. Generally, this law requires sixty days notice to affected employees and to designated governmental entities and has a maximum penalty of sixty days pay (unless an exemption applies). While federal WARN law is different, it also requires notice or pay.
Health insurance. If your company provides health insurance, promptly notify your health insurance administrator to send out required notices including HIPPA and COBRA health insurance continuation.
Last pay check. Pay employees all wages which are due at the time of termination including, but not limited to, all accrued vacation, bonuses and commissions. Promptly reimburse employees for company expenses when submitted. Obtain employees’ acknowledgment of receipt for wages and expenses.
Unemployment insurance. Provide employees with Notice of Change in Relationship and a copy of the Employment Development Department bulletin. Unless the employee has committed intentional misconduct which harms the company’s business or has voluntarily left employment without good cause, do not fight unemployment benefits. Your experience rating will go up but you will obtain employees’ good-will and help company morale.
Company property and information. Have your employees acknowledge return of all company property and information. As a general company practice, change all computer pass codes and keys (if employees had keys to company offices).
Neutral job reference. Give dates of employment and last position (unless employee poses a documented threat to the safety of others).
Separation pay, outplacement assistance, and a release. To assist employees in transition, consider offering outplacement assistance, and additional separation pay, if employees sign a release and agreement not to sue.
Older workers (40 or over). If you pay older workers for a release (agreement not to sue), you must comply with each requirement in the Older Workers’ Benefit Protection Act.
Exit interview. Consider a feedback form for employees to comment on their work experiences.
Bio: Attorney, Melanie Calvert, has practiced labor and employment law since 1985. She was nominated as one of the best labor and employment attorneys in The Pasadena Magazine (November 2009). Melanie is also an adjunct faculty professor at the University of La Verne Law School, Ontario, California. More at: www.calvertlaborlaw.com.
Showing posts with label management. Show all posts
Showing posts with label management. Show all posts
December 8, 2009
November 5, 2009
In search of “synergy” in corporate partnerships, and mergers and acquisitions
As the readers of my blog know, I’m a strong proponent of corporate partnerships. I believe with a good partnership in place, each company can focus on their core competencies while relying on the partner to complement their product or service line, accelerate their market expansion, or help in areas of weakness like customer care, distribution, or geographic expansion. In hard economic times, the need for partnerships becomes more acute – as the market becomes more and more selective, business weakness becomes amplified, and the need to provide the most complete and the best solutions pushes companies into partnerships or downright M&A. In a nutshell, companies look for relationships with “synergy” (ugh, that yucky word from the 90s, but it captures the essence so well – I’m open to other words, let me know what you got!).
I’m on record comparing business relationships to dating . Hostile takeovers aside, the reason business relationships work is because people on both sides spent time to select the right “match”, communicated the desired outcome in detail, and put a lot of energy into integration after the fact. Here’s a factoid I’ve shared in the past: 50% of M&As end in failure, closely matching the US divorce rate. Obviously not everyone gets it right.
Let’s take a look at Cisco. The king of acquisitions has swallowed up no less than 81 companies since 2000. The key to their success: proper selection, and masterful integration. I doubt if Cisco would claim 100% success rate with all their acquisitions, but it is no surprise that Cisco’s revenues have been on an almost straight upwards trajectory over the years. On the other end of the spectrum is eBay with very few M&As or partnerships. One acquisition was Paypal which was an excellent choice (I mean, seriously, they must have been blind not to see that one). Another one was Skype which was a perfect example of poor “synergy” – exactly, what were they thinking? (eBay recently sold off the majority shares in Skype)
For small and mid-sized companies, M&As may be a far out idea, but the need for corporate partnerships is even more pronounced than for larger corporations. With limited resources, these companies need to focus on their core competencies, and having a solid partner either in distribution, product line or geographic expansion, becomes necessary. Over the course of my career, I’ve developed or maintained several corporate partnerships. They all were “synergistic” in either product line or service offering. With the exception of one that ended quickly, they all generated more revenues for both companies. They all required careful selection, tight integration, and constant attention in order to succeed.
Perhaps I was lucky to have been involved with successful corporate relationships, but I think at a high level, specific contributing factors were involved in their success. I’ll list some of them here. I’ll be the first to say it’s easier said than done, but these are the absolute basics to make a business relationship work.
Ownership. Someone (or an organization) needs to be in charge of making sure relationships are a success. It doesn’t mean they do all the work, but they’re in charge of bringing the right people together to make it happen. Without ownership, things fall apart.
Needs definition. Define why a relationship is necessary, e.g., product line expansion, service offering strength, distribution, geographic expansion, IP acquisition, etc. Do you need a relationship for market acceleration, market expansion, or new market entry? This is where your selection criteria crystallize.
Selection. This is one of the most important steps in the process and needs careful attention to industry sector, product line, geographic expansion, etc. You may develop more than one relationship in the same area. And, oh, by the way, the other side should want to “be in bed” with you too.
Communication. Once you’ve selected a potential partner, hash out everything you can think of prior to the contract being signed including roles/responsibilities, financial obligations, integration process, consequences of anything that can go wrong, and…. exit strategy.
Integration. This is when the real work begins with personnel assignments, rolling out the relationship internally, training, re-organizations, etc. This is where most relationships fail to realize their potential. Plan thoroughly. Implement diligently.
Maintenance. You’re never done as long as the relationship is alive. Keep monitoring the success of the relationship. Things change over time, and you may reset and restarts certain parts of the relationship.
As I mentioned, this is a very high level and basic list of steps to take in developing corporate relationships. I’d love to hear about what other criteria you have faced that contributed to success of corporate relationships. What doomed them? Bring on the discussions!
I’m on record comparing business relationships to dating . Hostile takeovers aside, the reason business relationships work is because people on both sides spent time to select the right “match”, communicated the desired outcome in detail, and put a lot of energy into integration after the fact. Here’s a factoid I’ve shared in the past: 50% of M&As end in failure, closely matching the US divorce rate. Obviously not everyone gets it right.
Let’s take a look at Cisco. The king of acquisitions has swallowed up no less than 81 companies since 2000. The key to their success: proper selection, and masterful integration. I doubt if Cisco would claim 100% success rate with all their acquisitions, but it is no surprise that Cisco’s revenues have been on an almost straight upwards trajectory over the years. On the other end of the spectrum is eBay with very few M&As or partnerships. One acquisition was Paypal which was an excellent choice (I mean, seriously, they must have been blind not to see that one). Another one was Skype which was a perfect example of poor “synergy” – exactly, what were they thinking? (eBay recently sold off the majority shares in Skype)
For small and mid-sized companies, M&As may be a far out idea, but the need for corporate partnerships is even more pronounced than for larger corporations. With limited resources, these companies need to focus on their core competencies, and having a solid partner either in distribution, product line or geographic expansion, becomes necessary. Over the course of my career, I’ve developed or maintained several corporate partnerships. They all were “synergistic” in either product line or service offering. With the exception of one that ended quickly, they all generated more revenues for both companies. They all required careful selection, tight integration, and constant attention in order to succeed.
Perhaps I was lucky to have been involved with successful corporate relationships, but I think at a high level, specific contributing factors were involved in their success. I’ll list some of them here. I’ll be the first to say it’s easier said than done, but these are the absolute basics to make a business relationship work.
Ownership. Someone (or an organization) needs to be in charge of making sure relationships are a success. It doesn’t mean they do all the work, but they’re in charge of bringing the right people together to make it happen. Without ownership, things fall apart.
Needs definition. Define why a relationship is necessary, e.g., product line expansion, service offering strength, distribution, geographic expansion, IP acquisition, etc. Do you need a relationship for market acceleration, market expansion, or new market entry? This is where your selection criteria crystallize.
Selection. This is one of the most important steps in the process and needs careful attention to industry sector, product line, geographic expansion, etc. You may develop more than one relationship in the same area. And, oh, by the way, the other side should want to “be in bed” with you too.
Communication. Once you’ve selected a potential partner, hash out everything you can think of prior to the contract being signed including roles/responsibilities, financial obligations, integration process, consequences of anything that can go wrong, and…. exit strategy.
Integration. This is when the real work begins with personnel assignments, rolling out the relationship internally, training, re-organizations, etc. This is where most relationships fail to realize their potential. Plan thoroughly. Implement diligently.
Maintenance. You’re never done as long as the relationship is alive. Keep monitoring the success of the relationship. Things change over time, and you may reset and restarts certain parts of the relationship.
As I mentioned, this is a very high level and basic list of steps to take in developing corporate relationships. I’d love to hear about what other criteria you have faced that contributed to success of corporate relationships. What doomed them? Bring on the discussions!
October 30, 2009
The collective power of LinkedIn for your company’s sales, marketing, and social media efforts
I’ve been a member of LinkedIn for years, and it’s become a basic part of my “doing business”, whether to tout my skills, or to check on the backgrounds of people I come in contact with, especially potential clients (yes, I do check).
