Seeing The Way

Companies are fearful of change. Which drives them to places they would never willingly go if they could see where they were headed. 

This week’s fiasco on Lakeshore Drive in Chicago is a pretty good example of what happens when fear of change makes you do the same thing you always do, even in the face of growing evidence that this will not turn out well. 

On Tuesday night, the people who ended up trapped in their cars were those who believed that so wide a road and so many companions would provide safe passage. 

In fact, it took only one gently sliding bus to block the way and create a situation in which many people became convinced that they would die where they sat. Frozen and alone. Fifty yards from one of the most affluent neighborhoods in the world. On a piece of road that has provided a reliable and predictable way home to hundreds of millions of travelers over the last 100 years.

From habit to hell in three hours. It rarely happens that fast. But it can.

Those that took the side streets found the roads difficult, but passable. It took longer than usual, but they made it safely to their destinations.

Taking the less traveled path requires two steps:

• Recognizing that external forces are creating the need for change
• Working knowledge of possible alternatives

As a business this requires combining a strategic view of where you’re headed, and constant exploration of the best way to get there. 

Which is not always the most direct. Or the most familiar.

Guest Post - Jim Schrager: Does Apple Need Jobs?

I’ve written several times about Jim Schrager who opened my eyes to the difference between strategy and hope at the University of Chicago.

Jim is one of the world’s leading thinkers on why businesses succeed. His resume as a practitioner, teacher and thought leader speaks for itself. I’m proud to call him a mentor and a friend.

Jim reads this blog regularly and wrote a follow up to my Steve Jobs post from last week. As with all great teachers, he answers some questions while raising new ones.  

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Does Apple Need Jobs?

The stock market had a case of the nerves with the announcement that Steve Jobs was stepping aside again for awhile.  As we all know, the market can be at times a rational arbiter of things to come, or an utterly random marker.  Which is it this time?

A change of leadership poses a risk for all organizations.  Some make the transition well, others less so. Strategy is a powerful tool the best CEOs use to think about the future.  Within some boundaries, strategy allows us to process the news streams of the day and select what matters as we think about tomorrow.  One of those boundaries describes what decision researchers call the “task environment. ”That’s a fancy way of categorizing different situations based on the affect people have on it.  Strategy can explain many things in the business world, such as the rise of Toyota, the fall of K-Mart, and the reason why Fortune Brands is changing its portfolio of products.

But when we have a “fashion” business, strategy is much less useful.

Steve Jobs is one of the very few people with the skills required to prosper in the “technology fashion" business.  Like apparel, his business is very creative, and as we note over many decades, success in fashion is very hard to predict.  The folks who can run a business like this are rare, their talents cannot be easily transferred, and when they leave, in almost every instance, the company struggles.

Other fashion business examples beyond apparel include movies, books, TV, and radio.  CEO succession in these businesses poses a special risk.

The reason we watch the leaders of these businesses in a special way is because we know that strategy, used so well in other environments to find the best path forward, won't work in a fashion business. Jobs has had a series of great tech hits, that’s the mark of CEOs who master this tough challenge.  That he has no one else ready to take over is common, because those who can do this are exceptionally uncommon.

Try and find a fashion business that made a smooth transition between leaders, and you won’t find many. Most don't make a transition at all, and simply glide along without the power of new hits until they crash.

Strategy doesn't work here, and we simply must be humble about that.  The stock market is right to know there isn't another Steve Jobs ready to take the controls.

There isn't another Ralph Lifshitz either.

When either of these fashion leaders leaves the stage, it’s fair to expect big changes ahead for their companies.

Written by James E. Schrager, who teaches strategy at the University of Chicago, Booth School of Business.

Unlocking Potential: 2 - Time

Reducing risk is a goal of almost every business owner. 

Almost. Because for some, the high-wire is their preferred state of being. A work-hard, play-hard, sleep-fast fueled journey of trial and error. 

As with all extremes, this one is counter-balanced. By an analytical, risk-averse approach that is instinctive to many business leaders. An approach that drives conversation and consternation. But not decisions.

But as management strategies, paralysis-by-analysis or jumping without a net both leave a business in the same state. 

Inert. 

