It’s natural to look at a rival’s staff and wonder who could help your business. Here’s how to lure a star employee to work for you.
Hiring an employee from a rival firm can mean bringing on someone who already knows your industry, your business, and can bring valuable new knowledge and even clients to you.
Little wonder that recruiters are often asked to bring home that particular prize.
“Companies are so focused on getting someone from the competition,” says Mike Sweeney, Principal of MAS Recruiting in Cherry Hill, NJ. “As soon as they see the resume, their eyes light up.”
Still, as enticing as it is, hiring from the competition requires caution and a certain degree of finesse, especially for a small-business owner. The process is loaded with pitfalls: you don’t want to get a reputation as a poacher, start a tit-for-tat talent war with a competitor or, worst of all, get sued for breaching a non-compete agreement.
So, before wading in to dangerous waters, here are some things to consider when you’re tempted to look to the competition for your next employee of the month.
Take the subtle approach
If you can afford it, hiring a search firm to find candidates can help keep you at an arm’s length from the potentially distasteful business of poaching.
A good search firm uses a polished, subtle approach. They’ll talk with potential candidates about “an opportunity” in vague terms, until they can gauge interest.
If your budget bars hiring a search firm, it’s best to copy the approach, says Brenda Snyder, chief operations officer at The Human Resource Group, a boutique search firm in Denver. She suggests using your professional network to spread the word that you’re hiring, and approaching the candidate you’re interested in on neutral ground, like a Chamber of Commerce meeting or conference. If you’re too aggressive, Snyder warns, you risk scaring away potential partners and/or suppliers.
“In the small business world, you don’t want to blow out your personal relationships,” Snyder says. “If you know that there’s a person you want at another firm, and if you don’t have a relationship with that firm, you can go for it. But if it’s a small industry, a small market, with small niche players, be very conscious of the consequences of that action. Think it through, like any good business leader would.”
Look before you leap
Perhaps the most important thing to think through is whether the candidate you’re eyeing is really worth the trouble. You don’t want to get stuck with someone else’s headache, says Martin Kartin, principal of boutique search firm Martin Kartin and Company in New York.
“You want to make sure you’re recruiting talent, as opposed to recruiting a resume,” Kartin says. “The biggest mistake small companies make is to look at the resume in terms of what the person says he has done, and what company the person has been with, and they automatically say ‘Oh, that’s great.’
“Even if they have the right job with the company, it doesn’t mean that they are a qualified candidate,” he warns.
To avoid the problem, do thorough reference checks, and really study the candidate’s background, to get a sense of what’s driving them, suggests Chris Von Der Ahe, a senior client partner at Korn/Ferry International in Los Angeles. You also need to assess whether the person will be a good fit at your firm, Von Der Ahe added. “Just because they work for a competitor, doesn’t mean they’ll fit into the culture.”
Culture differences can include large firm vs. small firm differences, and can also be as simple as geography. If the candidate you want is across the country, for example, and he or she has no ties to your area, it may be difficult for them to get acclimated.
For this reason, it’s often a smart move to take seriously the local people who come to you with their resumes, eager to join your firm, even if they don’t have the exact experience you’re looking for, says Mike Sweeney of MAS Recruiting.
“I tell companies you’re a lot better off getting someone who has a burning desire to come work at your company, for whatever reason, especially if they’re local,” Sweeney says. “They might not have all the bells and whistles that you want, but if they live local, and they have a real desire to work at your company, some months down the road, you’ll have struck gold.”
Watch for legal troubles
If it turns out that the candidate you’ve been eyeing at a competitor is as good as you hoped, and you want to begin talking with them more seriously about joining your firm, a critical step is to find out whether they have a non-compete agreement with their current employer. If they do, and they jump ship to join your firm, depending on the state in which you’re based, you may be in for a great deal of trouble, including a lawsuit in some cases. Some states take non-compete agreements very seriously. An employment lawyer can advise you on how best to proceed.
Keep in mind that talking with a candidate who is bound by a non-compete agreement is definitely a matter of weighing the risks and rewards, according to Mike Travis, principal of Travis & Company, in Newton Center, Massachusetts. “It’s very easy to run afoul of a non-compete, and it’s very expensive to fix your mistake,” he says.
Sell your story
If, after all the reference-checking, soul-searching, and risk-reward analysis, the candidate from a rival firm still looks as good as you imagined, don’t forget that you need to sell them on what you and your company have to offer. After all, why should they leave their job and join you? You need to make your opportunity sound more attractive than what they've already got. And remember, it’s not just about money. Most people are motivated by things they weren’t offered at their previous job: recognition, opportunity, and more innovation and excitement.
So, inspire that person to leave their job not just with a generous offer, but with everything they will be able to do and achieve at your company.
Recruiters know the drill. “We can’t lure people from point A to point B without a compelling story,” says Snyder of Human Resource Group. “Typically it’s not money. It’s always about the opportunity, the industry, or about the leadership.”
Watch your back
Finally, recognize that your competitors might be playing the same game you are. When spending the requisite time analyzing your staff and looking for gaps, don’t forget that you need to treat your best employees very well, so that when they receive a call from a recruiter, or are approached by a rival CEO, the only answer they’ll feel obliged to give is a firm “Thanks, but no thanks.”
“Know who your stars are, and make sure they’re well taken care of, and well paid,” said Sweeney at MAS Recruiting.
http://www.inc.com/guides/201101/how-to-poach-an-employee-from-a-competitor.html
3/30/11
How to Boost Confidence and Success
Recently I enjoyed a conversation with friend and peer, Doris Helge, Ph.D. In a discussion about our group coaching programs, Doris stated that some coaches struggle in their own business due to a lack of confidence. Like the shoemakers’ kids who are the last to receive new shoes, some coaches struggle with what they best inspire others to achieve: the confidence to bring their dreams to fruition.
Reflecting upon that conversation this morning reminds me that the lack of confidence issue is true for solopreneurs and solo practitioners everywhere, and isn’t exclusive to coaches. The ironic part is that many of them believe they are the only ones struggling with the fears associated with a lack of confidence. Oftentimes, it isn’t until they enter into a coaching relationship that they discover that confidence is lacking in large numbers across ranks of entrepreneurs and high achieving executives everywhere.
Those who struggle with confidence often build barriers that keep them from taking the emotional risks associated with business growth. The business owner will do only what is necessary to reach the border of their tolerance level, known as the comfort zone. They will manufacture many “excuses” to stay within those safe confines - yet, so much more is possible.
Comfort zones come in all shapes and sizes, so for some, living within their comfort zone still allows for measured success and a steady income – even strong profits in many cases. But lack of confidence lurks outside the comfort zone, keeping them from their greatest potential. For others, the dream remains a dream and, tragically, may never see the light of day.
Here are some sure ways to boost confidence and break through the barriers of your - not so comfortable - comfort zone…
Recognize your strengths and successes. It’s common to diminish the significance of past “wins” when you are lacking in self-confidence. Make a list of your success stories, even if they date back to your high school days! Then note the qualities and skills that you tapped into to achieve your success. No “ya but anyone could have done this” statements allowed here! Concentrate only on the positive and unique aspects of YOU!
Do it your way! Determine if you need to stop reading the newsletters, social media updates and websites of your competitors and peers. Do they bring about feelings of inadequacy or jealousy? When I began building my practice I subscribed to the newsletters of successful coaches – just to see how they did it. I followed them on FaceBook and monitored their Tweets carefully. Well, this strategy turned from an education to a flurry of envy, fear and doubt. So I took myself off of those lists and did it my way – this was the best decision ever! So take notice of how you feel as you read materials from people whose success you aspire to emulate. If it’s empowering, that’s great. But if your body and brain feel stressed, hit that “unsubscribe” button!
Tell your story. Join a leads group or another type of organized event that will give you the opportunity to tell people what you do. As you hone your pitch and begin to see a positive response you will gain confidence. It’s easy to get into a rut, sitting behind the computer where your social interaction is limited to social media. Nothing beats eye contact and heads nodding to give you a shot of confidence.
Forgive yourself. We all carry memories of past failures and disappointment. These little treasures are the classroom of life.
"Failure is success if we learn from it." Malcom S. Forbes.
Review any “failures” in your life and list the things that you learned from them. How do you do things differently now? How have you grown? Release any related negative emotion by acknowledging the positive results you have garnered from these experiences. If this task seems insurmountable to you explore coaching and modalities like the Emotional Freedom Techniques to break the hold of these past experiences.
Get feedback. When people praise your success, attitude or personal qualities, how do you feel? Embarrassed? Humbled? Anxious? Do thoughts like, “it’s really not a big deal” or “it’s just common sense” go through your mind? If so, then push yourself way out of your comfort zone by doing this little exercise. Why? Because shutting out praise means that you don’t acknowledge yourself for your achievements and positive characteristics. Boost your confidence by asking friends and family to create a list of all of the things they admire about you. If possible meet with them in person as they read their lists to you. Don’t say a word, simply look them in the eye during this process and internalize what they have to say. You might just learn a few things about yourself.
http://www.inc.com/marla-tabaka/how-to-boost-confidence-and-success.html
Reflecting upon that conversation this morning reminds me that the lack of confidence issue is true for solopreneurs and solo practitioners everywhere, and isn’t exclusive to coaches. The ironic part is that many of them believe they are the only ones struggling with the fears associated with a lack of confidence. Oftentimes, it isn’t until they enter into a coaching relationship that they discover that confidence is lacking in large numbers across ranks of entrepreneurs and high achieving executives everywhere.
Those who struggle with confidence often build barriers that keep them from taking the emotional risks associated with business growth. The business owner will do only what is necessary to reach the border of their tolerance level, known as the comfort zone. They will manufacture many “excuses” to stay within those safe confines - yet, so much more is possible.
Comfort zones come in all shapes and sizes, so for some, living within their comfort zone still allows for measured success and a steady income – even strong profits in many cases. But lack of confidence lurks outside the comfort zone, keeping them from their greatest potential. For others, the dream remains a dream and, tragically, may never see the light of day.
Here are some sure ways to boost confidence and break through the barriers of your - not so comfortable - comfort zone…
Recognize your strengths and successes. It’s common to diminish the significance of past “wins” when you are lacking in self-confidence. Make a list of your success stories, even if they date back to your high school days! Then note the qualities and skills that you tapped into to achieve your success. No “ya but anyone could have done this” statements allowed here! Concentrate only on the positive and unique aspects of YOU!
Do it your way! Determine if you need to stop reading the newsletters, social media updates and websites of your competitors and peers. Do they bring about feelings of inadequacy or jealousy? When I began building my practice I subscribed to the newsletters of successful coaches – just to see how they did it. I followed them on FaceBook and monitored their Tweets carefully. Well, this strategy turned from an education to a flurry of envy, fear and doubt. So I took myself off of those lists and did it my way – this was the best decision ever! So take notice of how you feel as you read materials from people whose success you aspire to emulate. If it’s empowering, that’s great. But if your body and brain feel stressed, hit that “unsubscribe” button!
Tell your story. Join a leads group or another type of organized event that will give you the opportunity to tell people what you do. As you hone your pitch and begin to see a positive response you will gain confidence. It’s easy to get into a rut, sitting behind the computer where your social interaction is limited to social media. Nothing beats eye contact and heads nodding to give you a shot of confidence.
Forgive yourself. We all carry memories of past failures and disappointment. These little treasures are the classroom of life.
"Failure is success if we learn from it." Malcom S. Forbes.
Review any “failures” in your life and list the things that you learned from them. How do you do things differently now? How have you grown? Release any related negative emotion by acknowledging the positive results you have garnered from these experiences. If this task seems insurmountable to you explore coaching and modalities like the Emotional Freedom Techniques to break the hold of these past experiences.
Get feedback. When people praise your success, attitude or personal qualities, how do you feel? Embarrassed? Humbled? Anxious? Do thoughts like, “it’s really not a big deal” or “it’s just common sense” go through your mind? If so, then push yourself way out of your comfort zone by doing this little exercise. Why? Because shutting out praise means that you don’t acknowledge yourself for your achievements and positive characteristics. Boost your confidence by asking friends and family to create a list of all of the things they admire about you. If possible meet with them in person as they read their lists to you. Don’t say a word, simply look them in the eye during this process and internalize what they have to say. You might just learn a few things about yourself.
http://www.inc.com/marla-tabaka/how-to-boost-confidence-and-success.html
How to Execute Great Ideas
Entrepreneurs typically have no shortage of ideas, but this creative strength can quickly become a weakness if the ideas aren’t managed well. The constant messages running through a solopreneur’s mind might include thoughts like, “I should get moving on that.” “What if I miss out on something big?” “Too many ideas, too little time.” “I wish I had the money to make this happen, it’s such a great idea.” This brain-clutter will bring a truckload of great ideas to a screeching halt before they even get on the road, so let's take a look at how to unload the excess cargo!
Taking a systematic approach isn’t always easy for the right-brained, creative solopreneur. But to get these ideas off the ground, that’s what we have to do. So whether your idea is about a new product, marketing or other growth or organizational opportunities, here are a few of these tips to move it forward – or take it off the list once and for all.
Get them out of your head and onto paper. Having all of this brilliance trapped in your brain is exhausting – it wants out! Begin by sorting out your ideas; big and small. Categorize and prioritize them based on your needs: Do you need immediate revenue? Do you need to improve your branding? Do you need to get systems into place? Do you need to satisfy client demands? Or do you simply need to have more fun by utilizing your creativity in a new way? Now choose ONE idea (yes, just one) and apply some or all of the following strategies.
Examine and Expand. When your idea is in its initial stages take a curious, no pressure approach. Rather than putting pressure on yourself to find a way to make the idea work, simply ask “what if” questions.
“What if this idea was in place right now, what would be different because of it?”
“What if I could see this idea as something bigger than it is right now, how would it look?”
Just have fun, exploring the concept like a child might explore a playground. Introducing playfulness can reduce your stress and allow room for further creativity.
Compare your idea or strategy to your vision and mission statements. Is there synergy? Does it really fit in with your long term goals? Does it change anything in a way that you must explore or does it just confuse the picture? Is it too far off the mark or does it fit in seamlessly with the big picture?
Sometimes we get a “great idea” and being wrapped up in the energy of it all can cause us to lose track of our true vision. Getting sidetracked like this can take you off your path and on a long, bumpy detour. You may or may not end up in the right place!
Apply the S.W.O.T. analysis steps to your idea. Draw a quadrant on a piece of paper or write down the four categories on your mindmap or whiteboard. Strengths, Weaknesses, Opportunities, Threats.
After examining your concept and listing everything you can think of in each of the four areas, explore your thoughts on the following:
Bringing this information together, to assess the most promising opportunities and the most crucial issues is where you will find the greatest value in a SWOT analysis. Then you can take your idea further or take it off your plate altogether.
Look at latest trends. If you are bringing a new product or service to the market, does it meet your clients’ needs in a way that is new, refreshing and creative? Will it stand out or get lost in the chaos? Again, introduce non-threatening, stress-free exploration of your idea to see how you can make it different and/or better from the rest.
Brainstorm with friends and peers. I know I’ve said this more times than I can count, but solo doesn’t mean alone! Don’t take it on all by yourself. Ask creative and strategic people to work with you and have fun with it. Remember that you chose to be your own boss because you love the freedom. Being glued to your ideas in a stressful, lonely way doesn’t make it a very enjoyable experience!
Here's a fun idea - Go somewhere different to work through your ideas. I love to work in a decadent hotel lobby or a coffee shop or bookstore I've never been to. Somehow, this creates a new level of excitement for my planning and brainstorming and really helps me tap into that playful side. What works for you?
http://www.inc.com/marla-tabaka/how-to-execute-great-ideas.html
Taking a systematic approach isn’t always easy for the right-brained, creative solopreneur. But to get these ideas off the ground, that’s what we have to do. So whether your idea is about a new product, marketing or other growth or organizational opportunities, here are a few of these tips to move it forward – or take it off the list once and for all.
Get them out of your head and onto paper. Having all of this brilliance trapped in your brain is exhausting – it wants out! Begin by sorting out your ideas; big and small. Categorize and prioritize them based on your needs: Do you need immediate revenue? Do you need to improve your branding? Do you need to get systems into place? Do you need to satisfy client demands? Or do you simply need to have more fun by utilizing your creativity in a new way? Now choose ONE idea (yes, just one) and apply some or all of the following strategies.
Examine and Expand. When your idea is in its initial stages take a curious, no pressure approach. Rather than putting pressure on yourself to find a way to make the idea work, simply ask “what if” questions.
“What if this idea was in place right now, what would be different because of it?”
“What if I could see this idea as something bigger than it is right now, how would it look?”
Just have fun, exploring the concept like a child might explore a playground. Introducing playfulness can reduce your stress and allow room for further creativity.