It amazes me how many companies either don’t have a prominent presence on LinkedIn or simply don’t utilize it effectively. The compounded power of the network is mind boggling. For example, my network of almost 330 people gives me access to over 5.3 million users (the networks are set up to go 3 levels deep). Although not a direct sales tool, I think it’s a must in developing a presence, and for soft sales of services if done properly. It’s passive, non-intrusive, and very powerful.
The idea for individuals is pretty straight forward – a point of web presence and a network for providing services (or finding jobs). But for companies, the collective force of the networks of individuals can become even more powerful social media tool. Let’s say your company has 500 employees, and your marketing department is developing a webinar to discuss the changes in your market. Imagine if all your employees had a well developed network on LinkedIn, and each could bring 10 people to the webinar. Of course, a webinar with even 300 people is good enough for a company that size, so you get the idea. When each employee acts as a touch-point in a massive pool of professionals, the corporate image and messages can be exponentially magnified.
The problem becomes controlling that image. I know people who “tweak” their positions on LinkedIn for various reasons, or point blank lie. As a company, you have a little bit of control over your employees’ behavior on networking sites, but you have no way of changing their profile (unless LinkedIn changed their policies and forgot to announce it).
Given these drawbacks, I still think encouraging your employees to build a network on LinkedIn is a worthwhile effort. In fact, it’s best to proactively give them some guidelines to help them develop their image and their networks. Once they’re set up, make sure to use their collective networks in your social media. The results might surprise you.
Today I sent an email to a client’s sale/marketing teams and the executives with guidelines of how to develop their profiles and build up their LinkedIn networks. The idea is to roll it out to the rest of the company later. I’m repeating the guidelines here. The language is verbatim out of my email (except the company name and the markets it targets).
- Please develop a complete and professional profile on LinkedIn. Your LinkedIn profile acts as a public online professional bio for everyone to view, and it’s the first place a Google search of your name will land your potential contacts/clients.
- Include the title that shows up on your business cards, your work history, any special skills you may have, and any other appropriate information you can think of.
- Do not push XXX or YYY in your profile. We are positioning the company as a provider of ZZZ. It’s OK to talk about XXX/YYY but not as a main topic.
- Feel free to use keywords that are related to [company]’s business. People use them often in searches on LinkedIn, and you want to show up if they’re looking for experts in the field.
- Do NOT display or discuss confidential information about [company] in your profile. This includes ANY financial information (including revenues/profits/projections, etc), number of employees, plans for expansion, plans for partnerships, layoffs, new hiring, or anything of material importance.
- Start developing your network. Go through all your contacts, old colleagues, people you know from college, professional organizations, neighbors, relatives and friends who work in professional settings. The point is you want access to their network, even if they, themselves, don’t necessarily fit into a client profile. If you know people who have large networks, definitely connect to them. This will take time. Start soon.
- Do not hide your profile to limited groups (this is a LinkedIn option). Leave it open for everyone to see (except personal info like email, etc). You want everyone to be able to contact you if they’d like.
- Sign up with as many groups as is appropriate (max 50 allowed). This gives you access to a lot of discussions and newsboards in various industries.
- Feel free to participate in Q&As and group discussions. Show that you are an expert in the field and know what you’re talking about. Much of the time, people connect to you once they feel they trust you and enjoy your “conversations”.
- Do not spam the newsboards or the Q&A. You will be flagged and dropped from groups. And it’s unprofessional.
- Feel free to post a professional photo. People respond better to people with photos.
- Remember whatever you say/do on LinkedIn is public, and will reflect on you and [company]. Please keep it professional.
I don’t know if I’ve covered all the bases, but this is pretty comprehensive. Feel free to add other ideas of how to get your employees to build up their network, and especially on how to use their networks once they're built. I’m really interested to find out more about how companies use this forum.
It amazes me how many companies either don’t have a prominent presence on LinkedIn or simply don’t utilize it effectively. The compounded power of the network is mind boggling. For example, my network of almost 330 people gives me access to over 5.3 million users (the networks are set up to go 3 levels deep). Although not a direct sales tool, I think it’s a must in developing a presence, and for soft sales of services if done properly. It’s passive, non-intrusive, and very powerful.
The idea for individuals is pretty straight forward – a point of web presence and a network for providing services (or finding jobs). But for companies, the collective force of the networks of individuals can become even more powerful social media tool. Let’s say your company has 500 employees, and your marketing department is developing a webinar to discuss the changes in your market. Imagine if all your employees had a well developed network on LinkedIn, and each could bring 10 people to the webinar. Of course, a webinar with even 300 people is good enough for a company that size, so you get the idea. When each employee acts as a touch-point in a massive pool of professionals, the corporate image and messages can be exponentially magnified.
The problem becomes controlling that image. I know people who “tweak” their positions on LinkedIn for various reasons, or point blank lie. As a company, you have a little bit of control over your employees’ behavior on networking sites, but you have no way of changing their profile (unless LinkedIn changed their policies and forgot to announce it).
Given these drawbacks, I still think encouraging your employees to build a network on LinkedIn is a worthwhile effort. In fact, it’s best to proactively give them some guidelines to help them develop their image and their networks. Once they’re set up, make sure to use their collective networks in your social media. The results might surprise you.
Today I sent an email to a client’s sale/marketing teams and the executives with guidelines of how to develop their profiles and build up their LinkedIn networks. The idea is to roll it out to the rest of the company later. I’m repeating the guidelines here. The language is verbatim out of my email (except the company name and the markets it targets).
- Please develop a complete and professional profile on LinkedIn. Your LinkedIn profile acts as a public online professional bio for everyone to view, and it’s the first place a Google search of your name will land your potential contacts/clients.
- Include the title that shows up on your business cards, your work history, any special skills you may have, and any other appropriate information you can think of.
- Do not push XXX or YYY in your profile. We are positioning the company as a provider of ZZZ. It’s OK to talk about XXX/YYY but not as a main topic.
- Feel free to use keywords that are related to [company]’s business. People use them often in searches on LinkedIn, and you want to show up if they’re looking for experts in the field.
- Do NOT display or discuss confidential information about [company] in your profile. This includes ANY financial information (including revenues/profits/projections, etc), number of employees, plans for expansion, plans for partnerships, layoffs, new hiring, or anything of material importance.
- Start developing your network. Go through all your contacts, old colleagues, people you know from college, professional organizations, neighbors, relatives and friends who work in professional settings. The point is you want access to their network, even if they, themselves, don’t necessarily fit into a client profile. If you know people who have large networks, definitely connect to them. This will take time. Start soon.
- Do not hide your profile to limited groups (this is a LinkedIn option). Leave it open for everyone to see (except personal info like email, etc). You want everyone to be able to contact you if they’d like.
- Sign up with as many groups as is appropriate (max 50 allowed). This gives you access to a lot of discussions and newsboards in various industries.
- Feel free to participate in Q&As and group discussions. Show that you are an expert in the field and know what you’re talking about. Much of the time, people connect to you once they feel they trust you and enjoy your “conversations”.
- Do not spam the newsboards or the Q&A. You will be flagged and dropped from groups. And it’s unprofessional.
- Feel free to post a professional photo. People respond better to people with photos.
- Remember whatever you say/do on LinkedIn is public, and will reflect on you and [company]. Please keep it professional.
I don’t know if I’ve covered all the bases, but this is pretty comprehensive. Feel free to add other ideas of how to get your employees to build up their network, and especially on how to use their networks once they're built. I’m really interested to find out more about how companies use this forum.
October 14, 2009
Is your organization emotionally ready for change? Some tips for easier change management.
Every once in a while the economy whacks everyone on the side of the head to remind them to shape up, pushing companies into a state of shock. 2008 showed us a perfect example of a good whacking with a major collapse in the financial markets. A year on, the shock has worn off, and it’s time to shake off the dust and march forward. For many companies, this is the time to reevaluate the course of action, reposition the company, or reconfigure the organization.
For most people it’s so much easier to go back to the way things used to be. The thing about change is that it mostly strikes the emotional part of the system, and whoever charts the course, must expect and properly handle the emotional ups and downs of the organization throughout the transition.
Just over the past few weeks, I’ve either been involved with or have witnessed the firing of a CEO, birth of entire organizations, layoffs, and repositioning of companies (yeah, I’ve been kind of busy). Although I personally enjoy the prospects of change, years of dealing with various companies and organizational changes has taught me a lesson or two about dealing with the unsettling factors involved with major change within companies. I’ll share a few of them here.
Deal with the fear of change. Your other option is stagnation which is much more scary. The way you can help the organization overcome the fear of change is to provide as many facts and analyses as is possible. The more knowledge everyone has, the less emotionally reactive they become.
Don’t act out of panic. You’re almost sure to make the absolutely wrong decision. Enough said?
Take things one step at a time. Keep a strategic view, make your plans, then act accordingly. Huge mountains are conquered one step at a time.