The challenge is to find a management approach that creates economic return and emotional reassurance. For you and your clients. 

The key, in our experience, is how you use time.

In any service business there are two ways to charge your customers. By time or by value.

In the advertising industry, time has become the norm. A model that in most agencies works like this:

1. Hire someone. 


2. Give them an office. 


3. Technology. 


4. Benefits. 


5. Add a profit margin. 


6. Divide by 52 weeks


7. Divide by 40 hours.


8. Find a client willing to buy as many of those hours as possible.

A model that turns a company selling creativity into an employment agency.

And rewards it for working slowly. And for using a lot of people. To do anything.

Slow and big. A model for the Industrial Revolution.

But this is not a problem limited only to large enterprises. Smaller companies, particularly those selling specialized services, have developed their own version of this particular cognitive dissonance. Enthusiastically offering clients rate cards and line item estimates with promises of the time they will spend working on that project, while talking about their creative originality

A model which presents as unique creative inspiration. While turning the most valuable resource we own into a commodity. 

Because ideas are infinite. But time is finite. 

A reality we deny because measuring what is left is impossible. And undesirable. 

And so we exist with the conviction that though our time will come, it will not do so until we are ready. Until we have done what we set out to do. 

Even if we are not sure what that is.

But time is not free. For everything we do there is the opportunity cost of that which we chose not to do instead. 

In our youth, those choices are invisible. But as we mature, the choices we make become sharper, more consequential. A reality which affects our businesses even more severely. Size being an obstacle to flexibility.

Any business that sells creativity should have only one reference for how it measures time. 

What can I create from it?

The better that answer, the less your clients will care how long you take. 

And the more they will reward you for the difference you make. 

All Growth Will End

Today’s announcement of the acquisition of Cadbury by Kraft is more evidence of one of the great lessons I learned from Jim Schrager - my strategy professor at the University of Chicago Graduate School of Business.

All growth will end.

The question is, what then?

Organic growth comes from three sources.

1. A growing economy. A rising tide lifts all boats.

2. A growing industry. Same principle, fewer beneficiaries.

3. Innovation.

When one and two lose their power, innovation is all that’s left. A point Apple has demonstrated powerfully in the last twelve months, during which its share price has risen from $78 to $210. Proof of the power of innovation in any economy. And which the launch of the iTablet next Wednesday will undoubtedly continue.

But when a company’s innovation pipeline is allowed to run dry, it falls victim to weak economies and mature industries.

At that point, all that’s left is transactional growth.

As mature industries, chocolate and processed cheese take some beating. Chocolate has been around for about 2000 years. Processed cheese since 1916. But whatever your passion, neither gets the business heart pumping when it comes to year on year organic growth potential.

Given that, with rare exception, neither Cadbury or Kraft have been able to produce meaningful innovation pipelines, the growth of both companies has for forty years or so been predominantly fueled by merger and acquisition.

Cadbury got into and then out of the soft drink business before settling in 2008 on a strategy that focused on being the biggest and best confectionary company in the world.  Their plan, laid out on their website emphasizes focus, efficiency and under-developed markets. A plan that lacks passion and Purpose. Big for big sake contains neither.

Kraft’s history involves endless name changes, mergers and acquisitions. They have been owned by Phillip Morris and merged with Nabisco.

Twice Kraft have sold off their entire confectionary business. A confused strategy for a company that just spent $19 billion on acquiring another one.

As a growth strategy this deal is a short-term solution. M & A deals rarely produce the kind of results the owners project, and the inherent problems of both companies now become a larger headache for more people.

As a demonstration of long-term planning it demonstrates what might kindly be described as inconsistency.

But as proof that some companies run out of new ideas before they run out of money, it’s hard to beat.

Lovin’ It

45% of Americans are satisfied with their jobs.

Which means if you are, the next person you encounter today probably isn’t. A sobering thought if you’re responsible for managing your company.

All of which entirely ignores whether satisfied is a measurement we should be striving for in the first place.

Passionate seems like a better threshold. The kind that comes when we believe what we’re doing is contributing to something significant.

Great companies are evangelical. They are clear about what they’re building, passionate and consistent in how they articulate that vision, and realistic about which people can help them get there. And which ones can’t.