Compare your idea or strategy to your vision and mission statements. Is there synergy? Does it really fit in with your long term goals? Does it change anything in a way that you must explore or does it just confuse the picture? Is it too far off the mark or does it fit in seamlessly with the big picture?
Sometimes we get a “great idea” and being wrapped up in the energy of it all can cause us to lose track of our true vision. Getting sidetracked like this can take you off your path and on a long, bumpy detour. You may or may not end up in the right place!
Apply the S.W.O.T. analysis steps to your idea. Draw a quadrant on a piece of paper or write down the four categories on your mindmap or whiteboard. Strengths, Weaknesses, Opportunities, Threats.
After examining your concept and listing everything you can think of in each of the four areas, explore your thoughts on the following:
- Is there danger of a strength becoming a weakness?
- Can you convert a weakness to an opportunity?
- Can weaknesses be minimized or eliminated?
Bringing this information together, to assess the most promising opportunities and the most crucial issues is where you will find the greatest value in a SWOT analysis. Then you can take your idea further or take it off your plate altogether.
Look at latest trends. If you are bringing a new product or service to the market, does it meet your clients’ needs in a way that is new, refreshing and creative? Will it stand out or get lost in the chaos? Again, introduce non-threatening, stress-free exploration of your idea to see how you can make it different and/or better from the rest.
Brainstorm with friends and peers. I know I’ve said this more times than I can count, but solo doesn’t mean alone! Don’t take it on all by yourself. Ask creative and strategic people to work with you and have fun with it. Remember that you chose to be your own boss because you love the freedom. Being glued to your ideas in a stressful, lonely way doesn’t make it a very enjoyable experience!
Here's a fun idea - Go somewhere different to work through your ideas. I love to work in a decadent hotel lobby or a coffee shop or bookstore I've never been to. Somehow, this creates a new level of excitement for my planning and brainstorming and really helps me tap into that playful side. What works for you?
http://www.inc.com/marla-tabaka/how-to-execute-great-ideas.html
Why You Should Be a Slacker
If you want to get ahead, you need a Type A personality. Go, go, go. Right? The more stress you’re under, the better you perform. You can handle everything.
Sue Shellenbarger at the Wall Street Journal reported on a new study in the Journal of Applied Psychology. Researchers found that slackers actually handled life better than their go getter counterparts.
But in a finding that may baffle busy-bee readers, people who avoid problems – those we might call slackers in a different context — who withdraw and, say, lie down and take a nap instead of tackling dilemmas right away, actually do better with life conflict, and seem to have more energy, says the study.
The part about the “slackers” having more energy isn’t surprising. After all, they just took naps.
But, overall this makes sense. By taking some down time, they have time to evaluate whether this new problem is actually worth solving. How many of times have you had “urgent requests” become “oh never mind, we’re going another direction” an hour later? Look over your email after you’ve been stuck in an off site training all day without access to email? You weren’t there and magically some problems solved themselves.
In addition, you can often think of solutions when you’re not staring at a problem directly. Go for a walk, talk to a friend, do something other than dwelling on the problem you are currently facing.
More fascinating is the finding that people who seek out other people for emotional support reported more stress. These people probably take the stress into their relationships instead of using the relationships for an escape from problems.
So, stop complaining, and go take a nap. By the time you wake up, perhaps you’ll be less stressed and one of your type A coworkers will have taken care of three items on your to-do list.
http://www.bnet.com/blog/evil-hr-lady/why-you-should-be-a-slacker/2007
Sue Shellenbarger at the Wall Street Journal reported on a new study in the Journal of Applied Psychology. Researchers found that slackers actually handled life better than their go getter counterparts.
But in a finding that may baffle busy-bee readers, people who avoid problems – those we might call slackers in a different context — who withdraw and, say, lie down and take a nap instead of tackling dilemmas right away, actually do better with life conflict, and seem to have more energy, says the study.
The part about the “slackers” having more energy isn’t surprising. After all, they just took naps.
But, overall this makes sense. By taking some down time, they have time to evaluate whether this new problem is actually worth solving. How many of times have you had “urgent requests” become “oh never mind, we’re going another direction” an hour later? Look over your email after you’ve been stuck in an off site training all day without access to email? You weren’t there and magically some problems solved themselves.
In addition, you can often think of solutions when you’re not staring at a problem directly. Go for a walk, talk to a friend, do something other than dwelling on the problem you are currently facing.
More fascinating is the finding that people who seek out other people for emotional support reported more stress. These people probably take the stress into their relationships instead of using the relationships for an escape from problems.
So, stop complaining, and go take a nap. By the time you wake up, perhaps you’ll be less stressed and one of your type A coworkers will have taken care of three items on your to-do list.
http://www.bnet.com/blog/evil-hr-lady/why-you-should-be-a-slacker/2007
The 6 Principles of Success
PepsiCo's Salman Amin shares the six guiding principles that have led him to success in his career.
Predicting the future is a seemingly futile exercise. This doesn't mean we should not try to stay ahead of the game. However, I have found throughout my career at PepsiCo that rapid adaption to changes as they occur is more beneficial in business than clairvoyance.
While we all have opinions about what may happen next, one thing is clear: we are operating in a web of global interconnectivity that affects everything we do.
As business people, it affects how we expand into a new market, what products we sell and who our consumers will be. The rules of engagement of our entire civilization are being reconfigured by a digitally-charged communications revolution. So, what can we do to operate more effectively in a time of profound, tumultuous, and continuous change—or as I call it, the "Era of Ambiguity?"
Following are the six guiding principles that have benefited me throughout my career:
1. Cultivate learning agility. I am an engineer who became a marketer who became a business leader. I have learned from each one of my assignments, and I have tried to learn at least one thing from every manger I had. To be an effective, life-long learner, I look at my career as a marathon. You must have the stamina, the technique, and the resiliency to stick with it, regardless of whether you are running uphill into a headwind.
2. Listen carefully. Too often we just talk to those who are close to us in our management hierarchies. We must make an effort to listen to everyone. Even our most ardent and intractable opponents will invariably teach us something important. When I was president of PepsiCo UK, some health interest groups ran some unpleasant commercials criticizing our products. It would have been easy to dismiss their concerns. Yet, by spending time with these committed activists and developing an insight into what they had to say, we were able to rethink our position in a number of beneficial ways.
3. Be comfortable with embracing significant and ongoing change. I knew we had to do more than just listen to what health activists had to say, we had to take action. Ultimately, we reduced the saturated fat content in Walker's crisps, and sponsored a Change4Life anti-obesity campaign.
Along the way, we won over some very opinionated activists. We showed the activists that we respected their opinions; we were willing to make changes, and we were willing to contribute to their efforts. This had a profound effect on our relationship with our health-oriented consumers in the UK.
4. Learn to deal with failure. To paraphrase Tennyson: it is better to have tried and failed, than never to have tried at all. For if you aspire to great achievements and high rank, you must venture forth—and you will fail from time to time. But, do not make the mistake of equating business failure with personal failure. Failure in pursuit of a worthy goal must never be personal. If we allow it to become so, we will create a society of timid souls. Failure is simply a learning experience. Every great person's career has at least one significant failure, usually many, but those people were able to learn from it and move forward.
5. Have a strong philosophical foundation. Too often, companies look at mission statements as corporate window dressing, just something to put on a Web site and on the walls of offices. Your mission should be a powerful tool: a road map for future action. At PepsiCo, "Performance with Purpose" means delivering sustainable growth by investing in a healthier future for people and our planet. This is a lofty goal, but ultimately, it provides guidelines for discussion and debate within our company and a list of what to do—and what not to do. This is vital when navigating the oceans of ambiguity. While PepsiCo will inevitably move in a variety of directions, we know that you will not go too far off course if we adhere to our core principles.
6. Offer a far greater insight into what you and your organizations can offer. Customers and clients are looking for a different value proposition. The days of the impersonal manager, the impersonal company, and the impersonal product are over. It is no longer about just selling products or services. It is about creating and sustaining relationships where values and emotions are taken far more seriously.
We need to demonstrate to consumers that we understand the community in which they operate, that we understand what they care about, whether it is enacting broad-based policies to reduce PepsiCo's environmental footprint in the broader sense or partnering with local farmers and community groups to use our manufacturing facilities to improve water's sanitation and availability. If we can show that we are sensitive to these challenges, our brands will be in a much better place. Then, whether they invite us into their lives is entirely dependent upon how strongly they feel that we are relevant to them. They have to feel good about us.
This exercise of authenticity forces us to look within ourselves and become more aligned personally and institutionally with what we want to achieve. But if you make this commitment—and it is a very serious commitment—you and your business will be able to meet the needs and demands of the millions of consumers who are looking for products that they can believe in and trust. In an era of ambiguity, when there are fewer guarantees every day, this becomes increasingly valuable over time.
Salman Amin is the executive vice president of global marketing and chief marketing officer for PepsiCo.
Predicting the future is a seemingly futile exercise. This doesn't mean we should not try to stay ahead of the game. However, I have found throughout my career at PepsiCo that rapid adaption to changes as they occur is more beneficial in business than clairvoyance.
While we all have opinions about what may happen next, one thing is clear: we are operating in a web of global interconnectivity that affects everything we do.
As business people, it affects how we expand into a new market, what products we sell and who our consumers will be. The rules of engagement of our entire civilization are being reconfigured by a digitally-charged communications revolution. So, what can we do to operate more effectively in a time of profound, tumultuous, and continuous change—or as I call it, the "Era of Ambiguity?"
Following are the six guiding principles that have benefited me throughout my career:
1. Cultivate learning agility. I am an engineer who became a marketer who became a business leader. I have learned from each one of my assignments, and I have tried to learn at least one thing from every manger I had. To be an effective, life-long learner, I look at my career as a marathon. You must have the stamina, the technique, and the resiliency to stick with it, regardless of whether you are running uphill into a headwind.
2. Listen carefully. Too often we just talk to those who are close to us in our management hierarchies. We must make an effort to listen to everyone. Even our most ardent and intractable opponents will invariably teach us something important. When I was president of PepsiCo UK, some health interest groups ran some unpleasant commercials criticizing our products. It would have been easy to dismiss their concerns. Yet, by spending time with these committed activists and developing an insight into what they had to say, we were able to rethink our position in a number of beneficial ways.
3. Be comfortable with embracing significant and ongoing change. I knew we had to do more than just listen to what health activists had to say, we had to take action. Ultimately, we reduced the saturated fat content in Walker's crisps, and sponsored a Change4Life anti-obesity campaign.
Along the way, we won over some very opinionated activists. We showed the activists that we respected their opinions; we were willing to make changes, and we were willing to contribute to their efforts. This had a profound effect on our relationship with our health-oriented consumers in the UK.
4. Learn to deal with failure. To paraphrase Tennyson: it is better to have tried and failed, than never to have tried at all. For if you aspire to great achievements and high rank, you must venture forth—and you will fail from time to time. But, do not make the mistake of equating business failure with personal failure. Failure in pursuit of a worthy goal must never be personal. If we allow it to become so, we will create a society of timid souls. Failure is simply a learning experience. Every great person's career has at least one significant failure, usually many, but those people were able to learn from it and move forward.
5. Have a strong philosophical foundation. Too often, companies look at mission statements as corporate window dressing, just something to put on a Web site and on the walls of offices. Your mission should be a powerful tool: a road map for future action. At PepsiCo, "Performance with Purpose" means delivering sustainable growth by investing in a healthier future for people and our planet. This is a lofty goal, but ultimately, it provides guidelines for discussion and debate within our company and a list of what to do—and what not to do. This is vital when navigating the oceans of ambiguity. While PepsiCo will inevitably move in a variety of directions, we know that you will not go too far off course if we adhere to our core principles.
6. Offer a far greater insight into what you and your organizations can offer. Customers and clients are looking for a different value proposition. The days of the impersonal manager, the impersonal company, and the impersonal product are over. It is no longer about just selling products or services. It is about creating and sustaining relationships where values and emotions are taken far more seriously.
We need to demonstrate to consumers that we understand the community in which they operate, that we understand what they care about, whether it is enacting broad-based policies to reduce PepsiCo's environmental footprint in the broader sense or partnering with local farmers and community groups to use our manufacturing facilities to improve water's sanitation and availability. If we can show that we are sensitive to these challenges, our brands will be in a much better place. Then, whether they invite us into their lives is entirely dependent upon how strongly they feel that we are relevant to them. They have to feel good about us.
This exercise of authenticity forces us to look within ourselves and become more aligned personally and institutionally with what we want to achieve. But if you make this commitment—and it is a very serious commitment—you and your business will be able to meet the needs and demands of the millions of consumers who are looking for products that they can believe in and trust. In an era of ambiguity, when there are fewer guarantees every day, this becomes increasingly valuable over time.
Salman Amin is the executive vice president of global marketing and chief marketing officer for PepsiCo.
3/28/11
21 Rules to Live Your Life – Dokkodo
I came across ‘Dokkodo’ recently which is a small book written by Miyamoto Musashi a week before he died in 1645. Based on the date, I was quite amazed at how many of the following rules or principles if you like have stayed with us and are still very relevant today.
The 21 precepts below were written just as Miyamoto was giving away all his possessions in preparation for death and I think many of them still apply to our modern society and lifestyles.
I’m not one to simply copy the work of others and put it here, but in this case I believe that the precepts by Miyamoto deserve to be shared. Many of them fall into the same line of thinking that I have and the same line of teaching that I’m trying to share here.
This post is long so I recommend you scan the points and if there are any you don’t understand or want to have my views on then read the comments by me below them.
21 Rules to Live Your Life
Below I’ve included the 21 ‘rules’ from 1645 and also added my own commentary; I would love to hear yours in the comments at the end.
1. Accept everything just the way it is
I’ve already stated that I think acceptance is the way to instant happiness so I always try to implement acceptance into my life. If you aren’t accepting things then you are simply resisting what is, resistance causes internal conflict and then tends to lead to negative emotions or downward spirals.
Often things we resist are in the past i.e. not accepting that someone has died or still being angry about a previous relationship. These are things we simply can not change and that is why it makes no sense to resist what has happened. Total acceptance also allows you to live in the now and much more consciously.
2. Do not seek pleasure for its own sake
This is one I really had to think about to start to understand. What I believe Miyamoto was suggesting here is that you should not look for pleasure simply in order to have pleasurable feelings. Another interpretation of this by the University of Minnesota suggests that it means you shouldn’t seek pleasure solely for yourself.
In my opinion, you should focus on the things that you enjoy then pleasure will exist as a byproduct, rather than pleasure something you’ve had to work on specifically in order to receive the benefits.
3. Do not, under any circumstances, depend on a partial feeling
This is quite self explanatory, but, simply put; don’t act in high importance or high risk situations based on a partial feeling. It’s great to go with your instinct now and then and just ‘go with the flow‘ but when something is crucial, make sure you know what you are getting into.
4. Think lightly of yourself and deeply of the world
You are who you are, nothing more and nothing less. You are not the car that you drive and you are not the size of your bank balance. It’s fine for others to think of you as funny, cool, rich or any of those things, but if you place a large importance on them and start to identify with what these words represent then you’ll start to live a much more reactive life.
Accept who you are, know your strengths and weaknesses, don’t over qualify yourself to the world but definitely don’t under estimate your potential. The world and everything in it is truly amazing, see it, explore, make the most of everything; take nothing for granted.
5. Be detached from desire your whole life long
Detachment is to be disinterested in the outcome of an event or situation. Therefore, being detached from desire your whole life long means that you shouldn’t care about the outcome of the things you want in life. Worry about the outcome projects negative emotions such as fear. As with a point earlier, attachment to something means you are identifying with it, you see it as part of yourself in one way or another.
Whatever your desires are in life, don’t make the outcome necessary. If something doesn’t happen then be OK with that, realize everything in life is abundant.
6. Do not regret what you have done
I have a favorite saying for when I look back after having taken action on something that says “I’d rather regret the things I DID do rather than the things I DIDN’T do”. However, if you look at this on a presence and acceptance level, you should never regret the things you have done, simply because you can’t change what has happened.
7. Never be jealous
What reasons do you have to be jealous of anybody? If you are jealous of somebody with lots of money then you should re-frame your thinking. Be glad there are people out there that show you there is potential for you to make lots of money as well.
If you are jealous of somebody’s looks then you identify with superficiality much more than is even necessary. You never know what ‘problems’ people can have under the surface, fitting in with society standards doesn’t make you a happier person, it just makes you more socially conditioned.
8. Never let yourself be saddened by a separation
According to the Buddha, attachment is the source of all suffering and as far as separation goes this certainly applies. Separation can apply to losing a partner, a pet, money, possessions or anything of the sort. I think what Miyamoto is referring to here is once again live in total acceptance of what happens and don’t hold on to things that have occurred previously.
You have the choice to be angry or happy at all times, there’s no point wasting time in the frame of the former. When I was mugged at knife point recently I lost my drivers license, lots of money, my credit card, mobile phone (worth over $300) and more. I was disappointed for a short while, but I was more pleased about the fact the knife wasn’t used on me or my brother during the incident.