Remove yourself from the situation. Pretend like you’re giving advice to someone else. I’m saying this from experience. Something happens when you’re removed from the situation – you become more rational and less reflexive in your decisions. If you have a hard time with this, change management consultants can help you through the transition. Hello!
Get your staff on board during the planning process. You need the affected division heads on board to make successful transitions happen. They need to understand why the change needs to occur, where the organization is headed, and how you will get there in order to transmit the ideas throughout their respective organization. The more time you spend with them before the change occurs, the easier the transition.
Communicate, communicate, communicate. Engage the organization throughout the change process both by talking and listening. This is no time to hide behind your computer screen. Pay particular attention to the quiet ones. They’re the ones listening to everyone else and can provide a wealth of information about the general morale and other on-goings within the organization.
Expect problems. Know that things will go wrong. Your staff will get cold feet, the markets will change, your finances won’t go as planned. It’s OK. Your plan should have wiggle room, but also, don’t beat yourself (or anyone else) up if things go off course. Regroup and pull things back on course. You never know, you might even decide to change the intended course halfway based on the new data.
Not everyone will be unhappy. Whenever I’m presenting to a group about the need for change, I notice a few quietly nodding their heads. Some of your staff is already on board to make these changes happen. Use them to help you in the change process. They already share your vision, and can help you during the transition.
The ending is just as important as the beginning. Once you’ve gone through the change process, don’t let the organization fall back into the old patterns otherwise your efforts will go to waste. Everything will feel wiggly for a while. Make sure all the processes, new systems, and new positions are solidly in place before you relax and grab that martini to celebrate.
I remember during a massive layoff at one of my old employers, the division heads were trained to deal with all kinds of violent behavior, people crying, etc., then one of them passed out during the exit interview for someone he was laying off. No one had thought about the strain on the management staff during the change process. Yeah, fun times.
I’d love to hear about other emotional factors you’ve witnessed during major change at your organizations, and how they were dealt with.
For most people it’s so much easier to go back to the way things used to be. The thing about change is that it mostly strikes the emotional part of the system, and whoever charts the course, must expect and properly handle the emotional ups and downs of the organization throughout the transition.
Just over the past few weeks, I’ve either been involved with or have witnessed the firing of a CEO, birth of entire organizations, layoffs, and repositioning of companies (yeah, I’ve been kind of busy). Although I personally enjoy the prospects of change, years of dealing with various companies and organizational changes has taught me a lesson or two about dealing with the unsettling factors involved with major change within companies. I’ll share a few of them here.
Deal with the fear of change. Your other option is stagnation which is much more scary. The way you can help the organization overcome the fear of change is to provide as many facts and analyses as is possible. The more knowledge everyone has, the less emotionally reactive they become.
Don’t act out of panic. You’re almost sure to make the absolutely wrong decision. Enough said?
Take things one step at a time. Keep a strategic view, make your plans, then act accordingly. Huge mountains are conquered one step at a time.
Remove yourself from the situation. Pretend like you’re giving advice to someone else. I’m saying this from experience. Something happens when you’re removed from the situation – you become more rational and less reflexive in your decisions. If you have a hard time with this, change management consultants can help you through the transition. Hello!
Get your staff on board during the planning process. You need the affected division heads on board to make successful transitions happen. They need to understand why the change needs to occur, where the organization is headed, and how you will get there in order to transmit the ideas throughout their respective organization. The more time you spend with them before the change occurs, the easier the transition.
Communicate, communicate, communicate. Engage the organization throughout the change process both by talking and listening. This is no time to hide behind your computer screen. Pay particular attention to the quiet ones. They’re the ones listening to everyone else and can provide a wealth of information about the general morale and other on-goings within the organization.
Expect problems. Know that things will go wrong. Your staff will get cold feet, the markets will change, your finances won’t go as planned. It’s OK. Your plan should have wiggle room, but also, don’t beat yourself (or anyone else) up if things go off course. Regroup and pull things back on course. You never know, you might even decide to change the intended course halfway based on the new data.
Not everyone will be unhappy. Whenever I’m presenting to a group about the need for change, I notice a few quietly nodding their heads. Some of your staff is already on board to make these changes happen. Use them to help you in the change process. They already share your vision, and can help you during the transition.
The ending is just as important as the beginning. Once you’ve gone through the change process, don’t let the organization fall back into the old patterns otherwise your efforts will go to waste. Everything will feel wiggly for a while. Make sure all the processes, new systems, and new positions are solidly in place before you relax and grab that martini to celebrate.
I remember during a massive layoff at one of my old employers, the division heads were trained to deal with all kinds of violent behavior, people crying, etc., then one of them passed out during the exit interview for someone he was laying off. No one had thought about the strain on the management staff during the change process. Yeah, fun times.
I’d love to hear about other emotional factors you’ve witnessed during major change at your organizations, and how they were dealt with.
September 23, 2009
Ssshhh… my company is dying! How to properly shut down your company
I feel awful about this blog! I help companies grow their revenues, grow their profits, or reposition them to grow. But I recently had a conversation with Bob Light, the controller of a company in Virginia who is in the process of shutting down his last employer (ouch), and he told me it was a great learning experience and quite involved, so I asked him to write about it.
Here’s in hopes that none of my readers will have to implement these steps!
***
No one wants to talk about it too openly, but this economy is taking its toll on businesses everywhere (except those in the alcohol distribution channel, which are booming…). After the RIFs and budget cuts fail to turn the red ink into black, the board or owners ultimately decide to pull the plug.
Shutting down a company is not enjoyable, but how you do it depends on the specific circumstances. In all cases, the more time you have to plan and implement this process, the less time, money, and reputation it will cost you. I’m not an expert, thank goodness, so this is just my opinion based on going through the process recently. Here are some of the basics to consider once the decision is made to go this route:
Bankruptcy – If you don’t have to file bankruptcy, don’t. Filing bankruptcy is “noisy”, i.e., it is tracked by many agencies and published by the media. It also is expensive. If you can’t avoid it, research the “Do’s and Don’ts” in advance.
Customers – If you have them, you have outstanding AR, and may have collected money for goods/services you won’t be able to deliver. Make the tough decisions about how and when to notify customers quickly, but keep it near the end of the operations. Consider:
• Refunds of customer prepayments
• Collections after you stop operations (usually much less than your AR balance)
• Suggestions/options for a transition to another provider (this is not only appreciated, but creates goodwill for future opportunities)
Vendors / leases – You will owe money to many types of vendors, or have long term leases. Make a list of all vendors and amounts owed, both present and future, and any contract T&Cs, then:
• Terminate vendors/leases based on notice requirements (i.e., if one requires 45 day notice and one 15, make sure the 45 day one is done first). Be especially attentive to accounts that auto-renew.
• Negotiate a lower amount owed. On larger settlements, get it in writing. Sometimes providing advance warning can help with getting the amount reduced or fully credited, or at the least generate some respect and goodwill.
• Check to see if you’re entitled to a refund for money you have paid for undelivered products or services, e.g., Workers Comp.
Liquidation of Fixed Assets – The used furniture / IT equipment markets are flooded these days, so it may even cost you to liquidate. Work out a deal with an auction service which may generate some cash for you. If you are small enough, you might do it yourself via CraigsList or eBay.
Employees/Benefits – You’ll need to terminate all employee benefit plans. This can have a huge impact on previous employees, as COBRA is tied to the plan and thus is not available if the plan is cancelled. State-sponsored plans are usually shorter, but might provide some coverage. If your company is small and hanging in there, consider switching to a PEO for benefits management which may save you money as well. Your employees will be glad you did since they still would have the COBRA option.
Taxes – Make a list of all states where you are registered to transact business, withhold sales or payroll taxes, etc. All branches have specific requirements for ending the account, but most provide instructions online or via a telephone call. Most states won’t let you “exit” if you are not in good standing or owe any taxes.
Who will do it – If your CFO/accounting team isn’t up to the task, hire companies or consultants to do this. Ask your attorney or tax advisor for recommendations.
There are obviously many other things to consider, and shutting down a company is just as trying as starting one, requiring hard work, guts and follow-through. When it is over, put down the shovel, raise a toast, and then move on to your next challenge. It isn’t a crime to fail (well, maybe if you’re the Enron management), but it should be to stop chasing dreams.
Bob Light has 25 years of starting, growing, sustaining, healing, transitioning and (now) terminating small businesses across retail, service and technology verticals. Currently, the search for his next challenge tops his to-do list, preferably at a company where he doesn’t have to utilize his latest experience any time soon.
Here’s in hopes that none of my readers will have to implement these steps!
***
No one wants to talk about it too openly, but this economy is taking its toll on businesses everywhere (except those in the alcohol distribution channel, which are booming…). After the RIFs and budget cuts fail to turn the red ink into black, the board or owners ultimately decide to pull the plug.