A distinction that separates supporting employees from enabling.

Building an evangelical company requires finding the story that separates you from everyone else.

A skill missed by even the great brands.

Take McDonald’s.

McDonald’s is a remarkable business. They serve 58 million people a day. Which is tantamount to feeding all of Great Britain. Every 24 hours. It makes one wonder what they might be able to do managing health care.

I have spent a lot of time at McDonald’s - the corporation - at various stages in my career. It is a company that elicits pride and passion among its executives.

But it is a company that has also systematically focused on the wrong story.

The food. An area which they have done much to address over the last few years. But which still remains a bigger obstacle than it does a benefit.

People don’t go to McDonald’s for the food. They go because they know what they will get.

Value.

And a great experience for their kids. Which is why McDonald’s distributes more toys than anyone except Mattel.

Those two attributes are global truths. And helps to explain why, as Thomas Friedman points out in his excellent book The Lexus and the Olive Tree no two countries that have a McDonald’s have ever gone to war.

I don’t think either of us would theorize that the solution to world peace is simply to build McDonald’s.

But what is undeniable is that McDonald’s brings people together.

And that’s as evangelical as it gets.

Month 13

The first day back to work brings both hope and depression for many business owners.

Hope that somehow this year will be better. An unnecessarily limited ambition on which to base this particular new year.

And depression because if you regard January as Month 1, matching last year’s numbers - never mind beating them - looks a long way away.

A mindset which focuses too narrowly on consequences, not actions.

Businesses don’t create sales. They create customers.

And the best ones do it as part of a long-term approach that builds over time.

Which allows them to use each January as a moment to assess how far they have come.

But also ensures they never see it as Month 1.

Playing The Percentages

“The dumbest decision I’ve ever seen.”

This was one of the kinder epithets thrown at Bill Belichik over the last two days. Bill is the head coach of the New England Patriots. He’s won three Super Bowls already, and is generally regarded as having already earned a place in the Hall of Fame as a coach. Everyone who has an opinion regards him as the best coach in the NFL. Everyone. By some distance.

On Sunday night, in the biggest game of the year so far, he made a decision. 4th down. His team’s 28 yard line. 2 yards to go. 2 and a half minutes to go. His team leading by 6.
He decided to go for it.

In the moment that it happened, there was a gasp. From the crowd. The announcers on tv. And from every person watching around the world. All of us were stunned.

The play gained 1 yard. And the Patriots turned the ball over on their own 29 yard line to arguably the greatest quarterback in the game. Peyton Manning of the Indianapolis Colts.

1 minute 47 seconds later the Colts scored. And 13 seconds after that, the Patriots had lost.

For 24 hours, the airwaves were filled with commentators berating Belichik. Include me in that group. ‘You don’t do that,’ was our collective consideration. Ever. Period.

Bill Belichik made mistakes that night. But that decision, I have come to realize, was not one of them.

People judge decisions by the results all the time.

Which is categorically and absolutely wrong.

Decisions should be judged by the quality of the thinking and information that went into them.

Not by what happened afterwards. The results of which are affected too much by chance and external forces.

When a decision creates a bad outcome, the predilection to focus on the result means we learn almost nothing from the outcome. And a bad result and no learning is the ultimate lose-lose.

Worse, it convinces us that the alternative option was correct. Which is the case far less often than we believe. A lose, lose, lose.

In Bill Belichik’s case, the decision was derided because it didn’t work. And yet, the logic behind it was absolutely sound.

If the Patriots had gained two yards on the play, not one, they would have won the game. They could run the clock out and prevent the Colts from getting the ball back. One play, win the game. 100%

If they punt the ball, they give away the 100% option. Most pundits believe the Colts had a 33% chance to drive 70 yards in two minutes and score the winning touchdown. Better, they said to make them go 70 yards than 29.

Which ignores the fact there was a 100% option on the table. Which beats 66% every time.

Bell Belichik is a thick-skinned guy. But even he appeared rattled by the aftermath. I suspect if a similar situation comes up, even he won’t try it again.

Which would itself be a mistake. Because the real question he should analyze is why the play he called gained one yard not two. And whether there was a play more likely to create the outcome he wanted.