9. Resentment and complaint are appropriate neither for oneself or others
Once again this is pretty self explanatory. Resentment and complaint aren’t going to get you anywhere in life, except to be troubled with negative emotions. Accept everything for what it is and always appreciate the moment, nothing else applies.
10. Do not let yourself be guided by the feeling of lust or love
I don’t think that this means anything to do with celibacy like others have interpreted this as, but more about controlling your own destiny. If you have a good grasp on reality a.k.a. an abundance mindset then you will know there are literally billions of potential partners out there for you. I don’t believe that there is always just ‘the one’ but I believe there are many people you can connect with and love.
If you feel you want to marry someone then go down that route, but don’t let your strong attachment and emotions guide the direction of your life. Take control and enjoy lust / love on the way, don’t completely immerse yourself in their powers and detach from other areas of your life.
11. In all things have no preferences
Before you are so quick to dismiss this, think about what it is saying. Obviously we all have a preference over things such as Coke vs Pepsi or Cars vs Motorbikes but that isn’t the main message. I think the message here is not about having no preferences but rather about not letting certain preferences control your emotions.
For example, if there is a noisy party next door and you are trying to sleep then wishing there was silence (preferred) isn’t going to help. Instead, you should just accept the noise, don’t create any internal conflicts and you’ll be asleep before you know it. [Example Source]
12. Be indifferent to where you live
The word indifferent is best described as “that which does not matter, one way or the other” and in reality where you live shouldn’t make any difference to you internally. Whether Miyamoto was referring to the idea that you should travel more or the underlying fact that it was much harder to move around in 1645 I’m unsure.
13. Do not pursue the taste of good food
I have a feeling that this doesn’t refer to food literally but haven’t found anyone that has yet to explain this in more detail. Maybe a copy of the book is needed or if anyone can leave a comment I’ll update this one.
14. Do not hold on to possessions you no longer need
Letting go of the things that you don’t need can give you multiple benefits. First of all you get a lot more clarity in your life (and environment) due to lack of clutter. Secondly, someone else can benefit from your possessions and put them to good use.
This may seem quite negative to the likes of collectors and those who are very materialistic but it makes a lot of sense. Also, we tend to attach ourselves to our possessions and feel strong negative emotions if anything happens to them, even if we don’t need / use them.
15. Do not act following customary beliefs
We live in a society where a large majority of people spend their time living in spectator mode, just like everybody else. We follow celebrities in the media, we play computer games and we watch a lot of TV. These are all influences on how we should live our lives and are actually a place where a lot of this ‘life’ is wasted.
Make your own life rules based on reference points, experience and with proper, truthful mindsets such as those of abundance and potential.
16. Do not collect weapons or practice with weapons beyond what is useful
In 17th-century Japan this was a lot more relevant due swords being a commonality and the many forms of Martial Arts were in full swing. I take this message as saying ‘Don’t waste time with things (weapons) that aren’t going to benefit you‘.
Sure, there are hobbies such as fencing that involve weapons which aren’t necessarily used in this way because they are useful. People take part in fencing because they enjoy what they do. However, in terms of learning to perform skills with weapons which serves no purpose, this could be seen as protecting you from acts which simply inflate the ego.
17. Do not fear death
I’m a big preacher of living in the moment and doing things for the now, I started learning more about ‘The Now’ through the teachings of Eckhart Tolle. In his first book Eckhart states that there is ‘no such problem in the now’. In my lack of understanding, I hesitantly asked on an Eckhart Discussion Forum how the likes of having a knife in your chest could not be seen as a problem in the now.
One of the responses I received that I liked went along the lines of “Death is no different to birth, they are both natural. They are one and the same. If you fear death then that is like fearing birth.”
18. Do not seek to possess either goods or fiefs for your old age
Stated very strongly in the book ‘The Four-Hour Workweek’, we tend to try to save up our money so that we can start to enjoy life once we retire from our jobs. However, as you will discover, if you can live in the moment you will see how stupid and incorrect our societal views on this actually are.
Think about it, most of us actually do plan to save money so that we can enjoy life when we retire and do the things we love. However, this is silly because we are planning for something that:
•a) We may never reach
•b) Involves our form being in it’s worst ever condition (aging)
•c) We could be doing right now
19. Respect Buddha and the gods without counting on their help
I’m not Christian or involved in any other religions so I don’t believe in the common view behind the word ‘God’. However, that isn’t to say I would judge or look down upon anyone that chooses to have belief that such Gods exist.
Respect the teachings and messages of others, but don’t use them as a crutch to keep you balanced.
20. You may abandon your own body but you must preserve your honour
The one thing we all have in common when we born, albeit deemed as negative, is that we are going to die. We can’t stop the aging process (although we can limit its affects through the likes of plastic surgery) and we can’t cheat death.
Despite that, this precept is saying that along the way you should always stand to live by your own moral values. Don’t change them due to pressure from others or the usual conforms of society.
21. Never stray from the Way
‘The Way’ may be viewed as something monumental like finding and acting our your life’s purpose and it may also be viewed as something small like keeping on top of your goal progress. Either way, you should always try to remain focused on the things you want to achieve and stay on that path.
There are many distractions these days with drug or alcohol abuse, financial worries and much more. However, you should simply see these distractions as hurdles that filter out those that really want to achieve something and those that don’t. Never stray from the way.
The 21 precepts below were written just as Miyamoto was giving away all his possessions in preparation for death and I think many of them still apply to our modern society and lifestyles.
I’m not one to simply copy the work of others and put it here, but in this case I believe that the precepts by Miyamoto deserve to be shared. Many of them fall into the same line of thinking that I have and the same line of teaching that I’m trying to share here.
This post is long so I recommend you scan the points and if there are any you don’t understand or want to have my views on then read the comments by me below them.
21 Rules to Live Your Life
Below I’ve included the 21 ‘rules’ from 1645 and also added my own commentary; I would love to hear yours in the comments at the end.
1. Accept everything just the way it is
I’ve already stated that I think acceptance is the way to instant happiness so I always try to implement acceptance into my life. If you aren’t accepting things then you are simply resisting what is, resistance causes internal conflict and then tends to lead to negative emotions or downward spirals.
Often things we resist are in the past i.e. not accepting that someone has died or still being angry about a previous relationship. These are things we simply can not change and that is why it makes no sense to resist what has happened. Total acceptance also allows you to live in the now and much more consciously.
2. Do not seek pleasure for its own sake
This is one I really had to think about to start to understand. What I believe Miyamoto was suggesting here is that you should not look for pleasure simply in order to have pleasurable feelings. Another interpretation of this by the University of Minnesota suggests that it means you shouldn’t seek pleasure solely for yourself.
In my opinion, you should focus on the things that you enjoy then pleasure will exist as a byproduct, rather than pleasure something you’ve had to work on specifically in order to receive the benefits.
3. Do not, under any circumstances, depend on a partial feeling
This is quite self explanatory, but, simply put; don’t act in high importance or high risk situations based on a partial feeling. It’s great to go with your instinct now and then and just ‘go with the flow‘ but when something is crucial, make sure you know what you are getting into.
4. Think lightly of yourself and deeply of the world
You are who you are, nothing more and nothing less. You are not the car that you drive and you are not the size of your bank balance. It’s fine for others to think of you as funny, cool, rich or any of those things, but if you place a large importance on them and start to identify with what these words represent then you’ll start to live a much more reactive life.
Accept who you are, know your strengths and weaknesses, don’t over qualify yourself to the world but definitely don’t under estimate your potential. The world and everything in it is truly amazing, see it, explore, make the most of everything; take nothing for granted.
5. Be detached from desire your whole life long
Detachment is to be disinterested in the outcome of an event or situation. Therefore, being detached from desire your whole life long means that you shouldn’t care about the outcome of the things you want in life. Worry about the outcome projects negative emotions such as fear. As with a point earlier, attachment to something means you are identifying with it, you see it as part of yourself in one way or another.
Whatever your desires are in life, don’t make the outcome necessary. If something doesn’t happen then be OK with that, realize everything in life is abundant.
6. Do not regret what you have done
I have a favorite saying for when I look back after having taken action on something that says “I’d rather regret the things I DID do rather than the things I DIDN’T do”. However, if you look at this on a presence and acceptance level, you should never regret the things you have done, simply because you can’t change what has happened.
7. Never be jealous
What reasons do you have to be jealous of anybody? If you are jealous of somebody with lots of money then you should re-frame your thinking. Be glad there are people out there that show you there is potential for you to make lots of money as well.
If you are jealous of somebody’s looks then you identify with superficiality much more than is even necessary. You never know what ‘problems’ people can have under the surface, fitting in with society standards doesn’t make you a happier person, it just makes you more socially conditioned.
8. Never let yourself be saddened by a separation
According to the Buddha, attachment is the source of all suffering and as far as separation goes this certainly applies. Separation can apply to losing a partner, a pet, money, possessions or anything of the sort. I think what Miyamoto is referring to here is once again live in total acceptance of what happens and don’t hold on to things that have occurred previously.
You have the choice to be angry or happy at all times, there’s no point wasting time in the frame of the former. When I was mugged at knife point recently I lost my drivers license, lots of money, my credit card, mobile phone (worth over $300) and more. I was disappointed for a short while, but I was more pleased about the fact the knife wasn’t used on me or my brother during the incident.
9. Resentment and complaint are appropriate neither for oneself or others
Once again this is pretty self explanatory. Resentment and complaint aren’t going to get you anywhere in life, except to be troubled with negative emotions. Accept everything for what it is and always appreciate the moment, nothing else applies.
10. Do not let yourself be guided by the feeling of lust or love
I don’t think that this means anything to do with celibacy like others have interpreted this as, but more about controlling your own destiny. If you have a good grasp on reality a.k.a. an abundance mindset then you will know there are literally billions of potential partners out there for you. I don’t believe that there is always just ‘the one’ but I believe there are many people you can connect with and love.
If you feel you want to marry someone then go down that route, but don’t let your strong attachment and emotions guide the direction of your life. Take control and enjoy lust / love on the way, don’t completely immerse yourself in their powers and detach from other areas of your life.
11. In all things have no preferences
Before you are so quick to dismiss this, think about what it is saying. Obviously we all have a preference over things such as Coke vs Pepsi or Cars vs Motorbikes but that isn’t the main message. I think the message here is not about having no preferences but rather about not letting certain preferences control your emotions.
For example, if there is a noisy party next door and you are trying to sleep then wishing there was silence (preferred) isn’t going to help. Instead, you should just accept the noise, don’t create any internal conflicts and you’ll be asleep before you know it. [Example Source]
12. Be indifferent to where you live
The word indifferent is best described as “that which does not matter, one way or the other” and in reality where you live shouldn’t make any difference to you internally. Whether Miyamoto was referring to the idea that you should travel more or the underlying fact that it was much harder to move around in 1645 I’m unsure.
13. Do not pursue the taste of good food
I have a feeling that this doesn’t refer to food literally but haven’t found anyone that has yet to explain this in more detail. Maybe a copy of the book is needed or if anyone can leave a comment I’ll update this one.
14. Do not hold on to possessions you no longer need
Letting go of the things that you don’t need can give you multiple benefits. First of all you get a lot more clarity in your life (and environment) due to lack of clutter. Secondly, someone else can benefit from your possessions and put them to good use.
This may seem quite negative to the likes of collectors and those who are very materialistic but it makes a lot of sense. Also, we tend to attach ourselves to our possessions and feel strong negative emotions if anything happens to them, even if we don’t need / use them.
15. Do not act following customary beliefs
We live in a society where a large majority of people spend their time living in spectator mode, just like everybody else. We follow celebrities in the media, we play computer games and we watch a lot of TV. These are all influences on how we should live our lives and are actually a place where a lot of this ‘life’ is wasted.
Make your own life rules based on reference points, experience and with proper, truthful mindsets such as those of abundance and potential.
16. Do not collect weapons or practice with weapons beyond what is useful
In 17th-century Japan this was a lot more relevant due swords being a commonality and the many forms of Martial Arts were in full swing. I take this message as saying ‘Don’t waste time with things (weapons) that aren’t going to benefit you‘.
Sure, there are hobbies such as fencing that involve weapons which aren’t necessarily used in this way because they are useful. People take part in fencing because they enjoy what they do. However, in terms of learning to perform skills with weapons which serves no purpose, this could be seen as protecting you from acts which simply inflate the ego.
17. Do not fear death
I’m a big preacher of living in the moment and doing things for the now, I started learning more about ‘The Now’ through the teachings of Eckhart Tolle. In his first book Eckhart states that there is ‘no such problem in the now’. In my lack of understanding, I hesitantly asked on an Eckhart Discussion Forum how the likes of having a knife in your chest could not be seen as a problem in the now.
One of the responses I received that I liked went along the lines of “Death is no different to birth, they are both natural. They are one and the same. If you fear death then that is like fearing birth.”
18. Do not seek to possess either goods or fiefs for your old age
Stated very strongly in the book ‘The Four-Hour Workweek’, we tend to try to save up our money so that we can start to enjoy life once we retire from our jobs. However, as you will discover, if you can live in the moment you will see how stupid and incorrect our societal views on this actually are.
Think about it, most of us actually do plan to save money so that we can enjoy life when we retire and do the things we love. However, this is silly because we are planning for something that:
•a) We may never reach
•b) Involves our form being in it’s worst ever condition (aging)
•c) We could be doing right now
19. Respect Buddha and the gods without counting on their help
I’m not Christian or involved in any other religions so I don’t believe in the common view behind the word ‘God’. However, that isn’t to say I would judge or look down upon anyone that chooses to have belief that such Gods exist.
Respect the teachings and messages of others, but don’t use them as a crutch to keep you balanced.
20. You may abandon your own body but you must preserve your honour
The one thing we all have in common when we born, albeit deemed as negative, is that we are going to die. We can’t stop the aging process (although we can limit its affects through the likes of plastic surgery) and we can’t cheat death.
Despite that, this precept is saying that along the way you should always stand to live by your own moral values. Don’t change them due to pressure from others or the usual conforms of society.
21. Never stray from the Way
‘The Way’ may be viewed as something monumental like finding and acting our your life’s purpose and it may also be viewed as something small like keeping on top of your goal progress. Either way, you should always try to remain focused on the things you want to achieve and stay on that path.
There are many distractions these days with drug or alcohol abuse, financial worries and much more. However, you should simply see these distractions as hurdles that filter out those that really want to achieve something and those that don’t. Never stray from the way.
3/25/11
Flash Reports Definition
Flash Reports Definition
The Flash Report or financial dashboard report is defined as a periodic snapshot of key financial and operational data. It's a one-page report that helps management assess the key performance indicators of the company. The flash report should cover the shortest time period that is feasible, usually a weekly basis. The whole process should be based on the KISS principle (Keep It Simple Stupid) and should not take any longer than 30 minutes to prepare and get ready. If it takes any longer than that, then the flash report is too detailed and will be too difficult to maintain!
There are 3 sections to the flash report: Liquidity, Productivity and Profitability.
Flash Reports are a rough measure of change. They are not meant to be 100% accurate. If the data is 80-90% accurate, it will be enough to manage the business. For complete accuracy, the firm can defer to its monthly financial statements, which come out 2-4 weeks after the month closes. For management purposes, it is timeliness and "mostly accurate" is good enough. If one were to wait for complete accuracy, the competitive landscape may have change so completely that the "accurate" financial statements may not be of any use.
Flash reports should be done on a weekly basis. However, some companies elect to do it every two weeks in order to more naturally capture the payroll cycle in terms of monitoring cash flow.
The CFO/Controller should get together with the Owner(s)/Management to arrive at a set of metrics for the Productivity Section. This is the hardest part to arrive at and will require the input of both operations as well as finance/accounting.
After the initial metrics have been determined, the CFO/Controller can have someone in the client's accounting staff to gather the data for the Liquidity, Productivity and Profitability sections.
Each section tells a different story about the firm.
The Liquidity Section tells management about the cash situation of the firm. Is the company generating cash? Does it have enough money to pay the bills?
The Productivity Section gives an indication of the key performance metrics of the business. These metrics are tied to operations and are a way to combine the operations of a company to its financial performance.
The Profitability Section gives a rough indication of how much money the company has made during the period of measure. It is important to emphasize again that complete accuracy is not necessary. Timeliness, however, is. Management can work off of 80-90% accuracy. What they need to focus on is the change in trends over a period of time.
Flash Reports:Liquidity Section
The purpose of the Liquidity Section is to measure the change in working capital of the company. In so doing, the company will have a rough estimate of whether or not they can pay the bills and how much money they will have left over.
Monitoring the company's working capital over time will allow the firm to see: how cash increases/decreases, any effects of seasonality and effects of management decisions. If a company is making a profit then the Working Capital should increase over time!