Shutting down a company is not enjoyable, but how you do it depends on the specific circumstances. In all cases, the more time you have to plan and implement this process, the less time, money, and reputation it will cost you. I’m not an expert, thank goodness, so this is just my opinion based on going through the process recently. Here are some of the basics to consider once the decision is made to go this route:
Bankruptcy – If you don’t have to file bankruptcy, don’t. Filing bankruptcy is “noisy”, i.e., it is tracked by many agencies and published by the media. It also is expensive. If you can’t avoid it, research the “Do’s and Don’ts” in advance.
Customers – If you have them, you have outstanding AR, and may have collected money for goods/services you won’t be able to deliver. Make the tough decisions about how and when to notify customers quickly, but keep it near the end of the operations. Consider:
• Refunds of customer prepayments
• Collections after you stop operations (usually much less than your AR balance)
• Suggestions/options for a transition to another provider (this is not only appreciated, but creates goodwill for future opportunities)
Vendors / leases – You will owe money to many types of vendors, or have long term leases. Make a list of all vendors and amounts owed, both present and future, and any contract T&Cs, then:
• Terminate vendors/leases based on notice requirements (i.e., if one requires 45 day notice and one 15, make sure the 45 day one is done first). Be especially attentive to accounts that auto-renew.
• Negotiate a lower amount owed. On larger settlements, get it in writing. Sometimes providing advance warning can help with getting the amount reduced or fully credited, or at the least generate some respect and goodwill.
• Check to see if you’re entitled to a refund for money you have paid for undelivered products or services, e.g., Workers Comp.
Liquidation of Fixed Assets – The used furniture / IT equipment markets are flooded these days, so it may even cost you to liquidate. Work out a deal with an auction service which may generate some cash for you. If you are small enough, you might do it yourself via CraigsList or eBay.
Employees/Benefits – You’ll need to terminate all employee benefit plans. This can have a huge impact on previous employees, as COBRA is tied to the plan and thus is not available if the plan is cancelled. State-sponsored plans are usually shorter, but might provide some coverage. If your company is small and hanging in there, consider switching to a PEO for benefits management which may save you money as well. Your employees will be glad you did since they still would have the COBRA option.
Taxes – Make a list of all states where you are registered to transact business, withhold sales or payroll taxes, etc. All branches have specific requirements for ending the account, but most provide instructions online or via a telephone call. Most states won’t let you “exit” if you are not in good standing or owe any taxes.
Who will do it – If your CFO/accounting team isn’t up to the task, hire companies or consultants to do this. Ask your attorney or tax advisor for recommendations.
There are obviously many other things to consider, and shutting down a company is just as trying as starting one, requiring hard work, guts and follow-through. When it is over, put down the shovel, raise a toast, and then move on to your next challenge. It isn’t a crime to fail (well, maybe if you’re the Enron management), but it should be to stop chasing dreams.
Bob Light has 25 years of starting, growing, sustaining, healing, transitioning and (now) terminating small businesses across retail, service and technology verticals. Currently, the search for his next challenge tops his to-do list, preferably at a company where he doesn’t have to utilize his latest experience any time soon.
September 21, 2009
Preparing Your Business for a Major Transaction: Seven Key Issues to Consider
For today’s blog I’ve asked Ara Babaian, Esq., a partner at Ervin, Cohen, and Jessup's business and corporate law department, to tell us how to prepare a business for a major transaction.
Listen to the man. He knows his stuff!
By the way, Ara had a much longer list originally, but for the purpose of brevity, I asked him to condense the list. Feel free to add what other factors you think should be involved in preparation for major business transactions.
****
Are you considering a major transaction for your business, such as a sale, merger, private placement or debt financing? These types of deals are very important to the stakeholders in your company and to the future success of the business, and they are often time-consuming and costly. Below are seven key issues that often arise in these deals, and any one of them can become a major obstacle to closing your deal. In addition, in a major transaction, the business owners will be asked to make certain representations and warranties about the business that can make them personally liable for any breaches. Addressing these issues in advance can prevent them from becoming pitfalls.
Maintain reliable financial information. It is critical to work with your in-house financial staff or your CPA to prepare financial information that you and other decision-makers can rely upon. Developing effective audit and internal control procedures is an integral part of this effort. Doing this will allow you to gauge how your business is performing and demonstrate its value to other participants in the deal. Further, it will show that your business is organized and well-managed.
Keep your employees through the transaction. Often a company’s value is closely tied with the individuals whom the company employs. Because a certain amount of confusion and uncertainty is involved with a major corporate transaction, it is critical to retain these employees. One way to do that is by incentivizing them with equity incentive plans such as stock option or other equity plans, so that the employees are motivated to remain employed by the company to the end of the deal and beyond.
Document your relationships. Depending on the industry your are in, some or all of your business relationships may not be documented—whether those relationships are with your suppliers, customers, contractors or others. However, to the extent practical, it is important to document those relationships. Doing so will help preserve the value in your company and support the due diligence review of your business that any investor likely will undertake.
Manage your partners. If your business has more than one owner, it is important to make sure that your partners are all on board with respect to any decisions regarding the deal. A buy-sell agreement, shareholders’ agreement or operating agreement (if your company is a limited liability company) can help you do this by imposing restrictions on the transferability of the shares and providing for other management and decision-making mechanisms.
Maintain your corporate records. Maintaining and updating the corporate records of your business on a regular basis saves a lot of time and prevents confusion during a major transaction. Worrying about these details in the midst of a complex deal will take away resources from the business and the deal itself.
Protect your intellectual property (IP). It is critical to protect your company’s IP (patents, copyrights, trademarks and trade secrets). The actions that need to be taken depend on the type of IP that is important to your business. For example, you may need to file for a patent, or register a trademark or copyright. To protect trade secrets, you want to make sure that your trade secrets are shared only with people who have a “need to know” and who sign a non-disclosure agreement. Your employees and contractors also should sign an inventions or “work for hire” agreement to make sure that the sole owner of the IP is your company and that employees or contractors do not acquire rights in the IP.
Review your lease and environmental matters. If you are considering a major deal, it is important to ensure that the lease for your business (1) is appropriate for the future needs of the business, (2) is assignable in the context of your deal and (3) has acceptable terms such as rent amount and term. In addition, a myriad of environmental and zoning laws may apply to your business, and it is necessary from time to time to evaluate these laws to determine their impact on the deal.
Complex corporate transactions present many challenges and use up a lot of resources. Addressing the issues presented above, along with any particular issues that face your business, will be a good start to smoothing the path for a successful business venture.
Listen to the man. He knows his stuff!
By the way, Ara had a much longer list originally, but for the purpose of brevity, I asked him to condense the list. Feel free to add what other factors you think should be involved in preparation for major business transactions.
****
Are you considering a major transaction for your business, such as a sale, merger, private placement or debt financing? These types of deals are very important to the stakeholders in your company and to the future success of the business, and they are often time-consuming and costly. Below are seven key issues that often arise in these deals, and any one of them can become a major obstacle to closing your deal. In addition, in a major transaction, the business owners will be asked to make certain representations and warranties about the business that can make them personally liable for any breaches. Addressing these issues in advance can prevent them from becoming pitfalls.
Maintain reliable financial information. It is critical to work with your in-house financial staff or your CPA to prepare financial information that you and other decision-makers can rely upon. Developing effective audit and internal control procedures is an integral part of this effort. Doing this will allow you to gauge how your business is performing and demonstrate its value to other participants in the deal. Further, it will show that your business is organized and well-managed.
Keep your employees through the transaction. Often a company’s value is closely tied with the individuals whom the company employs. Because a certain amount of confusion and uncertainty is involved with a major corporate transaction, it is critical to retain these employees. One way to do that is by incentivizing them with equity incentive plans such as stock option or other equity plans, so that the employees are motivated to remain employed by the company to the end of the deal and beyond.
Document your relationships. Depending on the industry your are in, some or all of your business relationships may not be documented—whether those relationships are with your suppliers, customers, contractors or others. However, to the extent practical, it is important to document those relationships. Doing so will help preserve the value in your company and support the due diligence review of your business that any investor likely will undertake.
Manage your partners. If your business has more than one owner, it is important to make sure that your partners are all on board with respect to any decisions regarding the deal. A buy-sell agreement, shareholders’ agreement or operating agreement (if your company is a limited liability company) can help you do this by imposing restrictions on the transferability of the shares and providing for other management and decision-making mechanisms.
Maintain your corporate records. Maintaining and updating the corporate records of your business on a regular basis saves a lot of time and prevents confusion during a major transaction. Worrying about these details in the midst of a complex deal will take away resources from the business and the deal itself.
Protect your intellectual property (IP). It is critical to protect your company’s IP (patents, copyrights, trademarks and trade secrets). The actions that need to be taken depend on the type of IP that is important to your business. For example, you may need to file for a patent, or register a trademark or copyright. To protect trade secrets, you want to make sure that your trade secrets are shared only with people who have a “need to know” and who sign a non-disclosure agreement. Your employees and contractors also should sign an inventions or “work for hire” agreement to make sure that the sole owner of the IP is your company and that employees or contractors do not acquire rights in the IP.