To win.

Learning from our mistakes is critical. In business and life. It’s how we evolve as a species.

Which means first recognizing what is a mistake.

What Napoleon Can Teach Us About Business

Edward Tufte is one of the world's leading authorities on presenting vast amounts of complex data in such a way that it tells simple, powerful stories.

He has self-published four books that are filled with incredible examples that range from the evolution of music to the design of the Vietnam War Memorial - the genius of which is that it lists the names of those it remembers not alphabetically, but by date. Which allows any visitor to see the context and the relationship in which lives were lost. The story of their sacrifice. Not simply the fact of it.

One of the most illustrative examples that Tufte presents is shown below - sadly in limited resolution. You can buy the poster or his books through his website.

The image is a graphical representation of Napoleon's march on Moscow in 1812. The brown line represents proportionally the number of men under his command on the march to Moscow. The black line, the number during the return.

At various points you'll see the line's thickness changes dramatically, with the corresponding event provided in a call-out below. For instance, at one stage more than half the remaining force was lost crossing a river, a story that is suddenly brought to dramatic and vivid reality based on the thickness of a black line. The date is recorded, as is the temperature. No small factor in Russia.

This diagram represents a historical reflection of fact. But it's not very hard to envision this approach being used as the projection of a proposed strategy. Afer all, many of the facts were known in advance: seasonal temperature; distance; position of major obstacles.

Sadly, it's the kind of analysis that escapes most business owners who, like Napoleon are fixated on the next big win, as opposed to serious consideration of what they are actually trying to achieve and instead rush headlong into short-term glory. Or worse short-term survival. Worse because surviving is the first step to dying.

As we expand our consultancy and talk to more business owners I'm struck by three things.

1. How much potential exists to build truly great businesses

2. How much effort, money and intent is being expended

3. How much of that is being mis-applied

Napoleon was not the first person to have big dreams.

But as the diagram shows, the difference between a dream and a nightmare can be the thickness of a line.

Why The Web is A Bad Business Model

The internet is the greatest missed opportunity in the history of business.

Doubt that? Compare how much you have received from the internet to how much you have paid.

You’ve paid the people who laid the wire. The people that made the modems. The people who make the processors, the keyboards and the screens and the smart phones. And the people who sell you things through it.

But have you ever paid for it? And would you now?

At a breakfast meeting in LA last week, a group of highly influential media and communications industry executives were asked how many read the Wall Street Journal. Everyone raised their hand. Then put them down when asked if they would pay for an online subscription.

We all regard the internet as free.

Not because anyone decided to make it so. But because no one decided not to.

An event that went unnoticed at the time. Because no one was looking.

Today, YouTube streams 1.2 billion pieces of video. Per day. Which means every person on the internet, on average is watching one YouTube video per day.

A recent analysis suggests YouTube’s financial performance is improving and it may only lose $170 million this year. 

Although Credit Suisse back in April forecast a $470 million loss this year.

Either way, imagine creating something that is being used 1.2 billion times a day worldwide and worrying how much money you’re losing. If they charged a nickel, they’d be pulling in $60 million a day.

A lot of people are spending a lot of time trying to figure out how to monetize the web. And eventually, undoubtedly they will. Mobile apps are part of the solution.

But as you build your own business, the history of the internet offers an important lesson.

What happens today affects tomorrow. Often more than we want.

Changing that around means being conscious that today has two agendas. The present and the future.

Ignore the latter if you wish. You’ll see it again soon enough. Only this time, it will be calling the shots.

Never Mind The Beef. Where’s The Plan?

Sad news in the advertising industry this week with the demise of Cliff Freeman & Partners, the legendary ad agency whose founder was responsible for, among other noteworthy entries, Wendy’s “Where’s the Beef?” campaign.

The Ad Age article that describes the company’s closure cites various causes, including lack of a succession plan, an inability to evolve with the changing media landscape, and failed merger attempts.

Creative service companies often end up like Mr Freeman’s. From king of the hill to an industry by-line in a decade.

These three reasons are present in virtually every case:

1. The inability or unwillingness of the founder to make themselves irrelevant. By the time Mr Freeman tried to do so, the company was operating from a position of relative weakness, and the management evolution appeared borne of desperation.