As part of the overall Flash Report, the Liquidity Section ought to be monitored and reported on a periodic basis. What is that period? It is recommended that the entire Flash Report at a minimum be reviewed on a weekly basis. The more management reviews the information, the faster they can respond to crises.
The frequency of monitoring depends on several factors: Availability and commitment of the management team to review the information, Frequency of certain cash inflows/outflows (i.e. payroll), Ease of access and/or generation of information and Timeliness of data entry of information pertaining to this section (i.e. are all A/R and Inventory entered into the system on a timely basis?).
Someone in accounting, preferably a person who is in charge of bookkeeping.
Information for the Liquidity Section can be found in the Balance Sheet section of the company's financial statements (so long as it is updated). If the firm uses a software program (i.e. PeachTree, QuickBooks, Great Plains, etc) to manage its books, then the information can be easily retrieved.
NOTE: Make sure that the ending period on the Balance Sheet matches that of the Flash Report. Both are snapshots of the company in time. Make sure we are talking about the same time period!!!
Cash: Look in the check register to see how much cash is there. Do not use the bank balance because there may still be outstanding checks. Be leery of using the cash position off of the balance sheet. The information is good only if it is updated. This may not always be the case. This is why the check register is bes
Accounts Receivable: Look at the Accounts Receivable detail report for total accounts receivable. Deduct any bad debts reserved.
Inventory: Look at the inventory detail report for total inventory on hand.
Accounts Payable: Look at the Accounts Payable detail report for total accounts payable.
Working Capital: Sum up the values for Cash, Accounts Receivable, and Inventory. Subtract the value of Accounts Payable. This will give you the value for working capital.
Review and monitor your results. Graphing the results may also be a very effective method to see what is going on in your company's process.
In the spirit of flexibility, the Flash Report can and ought to be customized to fit each company's needs. The basic format is just that….a basic platform to help get you started. For the Liquidity Section, some companies have also added the following items:
Cash Receipts - This gives a feel for the cash that has come in during the period of concern.
Cash Disbursements - This gives a feel for the cash that has gone out during the period of concern.
Taken together, The Cash Receipts and Cash Disbursements give an indication of whether the cash flow for the firm is positive or negative.
Days Sales Outstanding (DSO)
DSO= 365 x Average A/R / Total Credit Sales
This tells you how many days it takes on average to collect on A/P.
Days Payable Outstanding (DPO)
DPO= 365 x Average A/P / Total Annual Purchases
This tells you how many days it takes on average to pay your liabilities
Days Inventory Outstanding (DIO)
DIO= 365 x Average Inventory / Cost of Goods Sold
This tells you how many days it takes on average it takes to turnover your inventory Cash Conversion Cycle (CCC)
CCC= DSO + DIO - DPO
This tells you how many days it takes to convert raw material to cash
Flash Reports:Productivity Section
A major issue that businesses of all sizes face is the inability for the Operations people to connect with the Finance/Accounting people and vice versa. The Productivity Section seeks to address this disconnect by measuring and tracking certain metrics that both Finance/Accounting and Operations can agree upon. By identifying and monitoring these non-accounting metrics, management can now manage the productivity of the company in a more meaningful way.
How do you get these metrics? An important by-product of this process is the communication process that both Finance/Accounting and Operations must have with one another. In essence, coming up with these metrics forces each party to “stand in the other person’s shoes.” In so many ways, this section is the most difficult to create, but it is by far the most powerful section.
For companies that have multiple profit centers, it may be worthwhile to have the key performance metrics grouped by profit centers.
The CFO/Controller sets it up. Then someone in the accounting department inputs the information into the template. The majority of the metrics should be formulas.
Since the goal is to tie operations to financial numbers, it is important to come up with operational metrics that will have significant impact on the financial performance of the company.
Step 1 - It is important for both the operations and financial departments to both grasp the general economics of the firm. Some key questions to ask are: What are the key drivers of the business? What/Where is the process bottleneck? How can we measure the bottleneck? What are the unit economics of the business? What is the breakeven point for the business? Note: Breakeven may be done on a dollar basis or unit volume basis.
Step 2 - Map out the business process. Ask yourself how does each part of your business contribute to the key performance indicators identified in step one?
Step 3 - Come up with business metrics that tie in the unit economics of the firm (Step 1) to the business process (Step 2).
Out of this process you will come up with several key performance metrics that will indicate how the business is doing. These metrics may not relate directly to dollars, but indirectly they will. Two great ways to approach this is to look at process bottlenecks and sales in terms of volume (i.e. # of feet, # of barrels, # of units).
Focus only on the most important metrics. Four to five will do. If you focus on too many, it will be hard to measure and difficult act upon. Here are some examples for various businesses:
Business - Metric Manufacturing - % Utilization of Machine (Bottleneck Machine) Consulting Firm - Average Bill Rate Jet Refueller - Gallons Per Aircraft Fueled
Step 4 - Also find some metrics that tie your business process down to the employee level. Relating this to the employee gives management a way to see how each employee contributes to business performance. Here are some examples for various businesses:
Business - Metric Construction Firm - # of Active Projects per Employee Construction Firm - Construction Cost per Employee Consulting Firm - Hours Billed per Employee
Step 5 - Review and monitor your results. Graphing the results may also be a very effective method to see what is going on in the business process. Flash reporting is an ongoing process until you have identified the key performance drivers for the business.
In the spirit of flexibility, the Flash Report can and ought to be customized to fit each company's needs. The basic format is just that….a basic platform to help get you started.
For the Productivity Section, some companies have also added the following items: Metrics for each Product Line or Business Unit, Separated out FTE employees versus Sales Employees (Example: Sales per Sales Person) and Sales per Full Time Employee.
Flash Reports:Profitability Section¶
This section gives you an estimate of how much money the company has made during the period. It is important to emphasize the word "estimate" for several reasons. First, the Flash Report itself was not meant for complete accuracy. This cannot be overstated. The Flash Report is used best when it is timely and mostly accurate- (80-90%) is good enough. Second, you will notice that profitability was derived from the estimate of the volume throughput for that period. This makes sense as sales and productivity are often a function of volume throughput (i.e. # of barrels, # of gallons, etc.). Another option is to obtain the values for Revenue, Cost of Goods Sold (COGS), Gross Profit, Overhead, and Net Income directly from your accounting system.
The second method is the simplest, but there is a hidden risk that you must account for. Not all the items associated with sales and cost/expenses may have been entered into your accounting system during that time period. Thus, there is a risk that the numbers you use may not even be "mostly accurate". It may or may not be. Thus, backing into your profitability estimate can help remove that risk. Now, you just need to make sure that you have a good grasp of how many units were sold as well as the associated costs.
Note, the metrics in the Productivity Section can be an excellent guide in helping you to start estimating the profitability of the firm.
The CFO/Controller sets it up. Then someone in the accounting department inputs the information into the template. Regular monitoring should be done by the Owner(s)/Management of the firm. Here are some ideas on how to get things started:
Option 1: Obtaining information directly from your accounting system. If you are obtaining revenue and cost information directly from your accounting system, then anyone with the proper authorization can obtain the numbers.
Option 2: Backing into the Profitability Numbers. The CFO/Controller, as well as, the key person(s) in charge of operations. Initially, it may be wise to have both parties involved. Operations will have the feel for units sold. Finance/Accounting may have a better grasp for costs.
Later on, you may decide to create a system where such numbers are automatically reported by someone as part of that person's responsibilities.
For those choosing to obtain numbers directly from the company's accounting system, it will be relatively simple to obtain. Just go to the Income Statement section to retrieve information regarding Revenue, Cost and Expense. However, please understand the risks as described above in the Goals section. You may be taking on some hidden risks by going directly to the Income Statement for the profitability information. Not all the information pertaining to sales and costs/expenses for that period may have been entered.
For those of you electing to indirectly arrive at profitability using sales volume and unit costs and unit price, please refer to the following steps:
Step 1 - Obtain data on the # of units sold, cost per unit, and estimate of monthly expenses. Having a good understanding of the unit economics of the firm will be key to making this step easier. Initially, this may be somewhat challenging to be able to collect. However, over time it will become easier. Here are some helpful tips:
Number of Units Sold: The operations department will need to keep records to in order to record how many units have been sold. There is no short cut here. However, if you can know 80-90% of the # of units sold, then that is enough.
Unit Sales Price: Sales and Accounting will need to keep good records on prices. Please note that sometimes, prices may have changed in the middle of the period.
Unit Sales Cost: Sometimes you can easily determine the cost using vendor invoices. If it becomes difficult, a helpful way is to look at historical P&L Statements. You can estimate the COGS amount for this period by seeing what historically they were as a percentage of revenue. For instance, if COGS was 60% of sales last year, then you can estimate COGS for this year as 60% of current revenue.
Step 2 - Plug in the data for Revenue, COGS, and Overhead Expense. Sum up as per the example in the Basic Format section.
Step 3 - Review and monitor your results. Graphing the results may also be a very effective method to see what is going on in the business process.
In the spirit of flexibility, the Flash Report can and ought to be customized to fit each company's needs. The basic format is just that….a basic platform to help get you started.
For the Profitability Section, some companies have also done the following: Report just the Gross Margin and/or Net Income. You can do this, but this does not excuse you from understanding the underlying unit economics. You still have to do your homework. Include profitability on a per employee basis.
Flash Reports:Monitor & Review
Now that you have assembled all the parts of the Flash Report, it is time to review your results. Again, it deserves mention that the purpose of the Flash Report is to provide management with a timely, "mostly accurate" tool to assess the current state of affairs. Thus, any changes that need to be made can be made quickly. Emergencies can be proactively addressed at the problem stage, rather than reactively in the crisis stage. If you want complete accuracy, wait until the financial statements for the period are complete 2-4 weeks after the month has ended. In the meanwhile, 80-90% accurate is fine for managing a business.
The Owner(s)/Management of the firm should review the results of the Flash Report after it has been completed. If possible, review on a weekly basis in order to expedite the decision making process. This way, the company can react to trends faster.
Any person or parties involved in the active management of the firm should certainly be included in the performance review of the firm. It is especially important that representatives from Operations, Finance, and Accounting be there as well.
In and of themselves, the numbers do not tell you a whole lot. They serve as a point of reference for discussion. It is recommended that you start off with the review of the firm's cash position. The cash position may provide questions as to why cash is short, which in turn will generate questions regarding A/R or sales.
Step 1 - Review the Liquidity Section This section will provide management an idea of whether or not they can pay the bills. Deficiencies will usually spring from a collections issue, sales issue or cost/expense issue. It will be up to management to explore each of these areas to see where potential problems lie.
Step 2 - Review the Productivity Metrics Section Ultimately, if done right, this section gets to the heart of the business process. It is important that the Finance/Accounting people are in accord with Operations people that these metrics are meaningful. If they are not, keep working at them until they are. This may be several iterations later.
Review of this area can tell management in a very simple way, how the business process is doing. These metrics should provide a simple read as to the how the heart of the business is beating. Should there be problems, these metrics should capture them in some way. In turn, revenue should be affected as well. For instance, revenue may be down, because a certain machine was down for repairs. Thus, % utilization could tell you indirectly why revenue was down for the period.
Step 3 - Review the Profitability Section Because the firm's productivity affects its profitability, so too will the results from the Productivity Section be seen in the Profitability Section. It is important for management to confirm this.
Continue to monitor results from period to period. If changes to Productivity Metrics need to be made, please feel free to do so. The key to successful implementation and use of the Flash Report is the commitment to its use and the commitment to communication and discussion.
Some companies may choose to graph the results in addition to having the flash report in a tabular format. A graph may at times be easier to understand than numbers, especially for analyzing trends.
For the purposes of the flash report, it may be useful to include 3 historical periods in addition to the current period. This will aid in the analysis of trends.
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The Flash Report or financial dashboard report is defined as a periodic snapshot of key financial and operational data. It's a one-page report that helps management assess the key performance indicators of the company. The flash report should cover the shortest time period that is feasible, usually a weekly basis. The whole process should be based on the KISS principle (Keep It Simple Stupid) and should not take any longer than 30 minutes to prepare and get ready. If it takes any longer than that, then the flash report is too detailed and will be too difficult to maintain!
There are 3 sections to the flash report: Liquidity, Productivity and Profitability.
Flash Reports are a rough measure of change. They are not meant to be 100% accurate. If the data is 80-90% accurate, it will be enough to manage the business. For complete accuracy, the firm can defer to its monthly financial statements, which come out 2-4 weeks after the month closes. For management purposes, it is timeliness and "mostly accurate" is good enough. If one were to wait for complete accuracy, the competitive landscape may have change so completely that the "accurate" financial statements may not be of any use.
Flash reports should be done on a weekly basis. However, some companies elect to do it every two weeks in order to more naturally capture the payroll cycle in terms of monitoring cash flow.
The CFO/Controller should get together with the Owner(s)/Management to arrive at a set of metrics for the Productivity Section. This is the hardest part to arrive at and will require the input of both operations as well as finance/accounting.
After the initial metrics have been determined, the CFO/Controller can have someone in the client's accounting staff to gather the data for the Liquidity, Productivity and Profitability sections.
Each section tells a different story about the firm.
The Liquidity Section tells management about the cash situation of the firm. Is the company generating cash? Does it have enough money to pay the bills?
The Productivity Section gives an indication of the key performance metrics of the business. These metrics are tied to operations and are a way to combine the operations of a company to its financial performance.
The Profitability Section gives a rough indication of how much money the company has made during the period of measure. It is important to emphasize again that complete accuracy is not necessary. Timeliness, however, is. Management can work off of 80-90% accuracy. What they need to focus on is the change in trends over a period of time.
Flash Reports:Liquidity Section
The purpose of the Liquidity Section is to measure the change in working capital of the company. In so doing, the company will have a rough estimate of whether or not they can pay the bills and how much money they will have left over.
Monitoring the company's working capital over time will allow the firm to see: how cash increases/decreases, any effects of seasonality and effects of management decisions. If a company is making a profit then the Working Capital should increase over time!
As part of the overall Flash Report, the Liquidity Section ought to be monitored and reported on a periodic basis. What is that period? It is recommended that the entire Flash Report at a minimum be reviewed on a weekly basis. The more management reviews the information, the faster they can respond to crises.
The frequency of monitoring depends on several factors: Availability and commitment of the management team to review the information, Frequency of certain cash inflows/outflows (i.e. payroll), Ease of access and/or generation of information and Timeliness of data entry of information pertaining to this section (i.e. are all A/R and Inventory entered into the system on a timely basis?).
Someone in accounting, preferably a person who is in charge of bookkeeping.
Information for the Liquidity Section can be found in the Balance Sheet section of the company's financial statements (so long as it is updated). If the firm uses a software program (i.e. PeachTree, QuickBooks, Great Plains, etc) to manage its books, then the information can be easily retrieved.
NOTE: Make sure that the ending period on the Balance Sheet matches that of the Flash Report. Both are snapshots of the company in time. Make sure we are talking about the same time period!!!
Cash: Look in the check register to see how much cash is there. Do not use the bank balance because there may still be outstanding checks. Be leery of using the cash position off of the balance sheet. The information is good only if it is updated. This may not always be the case. This is why the check register is bes
Accounts Receivable: Look at the Accounts Receivable detail report for total accounts receivable. Deduct any bad debts reserved.
Inventory: Look at the inventory detail report for total inventory on hand.
Accounts Payable: Look at the Accounts Payable detail report for total accounts payable.
Working Capital: Sum up the values for Cash, Accounts Receivable, and Inventory. Subtract the value of Accounts Payable. This will give you the value for working capital.
Review and monitor your results. Graphing the results may also be a very effective method to see what is going on in your company's process.
In the spirit of flexibility, the Flash Report can and ought to be customized to fit each company's needs. The basic format is just that….a basic platform to help get you started. For the Liquidity Section, some companies have also added the following items:
Cash Receipts - This gives a feel for the cash that has come in during the period of concern.
Cash Disbursements - This gives a feel for the cash that has gone out during the period of concern.
Taken together, The Cash Receipts and Cash Disbursements give an indication of whether the cash flow for the firm is positive or negative.
Days Sales Outstanding (DSO)
DSO= 365 x Average A/R / Total Credit Sales
This tells you how many days it takes on average to collect on A/P.
Days Payable Outstanding (DPO)
DPO= 365 x Average A/P / Total Annual Purchases
This tells you how many days it takes on average to pay your liabilities
Days Inventory Outstanding (DIO)
DIO= 365 x Average Inventory / Cost of Goods Sold
This tells you how many days it takes on average it takes to turnover your inventory Cash Conversion Cycle (CCC)
CCC= DSO + DIO - DPO
This tells you how many days it takes to convert raw material to cash
Flash Reports:Productivity Section
A major issue that businesses of all sizes face is the inability for the Operations people to connect with the Finance/Accounting people and vice versa. The Productivity Section seeks to address this disconnect by measuring and tracking certain metrics that both Finance/Accounting and Operations can agree upon. By identifying and monitoring these non-accounting metrics, management can now manage the productivity of the company in a more meaningful way.