Review your lease and environmental matters. If you are considering a major deal, it is important to ensure that the lease for your business (1) is appropriate for the future needs of the business, (2) is assignable in the context of your deal and (3) has acceptable terms such as rent amount and term. In addition, a myriad of environmental and zoning laws may apply to your business, and it is necessary from time to time to evaluate these laws to determine their impact on the deal.
Complex corporate transactions present many challenges and use up a lot of resources. Addressing the issues presented above, along with any particular issues that face your business, will be a good start to smoothing the path for a successful business venture.
September 17, 2009
More than hierarchy, organizational structures reflect corporate values and… hidden problems
Org charts are fascinating (living, breathing, pulsating) organism. I didn’t always see things this way. I remember being a number in an org chart and hating it. I was one of 100,000 employees working for corporation X many years ago, and whenever I looked at an org chart, all I saw was hierarchy. Who reported to whom? Who moved to the side? Who moved up? And why didn’t anyone ever move down? Some people sucked at what they did, and they kept getting “demoted up” – a promotion to get them out of the way.
It took me a few years to understand the true meaning conveyed by org charts: power plays, strengths, and management mistakes. I’ve now seen more org charts than I can count, and I routinely review them as a visual representation of the company’s strengths and weaknesses, and misplaced focus.
A few on my laundry list.
Ownership. I look for “ownership” of every important function on the org chart. If no one “owns” a specific function, who is in charge of it? For example, if everyone thinks they’re involved in strategy but there’s no person/group assigned to it, trust me, it ain’t happening. Wondering why the company has no direction? Look for “strategy” ownership on the org chart.
Marketing. One of the most misunderstood functions in most companies. I personally view it as a more strategic function, but it does span a wide range of strategic and tactical activities. How a company treats marketing says much about their focus. Having a “sales and marketing” department forces the marketing function to become more tactical. “Marketing and advertising” suites brand conscious companies and is also tactical. For high tech companies I prefer to see marketing as a stand-alone function and much more strategy focused (“marketing and strategy” organization?). For non-manufacturing SMBs, I’d like to see a minimum of one marketing staff for every 15-20 employees. Anything less than that and your sales will suffer.
Sales. It’s amazing how many companies have the wrong sales functions to match their product or service offering. A vertical market focus in the sales department is suitable for sophisticated product lines, and a geographical focus is more suitable for commoditized products. Mixing the two will create havoc. The titles alone portray much about the company’s focus. Is the title called sales, business development, or account management? Does this match the product line? Is channel sales separated from the rest? If not, the channel partnerships will suffer.
R&D. For high-tech companies, I’d like to see a stand-alone R&D organization. Mixing R&D with Engineering dilutes the strategic focus of the company. The engineering team takes the product to launch which is tactical by default. R&D needs to focus on future product lines and shouldn’t get bogged down by day-to-day tactics.
Quality & Assurance (QA). Again, for high tech companies, QA should be separated from engineering, otherwise, product quality is compromised. You need the negotiation between the two groups, and having one function report to the other doesn’t work well.
Human Resources. I’d like to see this as a straight line to the top management (president, COO, or CEO). Most companies organically leave the human resources function under the CFO or VP of Finance. This shows cost consciousness and lack of focus on human resource development.
Operations. Another area that routinely falls under finance to keep the costs down. This should also be a straight line to the top (or in smaller companies, handled by the top position in the company), as it spans the entire company. Operations and finance should be in position of negotiating together and one reporting to the other compromises operational efficiency.
Legal. For mid sized companies and up, it makes sense to have an in-house council group. Small companies with high transactional activities (licensing, for example) or high focus on IP development (patents) can also use at least one in-house council.
I’d love to hear your stories. What do you see on your company’s org chart? Does it match your company’s mission and corporate values? If not, it might be time for change management (let's talk!).
And let’s hope “demoting up” is eliminated for good. Please tell me it is.
It took me a few years to understand the true meaning conveyed by org charts: power plays, strengths, and management mistakes. I’ve now seen more org charts than I can count, and I routinely review them as a visual representation of the company’s strengths and weaknesses, and misplaced focus.
A few on my laundry list.
Ownership. I look for “ownership” of every important function on the org chart. If no one “owns” a specific function, who is in charge of it? For example, if everyone thinks they’re involved in strategy but there’s no person/group assigned to it, trust me, it ain’t happening. Wondering why the company has no direction? Look for “strategy” ownership on the org chart.
Marketing. One of the most misunderstood functions in most companies. I personally view it as a more strategic function, but it does span a wide range of strategic and tactical activities. How a company treats marketing says much about their focus. Having a “sales and marketing” department forces the marketing function to become more tactical. “Marketing and advertising” suites brand conscious companies and is also tactical. For high tech companies I prefer to see marketing as a stand-alone function and much more strategy focused (“marketing and strategy” organization?). For non-manufacturing SMBs, I’d like to see a minimum of one marketing staff for every 15-20 employees. Anything less than that and your sales will suffer.
Sales. It’s amazing how many companies have the wrong sales functions to match their product or service offering. A vertical market focus in the sales department is suitable for sophisticated product lines, and a geographical focus is more suitable for commoditized products. Mixing the two will create havoc. The titles alone portray much about the company’s focus. Is the title called sales, business development, or account management? Does this match the product line? Is channel sales separated from the rest? If not, the channel partnerships will suffer.
R&D. For high-tech companies, I’d like to see a stand-alone R&D organization. Mixing R&D with Engineering dilutes the strategic focus of the company. The engineering team takes the product to launch which is tactical by default. R&D needs to focus on future product lines and shouldn’t get bogged down by day-to-day tactics.
Quality & Assurance (QA). Again, for high tech companies, QA should be separated from engineering, otherwise, product quality is compromised. You need the negotiation between the two groups, and having one function report to the other doesn’t work well.
Human Resources. I’d like to see this as a straight line to the top management (president, COO, or CEO). Most companies organically leave the human resources function under the CFO or VP of Finance. This shows cost consciousness and lack of focus on human resource development.
Operations. Another area that routinely falls under finance to keep the costs down. This should also be a straight line to the top (or in smaller companies, handled by the top position in the company), as it spans the entire company. Operations and finance should be in position of negotiating together and one reporting to the other compromises operational efficiency.
Legal. For mid sized companies and up, it makes sense to have an in-house council group. Small companies with high transactional activities (licensing, for example) or high focus on IP development (patents) can also use at least one in-house council.
I’d love to hear your stories. What do you see on your company’s org chart? Does it match your company’s mission and corporate values? If not, it might be time for change management (let's talk!).
And let’s hope “demoting up” is eliminated for good. Please tell me it is.
August 20, 2009
Eleven money allocation tips for small and medium business (SMB) during the recession
In my last blog I discussed ten growth factors for small and medium businesses (SMBs) during the recession, and as promised, this blog discusses money allocation tips during the recession, i.e., where to cut back and where to allocate funds for best results. It will probably help if you read the last blog before you read this one.
Get the best finance VP (CFO) your money can buy. Many finance VPs are glorified accountants, but you can’t afford this when times are hard. Your finance VP is a key executive and a huge factor in the health of your business, and needs to be strategic, creative, and an expert in cash flow management. Penny pinching isn’t necessarily a success factor during tough times. Your finance VP needs to know when to strategically invest in your business, when to shut the purse, and how to allocate your funds for best results.
Shed low performing business & product lines. Perform detailed analysis on your business lines and product lines, and either sell or shut down the ones with low ROI. You have better things to do with your money. This doesn’t apply to new operations that require more time to show returns.
Evaluate marketing and advertising costs. Marketing and advertising are major cost centers, so take a step back and reconsider the ROI on each aspect of your marketing efforts including print, email campaigns, trade shows, online programs, advertising (both online and traditional). Move funds into higher ROI activities and eliminate or reduce your lower ROI activities. Definitely look into social media. It’s here to stay, and as I mentioned in my last blog, it will turn your marketing department upside down.
Evaluate your customer service processes. Customer service is one of the main cost centers in service oriented companies. Take a serious look at your customer service processes and see how you can reduce the need for “contact”. Can you improve your product documentation? Better yet, can you move all your documentation and “help line” online (including videos, flash presentations, photos, diagrams, etc.)? The cost of developing online help is minimal compared to the cost and headache of maintaining a customer service department, but you have to do it right otherwise it will backfire on you.
Consider outsourcing. If you can let go of the control a little, you can save a lot of money by outsourcing, as long as you don’t outsource your core competencies. It’s a fine line and it’s easy to lose track of your core competencies in your quest to cut costs.
Boost R&D. I mentioned this before, but it bears mentioning again. Times will improve at some point, and you need your competitive edge when that happens. See my last blog for more details.