2. A relentless focus on the service that made them successful, without ever understanding the core strength that made those services valuable - as the creator of memorable brand personalities, in any medium.

3. Failed restructuring attempts. 80% of all mergers fail. When the underlying motivation is a shotgun wedding to fix a fundamental weakness, that number goes up into the high nineties. Mergers and acquisitions work when the chemistry is instinctive, or there is a clearly defined and articulated vision that one person takes responsibility for.
   

Mr Freeman isn’t the first to make these mistakes. And he won’t be the last.

But every one of them is avoidable.

At a time when the marketing food chain is changing before our eyes, the advertisng and production industries are in desperate need of better business models.

Head meet sand, however, is not one of them.

Eight Tips For A Simpler Life

1. Walk backwards to get your lunch today. So you can see where you came from.

2. Ask you kids’ school bus driver to make the journey tomorrow in reverse. So that he doesn’t get distracted by having to look ahead.

3. Next time you go food shopping, don’t think about what you’re going to make for dinner, just buy the first ten items you can find that are on sale.

4. If you discover your roof is leaking, throw a bucket on the floor and appreciate how great it is to have electric light in your house.

5. If your property taxes go up, demolish a bedroom. And a bathroom.

6. Ask everyone in your family to write down what they want to do next weekend. If you don’t get unanimous agreement, do nothing.

7. If your cable company over-charges you by $1.50, spend as much time as you need on the phone to get the mistake corrected, so that the mistake never happens again. Visit them in person, if necessary. No matter how far away.

8. If your accountant tells you your income tax bill is higher this year, ask to have your salary cut.

You probably won’t take any of these suggestions in you personal life. Who would?

Which makes us wonder why so many businesses and organizations are being run like this.

But leaves us less surprised at the results.

Your Business is Unique. Your Problems Are Not.

A little while ago, I put up on our website a list of the nine biggest mistakes we see entrepreneurs make. You'll find it here.

I re-read it again this weekend to see if the list needs updating. Instead, I was struck by how consistently we come across these issues, even in the most diverse businesses.

In the past month, we have started to see another.

Companies that believe the economy has turned around and that their problems are subsiding. That is now number ten.

We see ourselves as business optimists. We look for what can be done. Not what can't.

But we're also pragmatists. Who don't often accept the first answer as the whole story. And the story on this recession is a long way from being over.

House sales are up but prices are way down. The single largest deflationary influence in the American consumer's portfolio. Earning are up, but based on one-time savings in the form of lay-offs. Of consumers who can't contribute to the recovery until they get a job. And unemployment is forecast to rise through the first quarter. At least. Which doesn't address catastrophic vacancy rates in commercial real estate which don't have thirty year mortgages to act as safety nets. Many in fact come due in the next year, with the majority of borrowers upside-down on an asset-value to debt ratio.

If your business has still to define its essential value to its customers, and you're still acting reactively to surrounding events, you are guaranteeing only that you will continue to be a victim of other people's mistakes.

Not all companies have suffered in this economy. Hyundai and Apple, for instance, are having record breaking years. At a time when a new car and a new computer would seem low on anyone's list of priorities, understanding why they are thriving is valuable information.

The answer is simple. Value.

What's yours?

How do you release it?

And what are you going to do with it?

Chrysler. A Case Study In Unconscious Capitalism.

Why does the world need Chrysler? Or General Motors?

As business models they are subsidized blackmail. In which the American taxpayers provide the subsidy and the guilt.

Were Chrysler or GM to fail, the loss of jobs and the reverberation through the American economy was deemed to be so devastating that we are told it is worth the price we pay to keep them both around.

In which case, wouldn’t it be better to use all this political, emotional and financial capital to build companies worthy of the investment.

Great companies, big and small, are run consciously.

They know why they are in business. The know what they are trying to achieve. And they work to create value for four groups of stakeholders.

• Customers


• Employees


• Suppliers


• Owners

There is no order of priority to that list. Great companies work equally hard for all four groups. And, unsurprisingly, the businesses who succeed in every area, produce the best financial results.