How do you get these metrics? An important by-product of this process is the communication process that both Finance/Accounting and Operations must have with one another. In essence, coming up with these metrics forces each party to “stand in the other person’s shoes.” In so many ways, this section is the most difficult to create, but it is by far the most powerful section.
For companies that have multiple profit centers, it may be worthwhile to have the key performance metrics grouped by profit centers.
The CFO/Controller sets it up. Then someone in the accounting department inputs the information into the template. The majority of the metrics should be formulas.
Since the goal is to tie operations to financial numbers, it is important to come up with operational metrics that will have significant impact on the financial performance of the company.
Step 1 - It is important for both the operations and financial departments to both grasp the general economics of the firm. Some key questions to ask are: What are the key drivers of the business? What/Where is the process bottleneck? How can we measure the bottleneck? What are the unit economics of the business? What is the breakeven point for the business? Note: Breakeven may be done on a dollar basis or unit volume basis.
Step 2 - Map out the business process. Ask yourself how does each part of your business contribute to the key performance indicators identified in step one?
Step 3 - Come up with business metrics that tie in the unit economics of the firm (Step 1) to the business process (Step 2).
Out of this process you will come up with several key performance metrics that will indicate how the business is doing. These metrics may not relate directly to dollars, but indirectly they will. Two great ways to approach this is to look at process bottlenecks and sales in terms of volume (i.e. # of feet, # of barrels, # of units).
Focus only on the most important metrics. Four to five will do. If you focus on too many, it will be hard to measure and difficult act upon. Here are some examples for various businesses:
Business - Metric Manufacturing - % Utilization of Machine (Bottleneck Machine) Consulting Firm - Average Bill Rate Jet Refueller - Gallons Per Aircraft Fueled
Step 4 - Also find some metrics that tie your business process down to the employee level. Relating this to the employee gives management a way to see how each employee contributes to business performance. Here are some examples for various businesses:
Business - Metric Construction Firm - # of Active Projects per Employee Construction Firm - Construction Cost per Employee Consulting Firm - Hours Billed per Employee
Step 5 - Review and monitor your results. Graphing the results may also be a very effective method to see what is going on in the business process. Flash reporting is an ongoing process until you have identified the key performance drivers for the business.
In the spirit of flexibility, the Flash Report can and ought to be customized to fit each company's needs. The basic format is just that….a basic platform to help get you started.
For the Productivity Section, some companies have also added the following items: Metrics for each Product Line or Business Unit, Separated out FTE employees versus Sales Employees (Example: Sales per Sales Person) and Sales per Full Time Employee.
Flash Reports:Profitability Section¶
This section gives you an estimate of how much money the company has made during the period. It is important to emphasize the word "estimate" for several reasons. First, the Flash Report itself was not meant for complete accuracy. This cannot be overstated. The Flash Report is used best when it is timely and mostly accurate- (80-90%) is good enough. Second, you will notice that profitability was derived from the estimate of the volume throughput for that period. This makes sense as sales and productivity are often a function of volume throughput (i.e. # of barrels, # of gallons, etc.). Another option is to obtain the values for Revenue, Cost of Goods Sold (COGS), Gross Profit, Overhead, and Net Income directly from your accounting system.
The second method is the simplest, but there is a hidden risk that you must account for. Not all the items associated with sales and cost/expenses may have been entered into your accounting system during that time period. Thus, there is a risk that the numbers you use may not even be "mostly accurate". It may or may not be. Thus, backing into your profitability estimate can help remove that risk. Now, you just need to make sure that you have a good grasp of how many units were sold as well as the associated costs.
Note, the metrics in the Productivity Section can be an excellent guide in helping you to start estimating the profitability of the firm.
The CFO/Controller sets it up. Then someone in the accounting department inputs the information into the template. Regular monitoring should be done by the Owner(s)/Management of the firm. Here are some ideas on how to get things started:
Option 1: Obtaining information directly from your accounting system. If you are obtaining revenue and cost information directly from your accounting system, then anyone with the proper authorization can obtain the numbers.
Option 2: Backing into the Profitability Numbers. The CFO/Controller, as well as, the key person(s) in charge of operations. Initially, it may be wise to have both parties involved. Operations will have the feel for units sold. Finance/Accounting may have a better grasp for costs.
Later on, you may decide to create a system where such numbers are automatically reported by someone as part of that person's responsibilities.
For those choosing to obtain numbers directly from the company's accounting system, it will be relatively simple to obtain. Just go to the Income Statement section to retrieve information regarding Revenue, Cost and Expense. However, please understand the risks as described above in the Goals section. You may be taking on some hidden risks by going directly to the Income Statement for the profitability information. Not all the information pertaining to sales and costs/expenses for that period may have been entered.
For those of you electing to indirectly arrive at profitability using sales volume and unit costs and unit price, please refer to the following steps:
Step 1 - Obtain data on the # of units sold, cost per unit, and estimate of monthly expenses. Having a good understanding of the unit economics of the firm will be key to making this step easier. Initially, this may be somewhat challenging to be able to collect. However, over time it will become easier. Here are some helpful tips:
Number of Units Sold: The operations department will need to keep records to in order to record how many units have been sold. There is no short cut here. However, if you can know 80-90% of the # of units sold, then that is enough.
Unit Sales Price: Sales and Accounting will need to keep good records on prices. Please note that sometimes, prices may have changed in the middle of the period.
Unit Sales Cost: Sometimes you can easily determine the cost using vendor invoices. If it becomes difficult, a helpful way is to look at historical P&L Statements. You can estimate the COGS amount for this period by seeing what historically they were as a percentage of revenue. For instance, if COGS was 60% of sales last year, then you can estimate COGS for this year as 60% of current revenue.
Step 2 - Plug in the data for Revenue, COGS, and Overhead Expense. Sum up as per the example in the Basic Format section.
Step 3 - Review and monitor your results. Graphing the results may also be a very effective method to see what is going on in the business process.
In the spirit of flexibility, the Flash Report can and ought to be customized to fit each company's needs. The basic format is just that….a basic platform to help get you started.
For the Profitability Section, some companies have also done the following: Report just the Gross Margin and/or Net Income. You can do this, but this does not excuse you from understanding the underlying unit economics. You still have to do your homework. Include profitability on a per employee basis.
Flash Reports:Monitor & Review
Now that you have assembled all the parts of the Flash Report, it is time to review your results. Again, it deserves mention that the purpose of the Flash Report is to provide management with a timely, "mostly accurate" tool to assess the current state of affairs. Thus, any changes that need to be made can be made quickly. Emergencies can be proactively addressed at the problem stage, rather than reactively in the crisis stage. If you want complete accuracy, wait until the financial statements for the period are complete 2-4 weeks after the month has ended. In the meanwhile, 80-90% accurate is fine for managing a business.
The Owner(s)/Management of the firm should review the results of the Flash Report after it has been completed. If possible, review on a weekly basis in order to expedite the decision making process. This way, the company can react to trends faster.
Any person or parties involved in the active management of the firm should certainly be included in the performance review of the firm. It is especially important that representatives from Operations, Finance, and Accounting be there as well.
In and of themselves, the numbers do not tell you a whole lot. They serve as a point of reference for discussion. It is recommended that you start off with the review of the firm's cash position. The cash position may provide questions as to why cash is short, which in turn will generate questions regarding A/R or sales.
Step 1 - Review the Liquidity Section This section will provide management an idea of whether or not they can pay the bills. Deficiencies will usually spring from a collections issue, sales issue or cost/expense issue. It will be up to management to explore each of these areas to see where potential problems lie.
Step 2 - Review the Productivity Metrics Section Ultimately, if done right, this section gets to the heart of the business process. It is important that the Finance/Accounting people are in accord with Operations people that these metrics are meaningful. If they are not, keep working at them until they are. This may be several iterations later.
Review of this area can tell management in a very simple way, how the business process is doing. These metrics should provide a simple read as to the how the heart of the business is beating. Should there be problems, these metrics should capture them in some way. In turn, revenue should be affected as well. For instance, revenue may be down, because a certain machine was down for repairs. Thus, % utilization could tell you indirectly why revenue was down for the period.
Step 3 - Review the Profitability Section Because the firm's productivity affects its profitability, so too will the results from the Productivity Section be seen in the Profitability Section. It is important for management to confirm this.
Continue to monitor results from period to period. If changes to Productivity Metrics need to be made, please feel free to do so. The key to successful implementation and use of the Flash Report is the commitment to its use and the commitment to communication and discussion.
Some companies may choose to graph the results in addition to having the flash report in a tabular format. A graph may at times be easier to understand than numbers, especially for analyzing trends.
For the purposes of the flash report, it may be useful to include 3 historical periods in addition to the current period. This will aid in the analysis of trends.
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10 efficient ways to produce useful metrics
Takeaway: Accurate metrics are essential for assessing performance and making informed decisions, but companies often rely on flawed information that paints a misleading picture. Alan Norton explains the most efficient strategies for obtaining valid, useful metrics.
The one constant in my career has been the collection and distribution of company information. I didn’t know the cost of the metrics I was producing. Those costs were never measured. But I did know my labor costs and the costs of the supplies I was purchasing. Multiply that by each department in the company where I worked and I knew that the numbers had to be getting real big, real fast. I also knew that there were opportunities there for big cost savings.
It is not difficult to make a case for more efficient metrics. Significant cost savings can be realized by reviewing and improving how and what metrics your company produces. Metrics are expensive. Add up the true total costs and they can be quite considerable:
•Printers
•Paper
•Printing supplies
•Labor
•Development
•Production
•Distribution
•Maintenance
And the costs don’t end at document creation. Metrics are shared multiple times, either electronically or physically. The security of company sensitive metrics is an additional responsibility and cost. The metrics must be managed, stored, and retrieved –all activities more costly than you might guess.
I won’t try to argue that metrics are in any way fun to discuss. However, their importance to the health of a company is undeniable. Get the metrics wrong and a company’s full potential will not be realized. I have seen enough to know that the metrics used by companies both large and small can be improved. Here are 10 ways to do just that.
Note: This article is also available as a PDF download.
1: Measure performance at aggregate levels and exceptions at lower levels
I have produced a lot of charts in my time. In retrospect, I realize that I produced too many charts. Many of those charts provided no value at all — they showed performance on schedule or close to on schedule for a number of subassemblies. Printing these charts might have given managers a reassuring sign that all was well, but little else. The better approach is to use exception reporting and set upper and lower limits. Sure, go ahead and measure performance at higher levels. But report only exceptional performance, good or bad, at the more granular levels.
2: Eliminate metrics with little or no value
Know the cost of each metric. Are all your metrics worth reporting? A cost benefit analysis can help identify reports that are costing more than they are worth. A best guess estimate of potential savings must be included in the analysis, so it is not as simple a process as it might first appear.
It can be difficult to discard those old, comfortable shoes when you’re rummaging through your closet. But if they’re no longer useful, they should go. The same applies to those charts and reports that managers have become comfortable seeing. Nevertheless, if they are of little or no value, they should go.
3: Avoid tying incentives to lower level metrics
Meeting goals at the department level can be detrimental to the company’s overall performance. For example, a help desk manager might be paid a bonus for increasing completed tickets at tier one. But this is counterproductive if the overall costs rise due to the increased workload at tier two and lower. Bonuses and other incentives should be tied to the corporate bottom line and not departmental performance.
4: Avoid metrics that are inaccurate, misleading, or ambiguous
Producing metrics that are inaccurate or ambiguous can be costly to correct if they lead to bad decision making. There are a number of reasons why metrics can be inaccurate, misleading, or ambiguous:
•Invalid assumptions
•Errors in data collection
•Incomplete data
•Outdated data
•Questionable/unverified data
•Difficult to measure data
•Subjective (not objective) data
•Complex and multifaceted data
Some metrics are difficult if not impossible to measure. Managers are nevertheless tasked with boiling down metrics like software development into one or two charts. Similarly, other metrics, like employee happiness, just don’t translate well into numbers and should be avoided. I’m not suggesting that measuring this type of information should be avoided altogether, just not presented as numbers in chart format.
5: Avoid skewing the data
One simple example of data skewing is reporting costs over a long period of time. 2010 dollars are not the same as 2005 dollars. If you are not compensating for inflation, you are delivering misleading information. Obtaining too small a sample or a non-random sample are other common ways that data can be skewed.
6: Standardize and consolidate
Reduce the amount of information generated by eliminating redundancies and standardizing where possible. Financial reports, like manpower metrics, can usually be centralized and standardized for all departments. There are those unique metrics that can’t be standardized for all departments, but many of these can be standardized across divisions.
7: Use unbiased personnel or outsource connect
Being a reporting guy my entire career, it isn’t surprising that I ran across a manager or two who wanted to game the system. There are countless ways to lie with numbers or, at a minimum, hide poor performance by the appropriate (or should I say inappropriate) manipulation of the data. One example I saw was to use fiscal YTD values instead of a 12-month moving window. The obvious problem with this is that when a new fiscal YTD starts you have no previous data points to show a trend. And that is exactly the goal. It’s a great way to hide bad numbers. I reported directly to the manager asking for the fiscal YTD format, so I was in no position to question his motives. The inherent problem created with this type of working relationship is another reason why metrics production should be centralized and reported directly to upper management or outsourced.
8: Automate whenever possible
Gathering data by hand and entering numbers into a charting program is a labor intensive and costly endeavor. Since charts are often generated weekly or even daily, one or more people can spend most of their time preparing the charts. If the data is available online, the charts should be automated. If the data is not available online and must be collected by hand, consider developing systems that can collect the data at a reasonable cost.
9: Consider going paperless
If your company hasn’t already done so, going paperless can save a lot of money. However, paper should still be an option and care should be taken before converting a report to online only. If it takes more time to look up a metric online, the additional labor costs can far outweigh the savings.
10: Be careful what you measure
All too often, overly simplistic metrics focus on only part of the whole picture. A metric like “IT spending as a percentage of revenue” treats IT services as a cost. But such incomplete information can lead to poor decision making. The challenge for IT managers is to develop metrics that show the value added by IT and get them under the CEO’s nose.
The very act of measurement determines where managers will place time and resources — often at the expense of other unmeasured metrics or other departments’ metrics. Measure too little and important performance metrics can be missed. Measure too much and the focus can be lost from the mission-critical metrics. The costs of measuring the metrics can then quickly exceed the benefits. The metrics package should be carefully selected to balance these tradeoffs.
The bottom line
Metrics are like laws. They are born but never seem to die. An annual review of the company’s metrics package provides a good opportunity to add new metrics, update out-of-date metrics, and discontinue those metrics that are no longer needed. Select your metrics package carefully. What you measure is what you get.
For further information, check out the whitepaper Efficient Metrics: Be Careful What You Measure.
http://www.techrepublic.com/blog/10things/10-efficient-ways-to-produce-useful-metrics
The one constant in my career has been the collection and distribution of company information. I didn’t know the cost of the metrics I was producing. Those costs were never measured. But I did know my labor costs and the costs of the supplies I was purchasing. Multiply that by each department in the company where I worked and I knew that the numbers had to be getting real big, real fast. I also knew that there were opportunities there for big cost savings.
It is not difficult to make a case for more efficient metrics. Significant cost savings can be realized by reviewing and improving how and what metrics your company produces. Metrics are expensive. Add up the true total costs and they can be quite considerable:
•Printers
•Paper
•Printing supplies
•Labor
•Development
•Production
•Distribution
•Maintenance
And the costs don’t end at document creation. Metrics are shared multiple times, either electronically or physically. The security of company sensitive metrics is an additional responsibility and cost. The metrics must be managed, stored, and retrieved –all activities more costly than you might guess.
I won’t try to argue that metrics are in any way fun to discuss. However, their importance to the health of a company is undeniable. Get the metrics wrong and a company’s full potential will not be realized. I have seen enough to know that the metrics used by companies both large and small can be improved. Here are 10 ways to do just that.
Note: This article is also available as a PDF download.
1: Measure performance at aggregate levels and exceptions at lower levels
I have produced a lot of charts in my time. In retrospect, I realize that I produced too many charts. Many of those charts provided no value at all — they showed performance on schedule or close to on schedule for a number of subassemblies. Printing these charts might have given managers a reassuring sign that all was well, but little else. The better approach is to use exception reporting and set upper and lower limits. Sure, go ahead and measure performance at higher levels. But report only exceptional performance, good or bad, at the more granular levels.
2: Eliminate metrics with little or no value
Know the cost of each metric. Are all your metrics worth reporting? A cost benefit analysis can help identify reports that are costing more than they are worth. A best guess estimate of potential savings must be included in the analysis, so it is not as simple a process as it might first appear.