Re-negotiate your building’s lease. Yes you can. At least you can ask.
Evaluate the cost of ownership of all office equipment. Unearth the hidden costs of maintenance and lease agreements for: PCs, laptops, hardcopy products (printers, copiers, etc), network equipment, and other hard assets. Get rid of the unused equipment especially those with maintenance agreements. Re-negotiate the lease and maintenance agreements for the equipment you plan to keep. For new purchases, consolidate your hardware vendors and negotiate a hard deal with one of the top three in the field. Businesses spend up to 3% of revenues annually on hardcopy costs, most of which is unnecessary. Simply replacing copiers with networked scanners will save a lot of money in equipment and consumables costs (paper, toner, etc), save space, and make your data more accessible. (I know far too much about the hardcopy industry – ask me and I’ll tell you more.)
Remove the bottom 10% of your workforce. All companies carry dead weight in good times, but if you haven’t already cleaned up, this is a good time to do so. Getting rid of low performing employees doesn’t necessarily erode morale (counterintuitive, but true).
Pay cuts, forced vacations, bonus cuts. If you haven’t already done this, this is a better alternative to layoffs. Make sure everyone understands this is temporary and stand by your word, otherwise, the minute the market turns around, your best performers will take off. One day every two weeks forced day off, and/or 5-10% pay cuts seems to be the norm these days. Pay cuts for higher paid personnel and executives should be more than others. In tough times, bonuses only go to those who directly increase the top-line or bottom-line. You’re not Goldman Sachs, and you don’t have to act like them.
Travel costs. Another one that you’ve probably already considered. Make sure to invest in technologies such as web conferencing to simulate face to face meetings with clients and partners. Consolidate all your travel bookings with one agent to get better deals. Mileage points stay with the company not the employees.
I hope you find these tips helpful. Feel free to let me know if you have other helpful fund allocation tips.
Get the best finance VP (CFO) your money can buy. Many finance VPs are glorified accountants, but you can’t afford this when times are hard. Your finance VP is a key executive and a huge factor in the health of your business, and needs to be strategic, creative, and an expert in cash flow management. Penny pinching isn’t necessarily a success factor during tough times. Your finance VP needs to know when to strategically invest in your business, when to shut the purse, and how to allocate your funds for best results.
Shed low performing business & product lines. Perform detailed analysis on your business lines and product lines, and either sell or shut down the ones with low ROI. You have better things to do with your money. This doesn’t apply to new operations that require more time to show returns.
Evaluate marketing and advertising costs. Marketing and advertising are major cost centers, so take a step back and reconsider the ROI on each aspect of your marketing efforts including print, email campaigns, trade shows, online programs, advertising (both online and traditional). Move funds into higher ROI activities and eliminate or reduce your lower ROI activities. Definitely look into social media. It’s here to stay, and as I mentioned in my last blog, it will turn your marketing department upside down.
Evaluate your customer service processes. Customer service is one of the main cost centers in service oriented companies. Take a serious look at your customer service processes and see how you can reduce the need for “contact”. Can you improve your product documentation? Better yet, can you move all your documentation and “help line” online (including videos, flash presentations, photos, diagrams, etc.)? The cost of developing online help is minimal compared to the cost and headache of maintaining a customer service department, but you have to do it right otherwise it will backfire on you.
Consider outsourcing. If you can let go of the control a little, you can save a lot of money by outsourcing, as long as you don’t outsource your core competencies. It’s a fine line and it’s easy to lose track of your core competencies in your quest to cut costs.
Boost R&D. I mentioned this before, but it bears mentioning again. Times will improve at some point, and you need your competitive edge when that happens. See my last blog for more details.
Re-negotiate your building’s lease. Yes you can. At least you can ask.
Evaluate the cost of ownership of all office equipment. Unearth the hidden costs of maintenance and lease agreements for: PCs, laptops, hardcopy products (printers, copiers, etc), network equipment, and other hard assets. Get rid of the unused equipment especially those with maintenance agreements. Re-negotiate the lease and maintenance agreements for the equipment you plan to keep. For new purchases, consolidate your hardware vendors and negotiate a hard deal with one of the top three in the field. Businesses spend up to 3% of revenues annually on hardcopy costs, most of which is unnecessary. Simply replacing copiers with networked scanners will save a lot of money in equipment and consumables costs (paper, toner, etc), save space, and make your data more accessible. (I know far too much about the hardcopy industry – ask me and I’ll tell you more.)
Remove the bottom 10% of your workforce. All companies carry dead weight in good times, but if you haven’t already cleaned up, this is a good time to do so. Getting rid of low performing employees doesn’t necessarily erode morale (counterintuitive, but true).
Pay cuts, forced vacations, bonus cuts. If you haven’t already done this, this is a better alternative to layoffs. Make sure everyone understands this is temporary and stand by your word, otherwise, the minute the market turns around, your best performers will take off. One day every two weeks forced day off, and/or 5-10% pay cuts seems to be the norm these days. Pay cuts for higher paid personnel and executives should be more than others. In tough times, bonuses only go to those who directly increase the top-line or bottom-line. You’re not Goldman Sachs, and you don’t have to act like them.
Travel costs. Another one that you’ve probably already considered. Make sure to invest in technologies such as web conferencing to simulate face to face meetings with clients and partners. Consolidate all your travel bookings with one agent to get better deals. Mileage points stay with the company not the employees.
I hope you find these tips helpful. Feel free to let me know if you have other helpful fund allocation tips.
August 17, 2009
Ten growth factors for small and medium business (SMB) during the recession
Times continue to be difficult for businesses about a year into this recession. So many small and medium businesses I’ve recently spoken with are either going under or selling out, I’m beginning to take it personally (yeah, it’s all about me!). During good times, anyone can drift along, and during tough times, the weaklings fall off the grid, but during particularly hard times like right now, only the best survive. Being average no longer cuts it.
Reality check: by definition, half of all companies are below average. Where does your company fall on the spectrum?
Best business practices that make stellar companies need to be front and center in hard times as there’s no time to snooze. You and your employees have to work harder and much smarter in order to succeed. Here’s a list of factors that will propel growth during the good times, but must be seriously considered during tough times.
Embrace change. I know it’s cliché, but you don’t have a choice. The road ahead of you has turned and you’ve either come to a screeching halt or headed for the cliff. The only way to survive is to turn with the road. Change can be scary and unsettling for some, but get used to it. A windy road awaits all of us.
Define your target market with laser accuracy. Many of you have drifted along and survived on low hanging fruit, but this is no time to be fuzzy about your target market. Take a giant step back and define your market strategy. Where is your best bang for the buck? Are you headed for where the market is going? Without this, you’re shooting blind hoping to hit the target.
Develop complementary corporate partnerships. I’m a big advocate of corporate partnerships and when times get tough, joining forces with others becomes essential. Some of the best partnerships are with companies that provide solutions complementary to yours into the same target market. A combined sales force selling combined solutions can generate strong revenues.
License your intellectual properties (IP) to non-compete entities. This doesn’t apply to everyone, but to those who develop IP… In a perfect example of working smarter rather than working harder, licensing can increase your revenues solidly over time with high margins. Some companies develop IP and patents without doing much with them. Put your hard earned IP to work and watch your revenues grow.
Boost R&D. Times are not going to remain down indefinitely. When the next “up” wave comes around, you want to be ready with new solutions for the market. This is when weaker companies scale back on R&D and smarter companies invest in their future.
Evaluate all aspects of your marketing operations. The marketing function has transformed exponentially in a very short time. You can’t expect to print some brochures, design a cool website (even with SEO), announce some new releases, and expect the market to come after you. Explore new ways in which you can continue to engage the market (sometimes at a lower cost than traditional marketing methods). Social media is not a fad. It’s here to stay, and it will turn your marketing department upside down.
Evaluate and optimize your sales operations. Make sure you have the best Sales VP your money can buy as (s)he is the one in charge of generating your revenues. Being aggressive is no longer the main success factor in sales. Your sales VP should be strategic and creative, and embody excellent leadership skills to keep your sales staff highly motivated during tough times. Evaluate all aspects of your sales operations including direct sales, telemarketing, channels, ecommerce, etc., and focus your resources on the highest ROI methods. Spend time evaluating new sales and lead generation tools and pick one that best fits your business. If you decide to hire commission-only sales people, make sure they are deeply knowledgeable about your products and your vertical, otherwise they’ll fail and leave within weeks.
Engage your employees and listen. Your employee base is a goldmine of ideas and information about your business. They know your customers, your market, and your operations. Actively encourage them to come up with ideas to improve revenue generating operations, product innovation, cost cutting measures, etc., and listen to them. You’d be surprised at the level of ideas you’ll generate simply by asking. This also gives your employees a great sense of inclusion.