Both Chrysler and GM are off to a lousy start. As my friend Jerry Solomon wrote today, General Motor's self-serving approach to one group of suppliers is extraordinarily destructive. To any supplier short-sighted enough to accept their terms. And to themselves.

The Obama administrations have revealed their shock at the state of both companies.  And came close to letting them fail. The inside story is here. It's worth reading. Chrysler were ultimately saved by the deal with Fiat. Which came with a heavy price.

Chrysler's new marketing chief, Olivier Francois, is also responsible for: marketing all of Fiat’s brands; leading all of Chrysler Group’s advertising; brand development and strategy development, and is also CEO of Chrysler. He will “execute his duties via a trans-Atlantic routine.”

His reputation as a marketer is that his work should first of all be noticed. And he is stronger on style than strategy.

Hardly a platform for a turn-around.

Perhaps we should collectively ask him to step into our office. Since, in large part he works for us.

Or perhaps we should simply decide that Chrysler and GM are both past saving and build companies that create things the world wants.

Starting with respect.

5 Things The Airline Industry Has Taught Us About Better Business

The airline business is pointless.

If there was any kind of alternative to traveling further than 250 miles, we’d all take it. And celebrate.

Instead, we game the system to get the lowest fare possible, hope our upgrade clears, and try to make sure there’s internet access on board to help us forget that as an indicator of man’s achievements, air travel is our only major innovation that’s going backwards. Having experienced Concorde, that’s a realization that hits me every time I fly.

Fifty years after the Boeing 707 was heralded as the first jet airliner, we still fly at exactly the same speed that modern miracle achieved on its maiden voyage. 591 MPH. Imagine where things would be if technological achievement had remained frozen in 1959. Today, New York to London is still 6 hours, give or take, depending on the jet stream.

Maybe that’s the real strategy behind global warming. Heat the planet, create violent weather conditions, jump on board the jet stream. It would make more sense than anything else those that run the airline industry have offered as business rationale.

Let’s look at just this decade. Since 9/11 the industry has:

• Gone through five Chapter 11 reorganizations


• Supported two mergers


• Eliminated about 250,000 jobs


• Been responsible for a mountain of debt and pension defaults.

If over that same period you ignore the tens of billions of dollars written off to goodwill write-downs, and the hundreds of millions of dollars of reorganization costs, then the airline industry only lost around $40 billion.

$40 billion. In an industry trying to make money.

With no competition.

That every one of us will have to use multiple times this year.

And yet. The most recently published quarterly reports have been met by airline executives with rejoicing over the increases they have generated in ancillary revenues. Things like baggage fees and on-board meals. United earns about $14 a passenger in those fees. They also lost $137 million in the 3rd quarter.

What they don’t know is the cause and effect of either number on the other.

In other words, they don’t know if charging for bags increases revenue or drives people to other airlines.

Seems like a fairly rudimentary piece of analysis. If we do this, will be better or worse off?

United don’t know. (No news there for the airline that came up with the profound brand positioning, Rising.  As opposed to the alternative, one presumes.)

Neither do any of its competitors. One of the many reasons why the airline industry has lost more money than it has ever made.

But the airline industry does have value. As a business model. Of what not to do.

1. Don’t sell your services for less than it costs you to provide them. Unless you know you can raise them tomorrow. Not think. Know.


2. Don’t build a business that is entirely dependent on any single resource, especially when controlled by a limited number of suppliers who are ambivalent whether you succeed or fail.


3. Don’t build a business around a small group of people with highly specific, and hard to replace skills. And if you must, align their interests with yours. So that the success of the business is their business - as well as yours.


4. Don't restrict innovation. If your business can't offer a significantly more valuable experience every three years, your customers will find someone who can. Unless you can corner the entire industry. In which case, you don't need anyone's help.


5. Don’t focus on narrow metrics that support what a great job you’re doing while the business is falling down around you.

The truth is out there.

Just don’t expect to find it by looking up.

5 Myths About Selling A Service Business

When we started our own business, it seemed obvious that we should build it so we could sell it one day.

After all, even in the first raptures of blissful entrepreneurship, we thought it was possible we might not want to stay until the day we died.

So we did what we thought made sense.

We spent eleven years making ourselves irrelevant.

Which allowed us to sell when we were ready to go. And the company to prosper without us.