It can be difficult to discard those old, comfortable shoes when you’re rummaging through your closet. But if they’re no longer useful, they should go. The same applies to those charts and reports that managers have become comfortable seeing. Nevertheless, if they are of little or no value, they should go.
3: Avoid tying incentives to lower level metrics
Meeting goals at the department level can be detrimental to the company’s overall performance. For example, a help desk manager might be paid a bonus for increasing completed tickets at tier one. But this is counterproductive if the overall costs rise due to the increased workload at tier two and lower. Bonuses and other incentives should be tied to the corporate bottom line and not departmental performance.
4: Avoid metrics that are inaccurate, misleading, or ambiguous
Producing metrics that are inaccurate or ambiguous can be costly to correct if they lead to bad decision making. There are a number of reasons why metrics can be inaccurate, misleading, or ambiguous:
•Invalid assumptions
•Errors in data collection
•Incomplete data
•Outdated data
•Questionable/unverified data
•Difficult to measure data
•Subjective (not objective) data
•Complex and multifaceted data
Some metrics are difficult if not impossible to measure. Managers are nevertheless tasked with boiling down metrics like software development into one or two charts. Similarly, other metrics, like employee happiness, just don’t translate well into numbers and should be avoided. I’m not suggesting that measuring this type of information should be avoided altogether, just not presented as numbers in chart format.
5: Avoid skewing the data
One simple example of data skewing is reporting costs over a long period of time. 2010 dollars are not the same as 2005 dollars. If you are not compensating for inflation, you are delivering misleading information. Obtaining too small a sample or a non-random sample are other common ways that data can be skewed.
6: Standardize and consolidate
Reduce the amount of information generated by eliminating redundancies and standardizing where possible. Financial reports, like manpower metrics, can usually be centralized and standardized for all departments. There are those unique metrics that can’t be standardized for all departments, but many of these can be standardized across divisions.
7: Use unbiased personnel or outsource connect
Being a reporting guy my entire career, it isn’t surprising that I ran across a manager or two who wanted to game the system. There are countless ways to lie with numbers or, at a minimum, hide poor performance by the appropriate (or should I say inappropriate) manipulation of the data. One example I saw was to use fiscal YTD values instead of a 12-month moving window. The obvious problem with this is that when a new fiscal YTD starts you have no previous data points to show a trend. And that is exactly the goal. It’s a great way to hide bad numbers. I reported directly to the manager asking for the fiscal YTD format, so I was in no position to question his motives. The inherent problem created with this type of working relationship is another reason why metrics production should be centralized and reported directly to upper management or outsourced.
8: Automate whenever possible
Gathering data by hand and entering numbers into a charting program is a labor intensive and costly endeavor. Since charts are often generated weekly or even daily, one or more people can spend most of their time preparing the charts. If the data is available online, the charts should be automated. If the data is not available online and must be collected by hand, consider developing systems that can collect the data at a reasonable cost.
9: Consider going paperless
If your company hasn’t already done so, going paperless can save a lot of money. However, paper should still be an option and care should be taken before converting a report to online only. If it takes more time to look up a metric online, the additional labor costs can far outweigh the savings.
10: Be careful what you measure
All too often, overly simplistic metrics focus on only part of the whole picture. A metric like “IT spending as a percentage of revenue” treats IT services as a cost. But such incomplete information can lead to poor decision making. The challenge for IT managers is to develop metrics that show the value added by IT and get them under the CEO’s nose.
The very act of measurement determines where managers will place time and resources — often at the expense of other unmeasured metrics or other departments’ metrics. Measure too little and important performance metrics can be missed. Measure too much and the focus can be lost from the mission-critical metrics. The costs of measuring the metrics can then quickly exceed the benefits. The metrics package should be carefully selected to balance these tradeoffs.
The bottom line
Metrics are like laws. They are born but never seem to die. An annual review of the company’s metrics package provides a good opportunity to add new metrics, update out-of-date metrics, and discontinue those metrics that are no longer needed. Select your metrics package carefully. What you measure is what you get.
For further information, check out the whitepaper Efficient Metrics: Be Careful What You Measure.
http://www.techrepublic.com/blog/10things/10-efficient-ways-to-produce-useful-metrics
3/24/11
10 Quick Pickups for Your Personal Finances
You don't have to be an expert to manage your money and prepare for life's unexpected twists and turns.
If you're like most people, your New Years Resolutions have already expired. You haven't lost 10 pounds, you're not going to the gym five days a week, and when was the last time you called your mother?
Chances are, your financial goals have fallen by the wayside too. I don't want to discourage you from paying down debt, saving a down payment for a house, or any of those big goals that you may have set for yourself at the beginning of the year. But if you sort of tuckered out on the big things (or even if you're still going strong -- go you!), maybe it's time to set some more achievable goals. Here are 10 things you can do in an hour or less apiece to make yourself -- or your household -- more financially sound.
1. Join Mint
I'm an unabashed fan of the site, and not just because they do some great data-mining on their blog. (Don't worry, all at the very aggregate level). It will track and aggregate your spending for you, showing you where the money is going, and what's happening to your net worth over time. If you have sort of complicated finances -- as I do, living in a two-journalist household -- then it's an absolute godsend at tax and expense time. And in the last year they've added goals, allowing you to set your spending, saving, and debt-reduction goals and then track how you're doing with a thermometer. It's surprisingly motivating, and it's free.
I probably spend 20 minutes a week in Mint, categorizing our expenses and monitoring our financial position. But even if you don't put in that kind of time (and most of you don't have to keep track of which meals are tax-deductible), it's still incredibly helpful at tracking the broad outlines of your spending.
2. Get Your Papers Together
If you die, someone is going to have to clean up the financial aftermath. Make it easy on them by putting everything in one place where they can find it. Dave Ramsey calls this a "Legacy Drawer," and suggests putting in a cover letter and letters to your loved ones as well as the financial papers. But we're trying to keep this under an hour, so the notes are optional. Here's what it should contain:
• Insurance papers.
• Loan documents.
• A list of every financial account: loans, bank accounts, investment accounts, 401(k)s, whatever. Security experts will kill me for saying this, but I'd say this list should have the account numbers, the PINs, and the passwords.
• Deeds and titles to any property you own (cars, land, etc).
• Birth certificate and social security card, if you have them.
• Information about your will/estate plans: who has them, who the executor is.
• Funeral instructions (if any; mine are "cheapest coffin you can find").
• Tax returns.
• A list of your major recurring expenses (so people know which bills to pay).
Start by putting this in a drawer; eventually, you should move this to a safe-deposit box, and tell whoever's likely to be taking care of your final details where to find the key. This should only take you an hour -- if it takes you longer than that, well, you really needed to get these documents while you could find them anyway.
3. Buy Life Insurance
If you're single, you don't need this unless you have a kid or someone else depending on you -- your job usually offers you enough to bury you. If you're married, I think you do need a little, even if you don't have kids. Married life is usually built on the expectation of two incomes: a mortgage (or lease), the cars, all sorts of other recurring expenses. At a minimum, make sure your partner will have enough to bury you and pay off any outstanding debt -- including not only mortgages and cars, but credit cards and student loans in their name alone, if you own property. You don't want to have to hassle with someone coming after their half of the house or car to pay off their unsecured debt. Obviously, if your partner is at home, or makes very little money, you're also going to want to replace some of your income.
You do not want "whole life" insurance, "return of premium" or any other product that promises you to give you some or all of your money back -- all this is is a savings vehicle with bad rates of return, bundled with expensive term life insurance. Buy a simple term life policy for 20 or 30 years -- long enough for you to accumulate enough assets to take care of your partner if you die. You can compare rates online or mosey down to your local insurance office, but either way, this shouldn't take you too long provided that you resist the blandishments of insurance agents who will attempt to upsell you "features" you don't need. Stand firm, buy term.
4. Cancel Stupid Recurring Expenses
Remember when you thought you'd try Stamps.com? How about that credit monitoring service you signed up for eighteen months ago? The dual subscriptions to Netflix left over from before you moved in together? For many of you, I am sad to say, your gym membership also falls into this category.
Whatever it is, if you haven't used it in three months, cancel it. Cancel it whether or not you think you should be using it. You can always rejoin the gym after you've developed a burning desire to actually go. With the hundreds of dollars you will save between now and then, you will easily be able to afford any re-initiation fees.
5. Ramp Up for Retirement
Unless you are already at the legal maximum, increase your 401(k) contribution by 1% of your income. Unless you are already pinching pennies so hard that Abraham Lincoln is actually screaming in pain, you can afford to put an extra 1% of your pre-tax income into your 401(k). Then every time you get a raise, you increase your contribution by another 1% until you hit the legal limit ($16,500) or 15-20% of your income. Almost painless, and you'll feel a lot safer in retirement. (Of course, if you want to save faster, you can -- try 2% or 3%).
6. Start Saving
If you don't have an emergency fund, you need one. Here's how to do it so that you almost won't notice: set up an automatic transfer into your savings account from every paycheck. Figure out how much can you afford, but even if it's only $25, transfer it from every paycheck, and resolve not to touch that money unless it's an actual emergency. (Emergency: my car won't start. Not an emergency: I really need a break, so I'm going to the beach for a week.)
The ideal way to handle this is to have a separate account that isn't linked to your other bank accounts, and to have the transfer done as part of your auto-deposit. That way, you never see the money -- and I think you'll be surprised to find that you don't much miss it. But if you don't want to go to the trouble, you can do this with your regular savings account, as long as you're resolved not to touch the money in that account for anything but an emergency: just use online banking to do a recurring transfer on the same day as your paycheck hits the account.
Over time, increase the amount that you're saving. Eventually you'll have a tidy nest egg, and because the money was never in your checking account, you won't have been tempted to spend it on incidentals.
7. Re-balance Your Portfolio
If you already have substantial assets, it's time to make sure they're correctly structured for your priorities. Are your mutual funds allocated the way that you want them, or over time, has one grown faster than the others, leaving your portfolio lopsided (many companies now automatically re-balance, but you should check.) You should also be thinking about your portfolio's life-cycle. If you're in your fifties, you should already be transitioning some of your money to bonds.
I know what you're going to say: you'll never be able to retire at those kinds of returns. My response is a piece of wisdom that I picked up from my driving instructor: "If you left late, you're going to get there late." Trying to flout that simple equation only gets you in trouble. Just as it's a bad idea to race through red lights in the hopes of making up the lost time, it's a bad idea to leave your assets in 100% equity because you're hoping that higher returns will still let you retire in comfort at 65. Risking destitution now is just compounding your earlier planning errors.
8. Make a Will
If your finances are pretty simple, you can do this in half an hour with something like Quicken Willmaker, which took Lifehacker half an hour. LegalZoom will also do it for you for a pretty modest fee. If your finances are complicated -- well, OK, this won't take under an hour, and you need a lawyer. But if your finances are complicated, you really need a will. If it freaks you out too much to meditate upon your own death, pretend that you are preparing this will so you can drop out of sight and assume your new identity as Agent 007 of Her Majesty's Secret Service.
9. Fix Your Withholding
Are you looking forward to a nice big refund from the IRS this year? Don't look so happy -- that refund means that you made the government an interest-free loan for most of the year. And if you're like many freelancers, and you owe the government a hefty chunk, then you may be liable for interest and penalties.
The easy way to fix either problem is to adjust your withholding. HR can help you do this. If you're getting a big refund every year, raise your exemptions; if you're having to pay, lower them. (If they're already as low as they can get, look at what you owe this year, adjust for what you'll owe next year ... and start making estimated payments every quarter.)
10. Shop for Better Deals
Can you get a better interest rate on your credit cards? How about your bank accounts? You don't have to follow through, if you decide it's not worth it. But it's worth taking 15 minutes on the web to find out. Also worth doing: threaten to cancel your cable. You don't have to actually do it -- though with Netflix and Hulu and Amazon Prime's new subscription service, it's possibly worth it. But if you call to cancel, they'll usually offer you a better deal.
http://financiallyfit.yahoo.com/finance/article-112368-8971-3-10-quick-pickups-for-your-personal-finances
If you're like most people, your New Years Resolutions have already expired. You haven't lost 10 pounds, you're not going to the gym five days a week, and when was the last time you called your mother?
Chances are, your financial goals have fallen by the wayside too. I don't want to discourage you from paying down debt, saving a down payment for a house, or any of those big goals that you may have set for yourself at the beginning of the year. But if you sort of tuckered out on the big things (or even if you're still going strong -- go you!), maybe it's time to set some more achievable goals. Here are 10 things you can do in an hour or less apiece to make yourself -- or your household -- more financially sound.
1. Join Mint
I'm an unabashed fan of the site, and not just because they do some great data-mining on their blog. (Don't worry, all at the very aggregate level). It will track and aggregate your spending for you, showing you where the money is going, and what's happening to your net worth over time. If you have sort of complicated finances -- as I do, living in a two-journalist household -- then it's an absolute godsend at tax and expense time. And in the last year they've added goals, allowing you to set your spending, saving, and debt-reduction goals and then track how you're doing with a thermometer. It's surprisingly motivating, and it's free.
I probably spend 20 minutes a week in Mint, categorizing our expenses and monitoring our financial position. But even if you don't put in that kind of time (and most of you don't have to keep track of which meals are tax-deductible), it's still incredibly helpful at tracking the broad outlines of your spending.
2. Get Your Papers Together
If you die, someone is going to have to clean up the financial aftermath. Make it easy on them by putting everything in one place where they can find it. Dave Ramsey calls this a "Legacy Drawer," and suggests putting in a cover letter and letters to your loved ones as well as the financial papers. But we're trying to keep this under an hour, so the notes are optional. Here's what it should contain:
• Insurance papers.
• Loan documents.
• A list of every financial account: loans, bank accounts, investment accounts, 401(k)s, whatever. Security experts will kill me for saying this, but I'd say this list should have the account numbers, the PINs, and the passwords.
• Deeds and titles to any property you own (cars, land, etc).
• Birth certificate and social security card, if you have them.
• Information about your will/estate plans: who has them, who the executor is.
• Funeral instructions (if any; mine are "cheapest coffin you can find").
• Tax returns.
• A list of your major recurring expenses (so people know which bills to pay).
Start by putting this in a drawer; eventually, you should move this to a safe-deposit box, and tell whoever's likely to be taking care of your final details where to find the key. This should only take you an hour -- if it takes you longer than that, well, you really needed to get these documents while you could find them anyway.
3. Buy Life Insurance
If you're single, you don't need this unless you have a kid or someone else depending on you -- your job usually offers you enough to bury you. If you're married, I think you do need a little, even if you don't have kids. Married life is usually built on the expectation of two incomes: a mortgage (or lease), the cars, all sorts of other recurring expenses. At a minimum, make sure your partner will have enough to bury you and pay off any outstanding debt -- including not only mortgages and cars, but credit cards and student loans in their name alone, if you own property. You don't want to have to hassle with someone coming after their half of the house or car to pay off their unsecured debt. Obviously, if your partner is at home, or makes very little money, you're also going to want to replace some of your income.
You do not want "whole life" insurance, "return of premium" or any other product that promises you to give you some or all of your money back -- all this is is a savings vehicle with bad rates of return, bundled with expensive term life insurance. Buy a simple term life policy for 20 or 30 years -- long enough for you to accumulate enough assets to take care of your partner if you die. You can compare rates online or mosey down to your local insurance office, but either way, this shouldn't take you too long provided that you resist the blandishments of insurance agents who will attempt to upsell you "features" you don't need. Stand firm, buy term.
4. Cancel Stupid Recurring Expenses
Remember when you thought you'd try Stamps.com? How about that credit monitoring service you signed up for eighteen months ago? The dual subscriptions to Netflix left over from before you moved in together? For many of you, I am sad to say, your gym membership also falls into this category.
Whatever it is, if you haven't used it in three months, cancel it. Cancel it whether or not you think you should be using it. You can always rejoin the gym after you've developed a burning desire to actually go. With the hundreds of dollars you will save between now and then, you will easily be able to afford any re-initiation fees.
5. Ramp Up for Retirement
Unless you are already at the legal maximum, increase your 401(k) contribution by 1% of your income. Unless you are already pinching pennies so hard that Abraham Lincoln is actually screaming in pain, you can afford to put an extra 1% of your pre-tax income into your 401(k). Then every time you get a raise, you increase your contribution by another 1% until you hit the legal limit ($16,500) or 15-20% of your income. Almost painless, and you'll feel a lot safer in retirement. (Of course, if you want to save faster, you can -- try 2% or 3%).
6. Start Saving
If you don't have an emergency fund, you need one. Here's how to do it so that you almost won't notice: set up an automatic transfer into your savings account from every paycheck. Figure out how much can you afford, but even if it's only $25, transfer it from every paycheck, and resolve not to touch that money unless it's an actual emergency. (Emergency: my car won't start. Not an emergency: I really need a break, so I'm going to the beach for a week.)