Evaluate your board. The purpose of your board of directors is to help the company’s health and growth. If every single one of your board members isn’t actively involved in the growth of your company, what are they doing there? Pick individuals for your board who can specifically help the growth of your company through their expertise in your vertical, connections to potential clients or partners, or extensive experience running businesses similar to yours. And ask them to get active about your company.
Stay physically healthy. (This is your mother talking!) You need to keep healthy to handle the pressures of working harder while managing change. Stress compromises your immune system and induces depression and anxiety. Regular exercise has the exact opposite effect, and has myriad of other benefits. It’s a slam dunk.
I’d love to hear about other creative improvements you have implemented for growth in hard times, and I invite you to share your ideas here.
Next time, I’ll talk about fund allocation tips for small and medium businesses during the recession. Feel free to subscribe to this blog to get the follow up blog by email (I don’t blog that often so you won’t be spammed).
Reality check: by definition, half of all companies are below average. Where does your company fall on the spectrum?
Best business practices that make stellar companies need to be front and center in hard times as there’s no time to snooze. You and your employees have to work harder and much smarter in order to succeed. Here’s a list of factors that will propel growth during the good times, but must be seriously considered during tough times.
Embrace change. I know it’s cliché, but you don’t have a choice. The road ahead of you has turned and you’ve either come to a screeching halt or headed for the cliff. The only way to survive is to turn with the road. Change can be scary and unsettling for some, but get used to it. A windy road awaits all of us.
Define your target market with laser accuracy. Many of you have drifted along and survived on low hanging fruit, but this is no time to be fuzzy about your target market. Take a giant step back and define your market strategy. Where is your best bang for the buck? Are you headed for where the market is going? Without this, you’re shooting blind hoping to hit the target.
Develop complementary corporate partnerships. I’m a big advocate of corporate partnerships and when times get tough, joining forces with others becomes essential. Some of the best partnerships are with companies that provide solutions complementary to yours into the same target market. A combined sales force selling combined solutions can generate strong revenues.
License your intellectual properties (IP) to non-compete entities. This doesn’t apply to everyone, but to those who develop IP… In a perfect example of working smarter rather than working harder, licensing can increase your revenues solidly over time with high margins. Some companies develop IP and patents without doing much with them. Put your hard earned IP to work and watch your revenues grow.
Boost R&D. Times are not going to remain down indefinitely. When the next “up” wave comes around, you want to be ready with new solutions for the market. This is when weaker companies scale back on R&D and smarter companies invest in their future.
Evaluate all aspects of your marketing operations. The marketing function has transformed exponentially in a very short time. You can’t expect to print some brochures, design a cool website (even with SEO), announce some new releases, and expect the market to come after you. Explore new ways in which you can continue to engage the market (sometimes at a lower cost than traditional marketing methods). Social media is not a fad. It’s here to stay, and it will turn your marketing department upside down.
Evaluate and optimize your sales operations. Make sure you have the best Sales VP your money can buy as (s)he is the one in charge of generating your revenues. Being aggressive is no longer the main success factor in sales. Your sales VP should be strategic and creative, and embody excellent leadership skills to keep your sales staff highly motivated during tough times. Evaluate all aspects of your sales operations including direct sales, telemarketing, channels, ecommerce, etc., and focus your resources on the highest ROI methods. Spend time evaluating new sales and lead generation tools and pick one that best fits your business. If you decide to hire commission-only sales people, make sure they are deeply knowledgeable about your products and your vertical, otherwise they’ll fail and leave within weeks.
Engage your employees and listen. Your employee base is a goldmine of ideas and information about your business. They know your customers, your market, and your operations. Actively encourage them to come up with ideas to improve revenue generating operations, product innovation, cost cutting measures, etc., and listen to them. You’d be surprised at the level of ideas you’ll generate simply by asking. This also gives your employees a great sense of inclusion.
Evaluate your board. The purpose of your board of directors is to help the company’s health and growth. If every single one of your board members isn’t actively involved in the growth of your company, what are they doing there? Pick individuals for your board who can specifically help the growth of your company through their expertise in your vertical, connections to potential clients or partners, or extensive experience running businesses similar to yours. And ask them to get active about your company.
Stay physically healthy. (This is your mother talking!) You need to keep healthy to handle the pressures of working harder while managing change. Stress compromises your immune system and induces depression and anxiety. Regular exercise has the exact opposite effect, and has myriad of other benefits. It’s a slam dunk.
I’d love to hear about other creative improvements you have implemented for growth in hard times, and I invite you to share your ideas here.
Next time, I’ll talk about fund allocation tips for small and medium businesses during the recession. Feel free to subscribe to this blog to get the follow up blog by email (I don’t blog that often so you won’t be spammed).
June 2, 2009
Hail to the Chief-ess
I’m reminiscing here…
When I joined Xerox in the late 80s, the average tenure of Xerox employees was a whopping 17 years (yes, average), and let me tell you, the “average” executive there wasn’t female, and he certainly wasn’t black. I remember hearing about Ursula Burns – a lot. Everyone knew of her, because (oooh!) a black woman had become the VP of something or other. This is before Obamania, before Condoleezza Rice, before Clarence Thomas. I distinctly remember hearing that she used to be a secretary (she wasn’t). She was, in fact, an Ivy Leaguer with a BS and MS under her belt. Minor detail.
Settle down. This isn’t about affirmative action.
I left Xerox in the mid-90s for a “pre-IPO” company, which was the thing to do in those days. At the time, I was fascinated by Carly Fiorina, the newly minted head of Lucent. She was tough, serious, and unbendable. With her short designer hair, controlled smile, and executive suits, she embodied what corporate America wanted from female executives – a man with boobs. Fortune magazine named her the "most powerful woman in business" in their inaugural listing, and a year later she went on to head HP as the first female chief of a Fortune 100 company. Carly staged herself as a superstar CEO starring in HP’s ads and several business magazine covers. She wanted to be to HP what Lou Gerstner had been to IBM. She promised to change HP into an “e-services” company.
Two years later, Xerox announced Anne Mulcahy as its CEO, prompting comparisons to Fiorina. A relative unknown, Mulcahy was thrown into the scene amid major turmoil at the company. With her informal soft blond hair, motherly looks, and a low profile on the street, she didn’t invoke too much confidence. Xerox’s stock dropped 15% on the day of her announcement, and the little news about her generally remained skeptical. I remember reading an article that mentioned she cried at board meetings. Let me repeat, she cried at board meetings! Do you think John Chambers cried at board meetings?! I had firmly decided that Ms. Goldilocks would come nowhere near comparisons with my favorite chief-ess at HP. End of discussion!
As the street became more familiar with Mulcahy, the news started trickling out more regularly. Turns out the employees loved her (I talked to them myself). Her flexible inclusive style (dare I say “feminine style”) brought all layers of the organization together, and she wasn’t afraid to admit errors. Fiorina had also managed to keep herself in the headlines, much to her detriment. Her employees were mostly skeptical of her, some despised her. She was divisive and single-minded, and failed to build consensus. She pushed HP to acquire Compaq in a much contested deal (so much for an e-services company), while Mulcahy turned Xerox around from the brink of bankruptcy to a highly profitable operation.
Fiorina was eventually booted out. Mulcahy completed the turnaround at Xerox, and kept Ursula Burns as her successor. Burns will take the reigns at Xerox on July 1st as the first black female CEO of a major corporation, and in the first female-to-female executive transfer in the history of any large US corporation (hats off!). She has also kept a low profile, but I doubt that will be the case for too long. Powerful black women have a hard time staying out of the limelight, whether or not they like it.
It’s hard to determine what Burns plans to do with Xerox. She is taking over a stable organization and will probably decide to build her own legacy. Maybe she will reduce Xerox’s dependency on its commoditized product line, and make a major push to increase services. Maybe she will take advantage of the economic downturn to acquire complementary businesses. But I have a feeling whatever she does, she won’t be crying at board meetings.
When I joined Xerox in the late 80s, the average tenure of Xerox employees was a whopping 17 years (yes, average), and let me tell you, the “average” executive there wasn’t female, and he certainly wasn’t black. I remember hearing about Ursula Burns – a lot. Everyone knew of her, because (oooh!) a black woman had become the VP of something or other. This is before Obamania, before Condoleezza Rice, before Clarence Thomas. I distinctly remember hearing that she used to be a secretary (she wasn’t). She was, in fact, an Ivy Leaguer with a BS and MS under her belt. Minor detail.
Settle down. This isn’t about affirmative action.
I left Xerox in the mid-90s for a “pre-IPO” company, which was the thing to do in those days. At the time, I was fascinated by Carly Fiorina, the newly minted head of Lucent. She was tough, serious, and unbendable. With her short designer hair, controlled smile, and executive suits, she embodied what corporate America wanted from female executives – a man with boobs. Fortune magazine named her the "most powerful woman in business" in their inaugural listing, and a year later she went on to head HP as the first female chief of a Fortune 100 company. Carly staged herself as a superstar CEO starring in HP’s ads and several business magazine covers. She wanted to be to HP what Lou Gerstner had been to IBM. She promised to change HP into an “e-services” company.