In the four years that we’ve been consulting, we’ve come across five myths about selling a business in a service industry that we would like to shatter.

1. The Disbeliever: You Can’t Scale A Service Business.

James O. McKinsey was an accounting professor at the University of Chicago. In 1926 he started a business in an industry that didn’t exist. Today, McKinsey & Company are the largest management consulting firm in the world. They keep their sales figures private. But will admit to at least $5 billion a year. Some estimates put it closer to $13 billion.

If the business isn’t scaling, don’t look at the base. Look at the head.

2. The Skeptic: Selling A Service Business Always Involves An Earn Out.

Only if you have made yourself essential to the business.

In which case, the price is depressed because of the uncertainty of what happens when you leave. And you have to stay longer, in order to extract yourself on someone else’s terms.

If the business functions perfectly without you, you get money in the bank and a great goodbye party.

3. The Talker: We’re Definitely Interested In Selling One Day. We’re Going To Start Planning For That Next Year.

Selling begins the day you start. We call it Plan The Last Day First®. It informs every decision, every hire, every customer relationship.

It costs no more to build for sale, than to build to stay. The only difference is the choices you have when the last day comes. Which is usually sooner than you can possibly imagine.

4. The Optimist: I Get Calls All The Time From People Interested In Buying My Business.

There’s a difference between buying a company. And talking about buying a company.

The first involves due diligence. A process that is invasive and uncomfortable and spends a lot of time looking at your financial statements. You’ll know when someone’s really interested in your business when they ask the third set of follow up questions. The ones you were hoping they wouldn’t.

The second involves a salad and a decaf cappuccino.

5. The Fantasist: We’re having a bad year. But if I got the right offer, I’d consider selling. 

This is actually two myths in one.

Buyers don’t buy service businesses in a bad cycle unless they can see the problem clearly. Buyers buy service businesses when things are pretty good, and they think they can run them better. Which typically means cheaper.

And unless you’ve trained other people to do what you do, the ‘right’ offer will definitely involve an earn-out. In other words, this scenario means giving your company to someone else, and then having them tell you what to do for the next three years.

And if they get it wrong, you don’t get paid.

The Sixth Myth

There is a sixth myth. It’s the one that says building a company that can be sold means you’re betraying your craft, your passion, your calling.

The alternative is closing the doors when you’ve had enough. Or dropping dead at your desk.

Which seems like a waste of a lot of time and money.

Unless you believe in fairy tales.

Who's Working For Who?

This morning, every one of the people who work for you made a decision to do so again today.

The vast majority probably didn’t think about it like that.

But you should.

Otherwise they will.

The fact is, we all have a choice about what we do for a living. Even with unemployment approaching ten percent, nine out of ten people who want to work are doing so.

If you’re building a better business, you’re hiring insightfully, training pro-actively, mentoring sensitively, promoting effectively and compensating fairly.

Which is a start.

Being sure that you’re also building a company that creates long term possibilities for your best people is the other part of the equation.

We meet so many business owners these days who missed their time. Who thought they alone were responsible for their company’s success. Who thought it would never end.

Until now.

For them, it’s too late.

But for you, it’s not.

Build a business that gives your employees a reason to keep coming back. Personal growth. Long term economic benefit that goes beyond a salary. A voice.

The company will expand beyond your DNA. And will begin to incorporate theirs.

When you’re ready to leave, they will no longer need you.

But they will need your equity.

A win-win.

And the key to this model?

Two words at the end of every day. Spoken to every employee. With real understanding of the choice they will make tomorrow.

Thank. You.

Gourmet Magazine: Right Ingredients. Wrong Recipe.

The announcement today that Condé Nast has decided to shut down Gourmet Magazine after 68 years was a stark and startling reminder that even great brands go stale.

In the moment its demise was announced, Gourmet was revered by the professional and privately passionate alike. Jean-Georges Vongerichten, regarded as one of the most celebrated chefs on the planet is a fan. And a subscriber. As are 978,000 others. A number that has stayed relatively unchanged for a decade. Indeed, Jean-Georges attributes his success to Gourmet’s prestige. “It helped make me what I am today.”