The ideal way to handle this is to have a separate account that isn't linked to your other bank accounts, and to have the transfer done as part of your auto-deposit. That way, you never see the money -- and I think you'll be surprised to find that you don't much miss it. But if you don't want to go to the trouble, you can do this with your regular savings account, as long as you're resolved not to touch the money in that account for anything but an emergency: just use online banking to do a recurring transfer on the same day as your paycheck hits the account.
Over time, increase the amount that you're saving. Eventually you'll have a tidy nest egg, and because the money was never in your checking account, you won't have been tempted to spend it on incidentals.
7. Re-balance Your Portfolio
If you already have substantial assets, it's time to make sure they're correctly structured for your priorities. Are your mutual funds allocated the way that you want them, or over time, has one grown faster than the others, leaving your portfolio lopsided (many companies now automatically re-balance, but you should check.) You should also be thinking about your portfolio's life-cycle. If you're in your fifties, you should already be transitioning some of your money to bonds.
I know what you're going to say: you'll never be able to retire at those kinds of returns. My response is a piece of wisdom that I picked up from my driving instructor: "If you left late, you're going to get there late." Trying to flout that simple equation only gets you in trouble. Just as it's a bad idea to race through red lights in the hopes of making up the lost time, it's a bad idea to leave your assets in 100% equity because you're hoping that higher returns will still let you retire in comfort at 65. Risking destitution now is just compounding your earlier planning errors.
8. Make a Will
If your finances are pretty simple, you can do this in half an hour with something like Quicken Willmaker, which took Lifehacker half an hour. LegalZoom will also do it for you for a pretty modest fee. If your finances are complicated -- well, OK, this won't take under an hour, and you need a lawyer. But if your finances are complicated, you really need a will. If it freaks you out too much to meditate upon your own death, pretend that you are preparing this will so you can drop out of sight and assume your new identity as Agent 007 of Her Majesty's Secret Service.
9. Fix Your Withholding
Are you looking forward to a nice big refund from the IRS this year? Don't look so happy -- that refund means that you made the government an interest-free loan for most of the year. And if you're like many freelancers, and you owe the government a hefty chunk, then you may be liable for interest and penalties.
The easy way to fix either problem is to adjust your withholding. HR can help you do this. If you're getting a big refund every year, raise your exemptions; if you're having to pay, lower them. (If they're already as low as they can get, look at what you owe this year, adjust for what you'll owe next year ... and start making estimated payments every quarter.)
10. Shop for Better Deals
Can you get a better interest rate on your credit cards? How about your bank accounts? You don't have to follow through, if you decide it's not worth it. But it's worth taking 15 minutes on the web to find out. Also worth doing: threaten to cancel your cable. You don't have to actually do it -- though with Netflix and Hulu and Amazon Prime's new subscription service, it's possibly worth it. But if you call to cancel, they'll usually offer you a better deal.
http://financiallyfit.yahoo.com/finance/article-112368-8971-3-10-quick-pickups-for-your-personal-finances
3/22/11
Skimp or Splurge - Millionaire’s Car
We live in a very nice neighborhood where the houses and yards are well-tended, and new, shiny luxury cars are parked in most of the garages. I’m proud to say that in our garage are two of the least impressive cars in the neighborhood - an eight year old Pontiac and 11 year old Ford. Why do we skimp? Because doing so pays handsomely, and by handsomely I mean to the tune of $1.9 million dollars. Here’s my cost-benefit analysis.
Costs of the new car
I compared the costs of two imaginary families. The image conscious Jones family must drive $60,000 luxury SUVs, and wouldn’t be caught dead in a model that is more than three years old. Across the street, lives the Thriftys, a family with less invested in their image and more invested in their future. They feel no pressure to keep up with the Joneses, or anyone else. They buy $24,000 Fords and keep them for ten years.
Depreciation - Cars depreciate at a greater rate when they are new.
Sales tax - The Joneses pay a much greater tax, every three years, vs. the Thriftys.
Ownership tax - Most states impose a license tax based on the value of the car.
Insurance - More expensive cars cost more to insure.
Gasoline - The SUV gets 13 MPG while the Ford economy car gets 26 MPG.
Maintenance - Everything is covered on the SUV - The Ford has an average cost of $1,000 after the first three years.
Costs of the new car
I compared the costs of two imaginary families. The image conscious Jones family must drive $60,000 luxury SUVs, and wouldn’t be caught dead in a model that is more than three years old. Across the street, lives the Thriftys, a family with less invested in their image and more invested in their future. They feel no pressure to keep up with the Joneses, or anyone else. They buy $24,000 Fords and keep them for ten years.
Depreciation - Cars depreciate at a greater rate when they are new.
Sales tax - The Joneses pay a much greater tax, every three years, vs. the Thriftys.
Ownership tax - Most states impose a license tax based on the value of the car.
Insurance - More expensive cars cost more to insure.
Gasoline - The SUV gets 13 MPG while the Ford economy car gets 26 MPG.
Maintenance - Everything is covered on the SUV - The Ford has an average cost of $1,000 after the first three years.
On average, each of the two Lexus SUVs cost $15,060 annually, while the Ford clocks in at $10,000 less. This leaves the Thriftys with $20,000 annually to invest. If the investments return seven percent annually, the Thriftys will have built up a $1.9 million portfolio after 30 years. Of course to get that rate, you’ve got to keep expenses and emotions out of the equation and be a rational investor.
Benefits of the new car
You’ll get no argument from me that the Lexus SUVs are a little slice of automobile heaven. And I admit that I enjoy being a passenger in someone else’s Lexus. Getting a new car, with that new car smell, brings a certain pleasure and psychological well being. But studies show that this happiness is inevitably short-lived, even turning into anger or sadness, as soon as you notice that first ding.
The unsexy, boring truth is that the Ford gets to any destination just as fast as the Lexus. The comfort factor seems to disappear as one gets used to the ride in any car. So, for the most part, splurging on the Lexus gets you only one thing that you don’t get with the Ford - status.
Bottom line
If you have more money than you can ever spend, then have at it with my envious blessings, and get whatever kind of car you’d like. But if you are concerned about your financial well being, skimping on a car is the single most important thing you can do to cut expenditures without giving up a single economic good since you can still go anywhere you’d like. You need only give up the psychological value of status and, if you can reframe your view of psychological value, you may be even better off there too.
My advice is to get off of the hedonic treadmill and break the chains of status-seeking. Before you know it, the Joneses will be trying to keep up with your portfolio.
Top 10 Benefits of a Millionaire’s Car
1.You can actually be a millionaire rather than only looking like one.
2.You won’t have to worry about getting a ding on your car - go ahead and park in that tight space.
3.You know your friends won’t like you only for your car.
4.You won’t be accused of being materialistic.
5.You’ll get from point A to B just as fast as the luxury car.
6.When you drive somewhere with your friends, they will want to take their car.
7.If you get pulled over, the police officer won’t give you attitude because he can’t afford your car! (Okay - I’m reaching here.)
8.When your friends make fun of it, you’ll learn which friends are snobs.
9.You’ll demonstrate your self-image can’t be manipulated by advertising agencies.
10.Did I mention it will make you a millionaire?
http://moneywatch.bnet.com/investing/blog/irrational-investor/skimp-or-splurge-millionaires-car/1705/
3/13/11
How Great Entrepreneurs Think
Think inside the (restless, curious, eager) minds of highly accomplished company builders.
What distinguishes great entrepreneurs? Discussions of entrepreneurial psychology typically focus on creativity, tolerance for risk, and the desire for achievement—enviable traits that, unfortunately, are not very teachable. So Saras Sarasvathy, a professor at the University of Virginia's Darden School of Business, set out to determine how expert entrepreneurs think, with the goal of transferring that knowledge to aspiring founders. While still a graduate student at Carnegie Mellon, Sarasvathy—with the guidance of her thesis supervisor, the Nobel laureate Herbert Simon—embarked on an audacious project: to eavesdrop on the thinking of the country's most successful entrepreneurs as they grappled with business problems. She required that her subjects have at least 15 years of entrepreneurial experience, have started multiple companies—both successes and failures—and have taken at least one company public.
Sarasvathy identified 245 U.S. entrepreneurs who met her criteria, and 45 of them agreed to participate. (Responses from 27 appeared in her conclusions; the rest were reserved for subsequent studies. Thirty more helped shape the questionnaire.) Revenue at the subjects' companies—all run by the founders at that time—ranged from $200 million to $6.5 billion, in industries as diverse as toys and railroads. Sarasvathy met personally with all of her subjects, including such luminaries as Dennis Bakke, founder of energy giant AES; Earl Bakken of Medtronic; and T.J. Rodgers of Cypress Semiconductor. She presented each with a case study about a hypothetical start-up and 10 decisions that the founder of such a company would have to make in building the venture. Then she switched on a tape recorder and let the entrepreneur talk through the problems for two hours. Sarasvathy later collaborated with Stuart Read, of the IMD business school in Switzerland, to conduct the same experiment with professional managers at large corporations—the likes of Nestlé, Philip Morris, and Shell. Sarasvathy and her colleagues are now extending their research to novice entrepreneurs and both novice and experienced professional investors.
Sarasvathy concluded that master entrepreneurs rely on what she calls effectual reasoning. Brilliant improvisers, the entrepreneurs don't start out with concrete goals. Instead, they constantly assess how to use their personal strengths and whatever resources they have at hand to develop goals on the fly, while creatively reacting to contingencies. By contrast, corporate executives—those in the study group were also enormously successful in their chosen field—use causal reasoning. They set a goal and diligently seek the best ways to achieve it. Early indications suggest the rookie company founders are spread all across the effectual-to-causal scale. But those who grew up around family businesses will more likely swing effectual, while those with M.B.A.'s display a causal bent. Not surprisingly, angels and seasoned VCs think much more like expert entrepreneurs than do novice investors.
The following is a summary of some of the study's conclusions, illustrated with excerpts from the interviews. Understanding the entrepreneurs' comments requires familiarity with what they were evaluating. The case study and questions are too long to reproduce here. But briefly: Subjects were asked to imagine themselves as the founder of a start-up that had developed a computer game simulating the experience of launching a company. The game and ancillary materials were described as tools for teaching entrepreneurship. Subjects responded to questions about potential customers, competitors, pricing, marketing strategies, growth opportunities, and related issues. (The full case study and questions can be found here.)
Quotes have been edited for length, though we wish we had room to run them in their entirety. Sarasvathy remained almost silent throughout, forcing the founders to answer their own questions and externalize their thinking in the process. The transcripts, riddled with "ums" and "ers," doublings-back on assumptions, and references to personal rules of thumb, read like verbal MRIs of the entrepreneurial brain in action.
Do the doable, then push it
Sarasvathy likes to compare expert entrepreneurs to Iron Chefs: at their best when presented with an assortment of motley ingredients and challenged to whip up whatever dish expediency and imagination suggest. Corporate leaders, by contrast, decide they are going to make Swedish meatballs. They then proceed to shop, measure, mix, and cook Swedish meatballs in the most efficient, cost-effective manner possible.
That is not to say entrepreneurs don't have goals, only that those goals are broad and—like luggage—may shift during flight. Rather than meticulously segment customers according to potential return, they itch to get to market as quickly and cheaply as possible, a principle Sarasvathy calls affordable loss. Repeatedly, the entrepreneurs in her study expressed impatience with anything that smacked of extensive planning, particularly traditional market research. (Inc.'s own research backs this up. One survey of Inc. 500 CEOs found that 60 percent had not written business plans before launching their companies. Just 12 percent had done market research.)
When asked what kind of market research they would conduct for their hypothetical start-up, most of Sarasvathy's subjects responded with variations on the following:
"OK, I need to know which of their various groups of students, trainees, and individuals would be most interested so I can target the audience a little bit more. What other information...I've never done consumer marketing, so I don't really know. I think probably...I think mostly I'd just try to...I would...I wouldn't do all this, actually. I'd just go sell it. I don't believe in market research. Somebody once told me the only thing you need is a customer. Instead of asking all the questions, I'd try and make some sales. I'd learn a lot, you know: which people, what were the obstacles, what were the questions, which prices work better. Even before I started production. So my market research would actually be hands-on actual selling."
Here's another:
"Ultimately, the best test of any product is to go to your target market and pretend like it's a real business. You'll find out soon enough if it is or not. You have to take some risks. You can sit and analyze these different markets forever and ever and ever, and you'd get all these wonderful answers, and they still may be wrong. The problem with the businessman type is they spend a lot of time with all their great wisdom and all their spreadsheets and all their Harvard Business Review people, and they'd either become convinced that there's no market at all or that they have the market nailed. And they'd go out there big time, with a lot of expensive advertising and upfront costs, because they're gonna overwhelm the market, and the business would go under."
The corporate executives were much more likely to want a quantitative analysis of market size:
"If I had a budget, I could ask a specialist in the field of education to go through data and give me ideas of how many universities, how many media, how many large companies I will have to contact to have an idea of the work that has to be done."
Sarasvathy explains that entrepreneurs' aversion to market research is symptomatic of a larger lesson they have learned: They do not believe in prediction of any kind. "If you give them data that has to do with the future, they just dismiss it," she says. "They don't believe the future is predictable...or they don't want to be in a space that is very predictable." That attitude is a bit like Voltaire's assertion that the perfect is the enemy of the good. In this case, the careful forecast is the enemy of the fortuitous surprise:
"I always live by the motto of 'Ready, fire, aim.' I think if you spend too much time doing 'Ready, aim, aim, aim,' you're never going to see all the good things that would happen if you actually started doing it. I think business plans are interesting, but they have no real meaning, because you can't put in all the positive things that will occur...If you know intrinsically that this is possible, you just have to find out how to make it possible, which you can't do ahead of time."
That said, Sarasvathy points out that her entrepreneurs did adopt more formal research and planning practices over time. Their ability to do so—to become causal as well as effectual thinkers—helped this enduring group grow with their companies.
Woo partners first
Entrepreneurs' preference for doing the doable and taking it from there is manifest in their approach to partnerships. While corporate executives know exactly where they are going and follow a prescribed path to get there, entrepreneurs allow whomever they encounter on the journey—suppliers, advisers, customers—to shape their businesses.
"I would literally target...key companies who I would call flagship: do a frontal lobotomy on them. There are probably a dozen of those I would pick. Some entrepreneurial operations that would probably be smaller but have a global presence where I'm dealing with the challenges of international sales...Building rapport with partners, with joint-venture colleagues as well as with ultimate users....The challenge then is really to pick your partners and package yourself early on before you have to put a lot of capital out."
Chief among those influential partners are first customers. The entrepreneurs anticipated customer help on product design, sales, and identifying suppliers. Some even saw their first customer as their best investor.
"People chase investors, but your best investor is your first real customer. And your customers are also your best salesmen."
Sarasvathy says expert entrepreneurs have learned the hard way that "having even one real customer on board with you is better than knowing in a hands-off way 10 things about a thousand customers." Merely gathering information from a large number of potential customers, she says, "increases all the different things you could do but doesn't tell you what you should do." Toward that end, many of her subjects described their preference for an almost anthropological approach to customer interaction: observing a few customers as they work or actually working alongside them.
"You can't go out and survey customers and say, 'OK, what kinda car do you really want?' I believe very much in living it. If you're gonna write a book about stevedores, go work as a stevedore for a period of time. My company was going to design and sell products for physical therapy, so I worked in rehab medicine for two years."
Corporate executives, by contrast, generally envisioned more traditional vendor-customer interactions, such as focus groups.
"I would like to get from them...by meeting with them or getting their input on what they think of the limitation of existing programs....just kind of sit and listen to them telling me...what new features they'd like. And I'd just listen to them talk, talk, talk and then be thinking and develop something between what they want and what's possible technically."
Sarasvathy says executives rely less on firsthand insights, because they can afford to place bets on multiple segments and product versions. "Entrepreneurs don't have that luxury," she says.
Sweat competitors later
The study's corporate subjects focused intently on potential competitors, as eager for information about other vendors as about customers. "The corporate guys are like hunter-gatherers," says Sarasvathy. "They are hired to win market share, so they concentrate fiercely on who is in the marketplace. The first thing they do is map out the lay of the land."
"What information do I want about my competition? I want to see what kinds of resources they have. Do they have computer programmers? Do they have educational experts? Do they have teachers and trainers who can roll out this product? Do they have a support structure in place? Geographically, where are they situated? Have they got one center or lots of centers? Are they doing this just in English, or do they have different languages? I'd be wanting to look at the finances of these companies....I'd probably be looking at their track record to see what kind of approach they take to marketing and advertising so I know what to expect. I might look and see what people they hire, see if I can hire away someone who might have experience."
By the time entrepreneurs start seeking investment, of course, they should be as far inside competitors' heads as they can get. But the study subjects generally expressed little concern about the competition at launch.