Two years later, Xerox announced Anne Mulcahy as its CEO, prompting comparisons to Fiorina. A relative unknown, Mulcahy was thrown into the scene amid major turmoil at the company. With her informal soft blond hair, motherly looks, and a low profile on the street, she didn’t invoke too much confidence. Xerox’s stock dropped 15% on the day of her announcement, and the little news about her generally remained skeptical. I remember reading an article that mentioned she cried at board meetings. Let me repeat, she cried at board meetings! Do you think John Chambers cried at board meetings?! I had firmly decided that Ms. Goldilocks would come nowhere near comparisons with my favorite chief-ess at HP. End of discussion!
As the street became more familiar with Mulcahy, the news started trickling out more regularly. Turns out the employees loved her (I talked to them myself). Her flexible inclusive style (dare I say “feminine style”) brought all layers of the organization together, and she wasn’t afraid to admit errors. Fiorina had also managed to keep herself in the headlines, much to her detriment. Her employees were mostly skeptical of her, some despised her. She was divisive and single-minded, and failed to build consensus. She pushed HP to acquire Compaq in a much contested deal (so much for an e-services company), while Mulcahy turned Xerox around from the brink of bankruptcy to a highly profitable operation.
Fiorina was eventually booted out. Mulcahy completed the turnaround at Xerox, and kept Ursula Burns as her successor. Burns will take the reigns at Xerox on July 1st as the first black female CEO of a major corporation, and in the first female-to-female executive transfer in the history of any large US corporation (hats off!). She has also kept a low profile, but I doubt that will be the case for too long. Powerful black women have a hard time staying out of the limelight, whether or not they like it.
It’s hard to determine what Burns plans to do with Xerox. She is taking over a stable organization and will probably decide to build her own legacy. Maybe she will reduce Xerox’s dependency on its commoditized product line, and make a major push to increase services. Maybe she will take advantage of the economic downturn to acquire complementary businesses. But I have a feeling whatever she does, she won’t be crying at board meetings.
May 4, 2009
Is HP’s CEO, Mark Hurd, stifling innovation?
When I worked at Xerox many years ago, our division (unsuccessfully) competed with HP’s printer division. HP was the king of that sector, and all we could do was idolize the company and grapple for the dust they left behind. As masters of innovation, they drew the maps for everyone else to follow.
I hadn’t followed HP closely for some time, so when I ran into a profile of the company and its CEO in NY Times recently, I was a bit perplexed. Mark Hurd, who was brought in as the anti-Carly from NCR (not exactly the beacon of innovation), is known as a calculating left-brainer, obsessed with operational efficiency, and someone who would rather talk in numbers than words.
This worked out well for some time. Silicon Valley companies are not known for their operational efficiency, and this helped HP stay lean. But there’s more in the article. Since he arrived at HP, the HP Labs “has whittled down the number of projects it tackles at any given time to 30, from about 150”, and according to some employees “the willingness to take risks has faded”.
Really?! Is this HP, the “innovation company”? What did ever happen to the “HP Invent” mantra?
The core of HP’s products are in mature, highly commoditized sectors: printers, PCs, servers, storage devices, etc. And the problem with commoditization is the vicious cycle of continual price reductions feeding back into commoditization. Cost cutting becomes essential if the company is to survive, but the way to break this cycle is to feed innovation, to develop new technologies and product lines in order to ensure future revenue growth.
I thought I’d compare HP’s R&D expenditures to a couple of other companies: IBM, a tech behemoth, and Apple, the poster child for cutting edge products; and the results are quite surprising.
Here’s a look at how much each company spends on R&D as a % of revenues (common benchmark).
IBM: 6%
HP: 3% (lowered from 4% a year earlier)
Apple: 4%
Not a pretty picture for HP. IBM’s % is double that of HP’s. In fact, IBM spends over $6B in R&D annually (vs. HP’s $3.5B), and the result was that in 2008, IBM was awarded more patents than any other company. Apple has increased R&D expenditure by over 20% year-over-year but its % looks low because revenues also accelerated at a healthy pace.
And here’s a look at another (less popular) metric, the amount of R&D each company spends per employee.
IBM: $15,600/employee
HP: $10,900/employee
Apple: $40,600/employee
Even an uglier picture for HP, and a big WOW for Apple (this also shows that Apple has significantly higher revenues per employee – talk about efficiency!). But even if we assume Apple is an anomaly, IBM spends about 45% more in R&D per employee than HP does – those patents didn’t come out of thin air.
By the time Hurd took over in 05, HP’s stock was already on an upward swing, and it continued its upwards move. Reasons for the rise: general market conditions, Hurd’s cost cutting measures, and top-line improvements from the Compaq acquisition, among other factors.
But there’s only so much fat a company can cut out, and right-sizing can help a company’s balance sheet and stock price for only so long. HP has lagged its peers in new and exciting market development. Is it counting on acquisitions to refresh its product portfolio? If not, where will its stock price end up 2-3 years from now? Is HP forced into cost cutting because of its commoditized markets or is it unintentionally digging itself deeper and deeper into the cycle?
Finally, is HP competing on operational efficiency or on an innovation platform? At its extreme, excessive sandbox experimenting can waste valuable corporate resources, but intense efficiency measures and streamlining work better on factory assembly lines, and not necessarily so with high-tech R&D organizations.
This is HP’s post-post-Carly era, and the company needs to plan and execute accordingly. Perhaps Mike Hurd can allow himself to unleash innovation on a massive scale at HP, and allow HP’s talent to start drawing the maps like they used to. It’ll be good for him, and even better for HP.
I hadn’t followed HP closely for some time, so when I ran into a profile of the company and its CEO in NY Times recently, I was a bit perplexed. Mark Hurd, who was brought in as the anti-Carly from NCR (not exactly the beacon of innovation), is known as a calculating left-brainer, obsessed with operational efficiency, and someone who would rather talk in numbers than words.
This worked out well for some time. Silicon Valley companies are not known for their operational efficiency, and this helped HP stay lean. But there’s more in the article. Since he arrived at HP, the HP Labs “has whittled down the number of projects it tackles at any given time to 30, from about 150”, and according to some employees “the willingness to take risks has faded”.
Really?! Is this HP, the “innovation company”? What did ever happen to the “HP Invent” mantra?
The core of HP’s products are in mature, highly commoditized sectors: printers, PCs, servers, storage devices, etc. And the problem with commoditization is the vicious cycle of continual price reductions feeding back into commoditization. Cost cutting becomes essential if the company is to survive, but the way to break this cycle is to feed innovation, to develop new technologies and product lines in order to ensure future revenue growth.
I thought I’d compare HP’s R&D expenditures to a couple of other companies: IBM, a tech behemoth, and Apple, the poster child for cutting edge products; and the results are quite surprising.
Here’s a look at how much each company spends on R&D as a % of revenues (common benchmark).
IBM: 6%
HP: 3% (lowered from 4% a year earlier)
Apple: 4%
Not a pretty picture for HP. IBM’s % is double that of HP’s. In fact, IBM spends over $6B in R&D annually (vs. HP’s $3.5B), and the result was that in 2008, IBM was awarded more patents than any other company. Apple has increased R&D expenditure by over 20% year-over-year but its % looks low because revenues also accelerated at a healthy pace.
And here’s a look at another (less popular) metric, the amount of R&D each company spends per employee.
IBM: $15,600/employee
HP: $10,900/employee
Apple: $40,600/employee
Even an uglier picture for HP, and a big WOW for Apple (this also shows that Apple has significantly higher revenues per employee – talk about efficiency!). But even if we assume Apple is an anomaly, IBM spends about 45% more in R&D per employee than HP does – those patents didn’t come out of thin air.
By the time Hurd took over in 05, HP’s stock was already on an upward swing, and it continued its upwards move. Reasons for the rise: general market conditions, Hurd’s cost cutting measures, and top-line improvements from the Compaq acquisition, among other factors.
But there’s only so much fat a company can cut out, and right-sizing can help a company’s balance sheet and stock price for only so long. HP has lagged its peers in new and exciting market development. Is it counting on acquisitions to refresh its product portfolio? If not, where will its stock price end up 2-3 years from now? Is HP forced into cost cutting because of its commoditized markets or is it unintentionally digging itself deeper and deeper into the cycle?
Finally, is HP competing on operational efficiency or on an innovation platform? At its extreme, excessive sandbox experimenting can waste valuable corporate resources, but intense efficiency measures and streamlining work better on factory assembly lines, and not necessarily so with high-tech R&D organizations.
This is HP’s post-post-Carly era, and the company needs to plan and execute accordingly. Perhaps Mike Hurd can allow himself to unleash innovation on a massive scale at HP, and allow HP’s talent to start drawing the maps like they used to. It’ll be good for him, and even better for HP.
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