How then does a 68 year old institution with the power to make or break the world’s greatest restauranteurs, become a memory?

There are two reasons. One we talk about a great deal. One we do not.

The first is that Gourmet failed to understand the essence of its value to consumers. Not as a magazine. But as an authenticator of taste. Sensory and subjective alike. Regardless of the medium. Or the calendar.

Absent that understanding, Gourmet did not bring us Yelp.  Foursquare. Or even an iPhone Gourmet app. They gave us information. Great information. But on their terms. Not ours. As Jean-Georges explained, “Even I look up information on restaurants on the Internet when I travel, to see what's good or bad."

The second, is that McKinsey, the consultants brought in to analyze the state of Conde Nast concluded that Gourmet was better dead than alive. A decision that suggests a failure to see the possibility of repurposing the value of a 68 year old iconic brand. Or an unwillingness to re-invest in it by its owner.

A waste. By consultant and corporation alike.

And unnecessary if you take time to understand why you’re really in business in the first place.
 

5 Steps To An Information System

You can’t build a better business without better information.

With rare exception, the information management systems of most companies do little to contribute to their success.

At best they are not getting in the way. Most of the time, they are considerably more destructive than that.

A better business is one that knows where it’s going. And is built to get there.

In that outlook it is not surprised by its success. A trait that becomes self fulfilling.

Here are five foundations to creating durable information systems that will outlive their founders:

1. Strategy. Well designed systems are built to fulfill their company’s purpose. Only when you have defined that can you establish the architecture that will support the journey.


2. Scalability. Start with a numbering protocol that supports enough digits. Re-engineering platforms in response to success is expensive, distracting and sometimes impossible. Companies as sophisticated as American Express have made this mistake.


3. Sensitivity. Particularly to the daily needs of the staff that use it. Systems that demand consistent data input but provide no immediate return to the people responsible for its entry, fail prior to installation. Any system must benefit every user.


4. Flexibility. We absorb information individually. Systems that treat us as two dimensional limit the long-term growth of a business by minimizing the involvement of those who see the business on three planes.


5. Clarity. Users have little time for and less interest in training. A system built on consistent interface protocols shortens adoption timelines and increases exploration and ultimately use.

Information is the compass that guides a company. Without it your final destination is a guess.

Which makes the journey more exciting.

But more prone to icebergs.
 

Doing What It Says On The Tin

Building a better business means first doing what it says on the tin.

An English expression I have come to value. Simply put, it means stating your intention. And then acting towards it.

Too many business owners do the first. But not the second.

With the result that instead of building a business, they’re expending a lot of energy giving themselves a job.

Here are four ways you can tell if the company owners are interested in creating real value for themselves and their key employees. Or just satisfying a need to be needed.

1. The original founders are the only people with real ownership


2. They are essential to the company’s ability to earn business


3. No one else in the company has responsibility to make meaningful decisions


4. No one can envision the company without them

If a ten year old company exhibits more than two of these, the chances are it will stay in business only as long as its founders want to work.

When they’re done, so is the business.

The Top One Characteristic Of A Great Company

Fred Wilson, the renowned venture capitalist, wrote a blog last week about the top ten characteristics of a great company.

It’s a provocative list, written by a man who as he said himself has, “24 years and over 100 startups watched from the front row” as research to support his views.

Fred’s a great blogger because he writes to promote dialogue and then engages in the debate. When last I checked his list had elicited 179 comments.

As he freely admits himself, there were a couple of key areas that he left out. In part, I suspect, because he wrote the list in 15 minutes on his Black berry.

And in part because sitting in the front row is not the same as being on the stage.

Not worse. Not better. Not the same. Either vantage point is incomplete.

Where Fred and I agree completely on the Defining Characteristic of a Great Company I found buried deep in the comments section on his post. In response to one suggestion he wrote this:
 
“If you build to last you don't have to sell and that's how you build great companies.”

There are nearly six million companies in the U.S. alone.

Each of them took a lot of time, effort and money to create.

But most are not built to last. So, most of them don’t.

Which makes the decision about when to sell moot.

Unless you build your company to be great.

Which perversely costs a lot less.

And makes it worth a lot more.

So. Build for today?

Or build to last?

Tough decision.