"Your competition is a secondary factor. I think you are putting the cart before the horse...Analyze whether you think you can be successful or not before you worry about the competitors."
And:
"At one time in our company, I ordered our people not to think about competitors. Just do your job. Think only of your work. Now that isn't entirely possible. Now, in fact, competitive information is very valuable. But I wanted to be sure that we didn't worry about competitors. And to that end, I gave the annual plan to every employee. And they said, 'Well, aren't you afraid your competitors are gonna get this information and get an advantage?' I said, 'It's much riskier to not have your employees know what you need to do than it is to run the risk of competitors finding out. Cause they'll find out somehow anyway. But if one of your employees doesn't know why they're doing their job, then you're really losing out.'"
Entrepreneurs fret less about competitors, Sarasvathy explains, because they see themselves not in the thick of a market but on the fringe of one, or as creating a new market entirely. "They are like farmers, planting a seed and nurturing it," she says. "What they care about is their own little patch of ground."
Don't limit yourself
Corporate managers believe that to the extent they can predict the future, they can control it. Entrepreneurs believe that to the extent they can control the future, they don't need to predict it. That may sound like monumental hubris, but Sarasvathy sees it differently, as an expression of entrepreneurs' confidence in their ability to recognize, respond to, and reshape opportunities as they develop. Entrepreneurs thrive on contingency. The best ones improvise their way to an outcome that in retrospect feels ordained.
So although many corporate managers in Sarasvathy's study wanted more information about the product and market landscape, some entrepreneurs pushed back on the small amount of information provided as being too limiting. For example, the description of the product as a computer game for entrepreneurship:
"I would cast it not as a product but as a family of products, which might perform a broader function like helping people make career decisions. I always look for broad market opportunities."
And:
"I wanna use this product as a platform to attract other products literally to build a market-share play. I see this as a missionary product, an entrée into some of the best users and buyers."
The most fascinating part of the study relates to the product's potential. Asked about growth opportunities, the corporate managers mostly restricted their comments to the game as described:
"It depends on how it's marketed. I'm a little bit skeptical....I'm not certain entrepreneurs would go for that. Maybe they think they already know everything. But in terms of simulations for business schools or in further education, they seem to be very popular. And entrepreneurship degrees seem to be very popular as well. So, yeah, it could well be a lot of growth."
Here is where the entrepreneurs really let loose. Starting with the same information as one another and as the executives, they collectively spun out opportunities in 18 markets—not just academic institutions but also venture capital firms, consultancies, government agencies, and the military. As much as the ability to concoct new products, it is this tendency to riff off whatever ideas or materials are handy that defines entrepreneurs as a creative breed. Reading the transcripts, you can almost hear the enthusiasm mounting in their voices as the possibilities unfold:
"This company could make a few people rich, but I don't think it could ever be huge...You might have a successful second product about how to succeed and get promoted within a large company....That would give you a market of everybody with aspirations at IBM, AT&T, Exxon, etc....You could make another product for students. How do I graduate in the top 10 percent of my class at Stanford or Harvard or Yale?...A lot about how to be a good student is teachable. Now you've got a product you can sell to every student in the country. Next there is negotiation. You could practice being a good negotiator. There's not a salesman in the United States who wouldn't buy one of those. Then you could genericize the thing to any situation which requires some sort of technical knowledge. Or learning situations within companies where you are trying to get people to understand that company's methods or objectives. So maybe I'm gonna change my opinion about the growth potential. It's easy to see how within an hour you could name 10 products that would each address huge markets, like all employees in Fortune 500 companies, who are rich enough to pay $100 for it. It could be a hit on the scale of the Lotus spreadsheet. You can see a several-hundred-million-dollar company coming from it."
You might also glean from the preceding that entrepreneurs are eternal optimists. But you don't need an academic study to tell you that.
What distinguishes great entrepreneurs? Discussions of entrepreneurial psychology typically focus on creativity, tolerance for risk, and the desire for achievement—enviable traits that, unfortunately, are not very teachable. So Saras Sarasvathy, a professor at the University of Virginia's Darden School of Business, set out to determine how expert entrepreneurs think, with the goal of transferring that knowledge to aspiring founders. While still a graduate student at Carnegie Mellon, Sarasvathy—with the guidance of her thesis supervisor, the Nobel laureate Herbert Simon—embarked on an audacious project: to eavesdrop on the thinking of the country's most successful entrepreneurs as they grappled with business problems. She required that her subjects have at least 15 years of entrepreneurial experience, have started multiple companies—both successes and failures—and have taken at least one company public.
Sarasvathy identified 245 U.S. entrepreneurs who met her criteria, and 45 of them agreed to participate. (Responses from 27 appeared in her conclusions; the rest were reserved for subsequent studies. Thirty more helped shape the questionnaire.) Revenue at the subjects' companies—all run by the founders at that time—ranged from $200 million to $6.5 billion, in industries as diverse as toys and railroads. Sarasvathy met personally with all of her subjects, including such luminaries as Dennis Bakke, founder of energy giant AES; Earl Bakken of Medtronic; and T.J. Rodgers of Cypress Semiconductor. She presented each with a case study about a hypothetical start-up and 10 decisions that the founder of such a company would have to make in building the venture. Then she switched on a tape recorder and let the entrepreneur talk through the problems for two hours. Sarasvathy later collaborated with Stuart Read, of the IMD business school in Switzerland, to conduct the same experiment with professional managers at large corporations—the likes of Nestlé, Philip Morris, and Shell. Sarasvathy and her colleagues are now extending their research to novice entrepreneurs and both novice and experienced professional investors.
Sarasvathy concluded that master entrepreneurs rely on what she calls effectual reasoning. Brilliant improvisers, the entrepreneurs don't start out with concrete goals. Instead, they constantly assess how to use their personal strengths and whatever resources they have at hand to develop goals on the fly, while creatively reacting to contingencies. By contrast, corporate executives—those in the study group were also enormously successful in their chosen field—use causal reasoning. They set a goal and diligently seek the best ways to achieve it. Early indications suggest the rookie company founders are spread all across the effectual-to-causal scale. But those who grew up around family businesses will more likely swing effectual, while those with M.B.A.'s display a causal bent. Not surprisingly, angels and seasoned VCs think much more like expert entrepreneurs than do novice investors.
The following is a summary of some of the study's conclusions, illustrated with excerpts from the interviews. Understanding the entrepreneurs' comments requires familiarity with what they were evaluating. The case study and questions are too long to reproduce here. But briefly: Subjects were asked to imagine themselves as the founder of a start-up that had developed a computer game simulating the experience of launching a company. The game and ancillary materials were described as tools for teaching entrepreneurship. Subjects responded to questions about potential customers, competitors, pricing, marketing strategies, growth opportunities, and related issues. (The full case study and questions can be found here.)
Quotes have been edited for length, though we wish we had room to run them in their entirety. Sarasvathy remained almost silent throughout, forcing the founders to answer their own questions and externalize their thinking in the process. The transcripts, riddled with "ums" and "ers," doublings-back on assumptions, and references to personal rules of thumb, read like verbal MRIs of the entrepreneurial brain in action.
Do the doable, then push it
Sarasvathy likes to compare expert entrepreneurs to Iron Chefs: at their best when presented with an assortment of motley ingredients and challenged to whip up whatever dish expediency and imagination suggest. Corporate leaders, by contrast, decide they are going to make Swedish meatballs. They then proceed to shop, measure, mix, and cook Swedish meatballs in the most efficient, cost-effective manner possible.
That is not to say entrepreneurs don't have goals, only that those goals are broad and—like luggage—may shift during flight. Rather than meticulously segment customers according to potential return, they itch to get to market as quickly and cheaply as possible, a principle Sarasvathy calls affordable loss. Repeatedly, the entrepreneurs in her study expressed impatience with anything that smacked of extensive planning, particularly traditional market research. (Inc.'s own research backs this up. One survey of Inc. 500 CEOs found that 60 percent had not written business plans before launching their companies. Just 12 percent had done market research.)
When asked what kind of market research they would conduct for their hypothetical start-up, most of Sarasvathy's subjects responded with variations on the following:
"OK, I need to know which of their various groups of students, trainees, and individuals would be most interested so I can target the audience a little bit more. What other information...I've never done consumer marketing, so I don't really know. I think probably...I think mostly I'd just try to...I would...I wouldn't do all this, actually. I'd just go sell it. I don't believe in market research. Somebody once told me the only thing you need is a customer. Instead of asking all the questions, I'd try and make some sales. I'd learn a lot, you know: which people, what were the obstacles, what were the questions, which prices work better. Even before I started production. So my market research would actually be hands-on actual selling."
Here's another:
"Ultimately, the best test of any product is to go to your target market and pretend like it's a real business. You'll find out soon enough if it is or not. You have to take some risks. You can sit and analyze these different markets forever and ever and ever, and you'd get all these wonderful answers, and they still may be wrong. The problem with the businessman type is they spend a lot of time with all their great wisdom and all their spreadsheets and all their Harvard Business Review people, and they'd either become convinced that there's no market at all or that they have the market nailed. And they'd go out there big time, with a lot of expensive advertising and upfront costs, because they're gonna overwhelm the market, and the business would go under."
The corporate executives were much more likely to want a quantitative analysis of market size:
"If I had a budget, I could ask a specialist in the field of education to go through data and give me ideas of how many universities, how many media, how many large companies I will have to contact to have an idea of the work that has to be done."
Sarasvathy explains that entrepreneurs' aversion to market research is symptomatic of a larger lesson they have learned: They do not believe in prediction of any kind. "If you give them data that has to do with the future, they just dismiss it," she says. "They don't believe the future is predictable...or they don't want to be in a space that is very predictable." That attitude is a bit like Voltaire's assertion that the perfect is the enemy of the good. In this case, the careful forecast is the enemy of the fortuitous surprise:
"I always live by the motto of 'Ready, fire, aim.' I think if you spend too much time doing 'Ready, aim, aim, aim,' you're never going to see all the good things that would happen if you actually started doing it. I think business plans are interesting, but they have no real meaning, because you can't put in all the positive things that will occur...If you know intrinsically that this is possible, you just have to find out how to make it possible, which you can't do ahead of time."
That said, Sarasvathy points out that her entrepreneurs did adopt more formal research and planning practices over time. Their ability to do so—to become causal as well as effectual thinkers—helped this enduring group grow with their companies.
Woo partners first
Entrepreneurs' preference for doing the doable and taking it from there is manifest in their approach to partnerships. While corporate executives know exactly where they are going and follow a prescribed path to get there, entrepreneurs allow whomever they encounter on the journey—suppliers, advisers, customers—to shape their businesses.
"I would literally target...key companies who I would call flagship: do a frontal lobotomy on them. There are probably a dozen of those I would pick. Some entrepreneurial operations that would probably be smaller but have a global presence where I'm dealing with the challenges of international sales...Building rapport with partners, with joint-venture colleagues as well as with ultimate users....The challenge then is really to pick your partners and package yourself early on before you have to put a lot of capital out."
Chief among those influential partners are first customers. The entrepreneurs anticipated customer help on product design, sales, and identifying suppliers. Some even saw their first customer as their best investor.
"People chase investors, but your best investor is your first real customer. And your customers are also your best salesmen."
Sarasvathy says expert entrepreneurs have learned the hard way that "having even one real customer on board with you is better than knowing in a hands-off way 10 things about a thousand customers." Merely gathering information from a large number of potential customers, she says, "increases all the different things you could do but doesn't tell you what you should do." Toward that end, many of her subjects described their preference for an almost anthropological approach to customer interaction: observing a few customers as they work or actually working alongside them.
"You can't go out and survey customers and say, 'OK, what kinda car do you really want?' I believe very much in living it. If you're gonna write a book about stevedores, go work as a stevedore for a period of time. My company was going to design and sell products for physical therapy, so I worked in rehab medicine for two years."
Corporate executives, by contrast, generally envisioned more traditional vendor-customer interactions, such as focus groups.
"I would like to get from them...by meeting with them or getting their input on what they think of the limitation of existing programs....just kind of sit and listen to them telling me...what new features they'd like. And I'd just listen to them talk, talk, talk and then be thinking and develop something between what they want and what's possible technically."
Sarasvathy says executives rely less on firsthand insights, because they can afford to place bets on multiple segments and product versions. "Entrepreneurs don't have that luxury," she says.
Sweat competitors later
The study's corporate subjects focused intently on potential competitors, as eager for information about other vendors as about customers. "The corporate guys are like hunter-gatherers," says Sarasvathy. "They are hired to win market share, so they concentrate fiercely on who is in the marketplace. The first thing they do is map out the lay of the land."
"What information do I want about my competition? I want to see what kinds of resources they have. Do they have computer programmers? Do they have educational experts? Do they have teachers and trainers who can roll out this product? Do they have a support structure in place? Geographically, where are they situated? Have they got one center or lots of centers? Are they doing this just in English, or do they have different languages? I'd be wanting to look at the finances of these companies....I'd probably be looking at their track record to see what kind of approach they take to marketing and advertising so I know what to expect. I might look and see what people they hire, see if I can hire away someone who might have experience."
By the time entrepreneurs start seeking investment, of course, they should be as far inside competitors' heads as they can get. But the study subjects generally expressed little concern about the competition at launch.
"Your competition is a secondary factor. I think you are putting the cart before the horse...Analyze whether you think you can be successful or not before you worry about the competitors."
And:
"At one time in our company, I ordered our people not to think about competitors. Just do your job. Think only of your work. Now that isn't entirely possible. Now, in fact, competitive information is very valuable. But I wanted to be sure that we didn't worry about competitors. And to that end, I gave the annual plan to every employee. And they said, 'Well, aren't you afraid your competitors are gonna get this information and get an advantage?' I said, 'It's much riskier to not have your employees know what you need to do than it is to run the risk of competitors finding out. Cause they'll find out somehow anyway. But if one of your employees doesn't know why they're doing their job, then you're really losing out.'"
Entrepreneurs fret less about competitors, Sarasvathy explains, because they see themselves not in the thick of a market but on the fringe of one, or as creating a new market entirely. "They are like farmers, planting a seed and nurturing it," she says. "What they care about is their own little patch of ground."
Don't limit yourself
Corporate managers believe that to the extent they can predict the future, they can control it. Entrepreneurs believe that to the extent they can control the future, they don't need to predict it. That may sound like monumental hubris, but Sarasvathy sees it differently, as an expression of entrepreneurs' confidence in their ability to recognize, respond to, and reshape opportunities as they develop. Entrepreneurs thrive on contingency. The best ones improvise their way to an outcome that in retrospect feels ordained.
So although many corporate managers in Sarasvathy's study wanted more information about the product and market landscape, some entrepreneurs pushed back on the small amount of information provided as being too limiting. For example, the description of the product as a computer game for entrepreneurship:
"I would cast it not as a product but as a family of products, which might perform a broader function like helping people make career decisions. I always look for broad market opportunities."
And:
"I wanna use this product as a platform to attract other products literally to build a market-share play. I see this as a missionary product, an entrée into some of the best users and buyers."
The most fascinating part of the study relates to the product's potential. Asked about growth opportunities, the corporate managers mostly restricted their comments to the game as described:
"It depends on how it's marketed. I'm a little bit skeptical....I'm not certain entrepreneurs would go for that. Maybe they think they already know everything. But in terms of simulations for business schools or in further education, they seem to be very popular. And entrepreneurship degrees seem to be very popular as well. So, yeah, it could well be a lot of growth."
Here is where the entrepreneurs really let loose. Starting with the same information as one another and as the executives, they collectively spun out opportunities in 18 markets—not just academic institutions but also venture capital firms, consultancies, government agencies, and the military. As much as the ability to concoct new products, it is this tendency to riff off whatever ideas or materials are handy that defines entrepreneurs as a creative breed. Reading the transcripts, you can almost hear the enthusiasm mounting in their voices as the possibilities unfold:
"This company could make a few people rich, but I don't think it could ever be huge...You might have a successful second product about how to succeed and get promoted within a large company....That would give you a market of everybody with aspirations at IBM, AT&T, Exxon, etc....You could make another product for students. How do I graduate in the top 10 percent of my class at Stanford or Harvard or Yale?...A lot about how to be a good student is teachable. Now you've got a product you can sell to every student in the country. Next there is negotiation. You could practice being a good negotiator. There's not a salesman in the United States who wouldn't buy one of those. Then you could genericize the thing to any situation which requires some sort of technical knowledge. Or learning situations within companies where you are trying to get people to understand that company's methods or objectives. So maybe I'm gonna change my opinion about the growth potential. It's easy to see how within an hour you could name 10 products that would each address huge markets, like all employees in Fortune 500 companies, who are rich enough to pay $100 for it. It could be a hit on the scale of the Lotus spreadsheet. You can see a several-hundred-million-dollar company coming from it."
You might also glean from the preceding that entrepreneurs are eternal optimists. But you don't need an academic study to tell you that.
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