The simple rule for start-up survival is to focus on the 80/20 rule-the 20% of tasks that generate 80% of the benefit.
My first year at business school, I thought my professors were trying
to kill me. Each night, I had more reading and homework than could
possibly get done in one evening even if I stayed up all night. I
quickly realized that one of the key lessons of survival was
prioritization--figuring out what portion of the work was most important
and what just was not going to get done.
I remember one night, working on a term paper with a group of
students. We had worked hard on the paper and we all thought it was in
good shape. We had other work to complete that night and were not
anxious to pull an all-nighter so we were ready to move on. One of the
team members, however, felt it was not "A" material and wanted to keep
working on it. I remember thinking even back then that this guy did not
"get it."
My life in start-ups has been the same experience as business school.
To survive and flourish, you have to quickly figure out what is
"important" and what is "noise." You can't do it all...
Both at my former company TripAdvisor as well as my current company Car Gurus,
we have a saying: follow the 80/20 rule, technically known as the
Pareto principle. The Pareto principle tells us that 20 percent of the
inputs account for 80 percent of the results. You have to cut through
the noise, figure out what tasks represent the 20 percent with the
greatest leverage and focus on those tasks. Find those projects that
make a big impact and ignore EVERYTHING else.
Is it difficult to step away from fire drills and turn away from the
mounting volume in your inbox? Absolutely. But if you don't, your
days--and your team's days--will slip away without having addressed the
projects that will really drive your business.
The sooner you figure out how to apply the 80/20 rule and run with
it, the better off you'll be. There are 100 things you can focus on
each day, and it's up to you to parse the data, decide what projects or features have the greatest leverage and get the product to market as fast as you can.
Don't forget, you can't do it all....
http://www.inc.com/langley-steinert/why-you-cant-do-it-all.html
Showing posts with label Career. Show all posts
Showing posts with label Career. Show all posts
10/5/12
5/25/12
5 Things to Un-Learn From School
You spent a lot of time getting an education. But if you want to make it
as an entrepreneur, it's time to forget some of what you learned.
You spent a lot of years in school. You learned a lot.
Some of what you learned you need to un-learn as soon as possible. Here are five key attitudes you should adopt instead:
1. If you only do what you're told, you'll excel.
I know. School was hard.
But not that hard.
If you did what you were told--go to class, do the reading, turn in assignments on time, etc.--you could get As. Initiative was not required and, in fact, was often frowned on.
Now--whether you work for someone else or run your own business--doing what you're told makes you average. Not superior, not excellent... just average.
To be above average, or to achieve better than average results, you must do two things:
2. Being micro-managed is to be expected.
Sure, you felt overly-controlled in school: Dates, timelines, rules... not to mention the seemingly arbitrary policies and nonsensical assignments. You saw graduation as the day you would finally have more freedom.
Nope.
In school you paid people to criticize, direct, and at times micro-manage you. Now you're the one getting paid... yet you somehow don't feel it's fair that investors, partners, or customers can dictate what you do, sometimes down to the smallest detail?
Don't expect someone to trust you to perform a task or service–and give you money to perform that service–until you've proven you can be trusted to perform that service.
Then, once you've proven your skills, if you still feel micro-managed it's your responsibility to change the situation. Communicate before you are communicated to. Answer questions before questions are asked. Demonstrate your value before you are asked to prove your value.
No one wants to micro-manage you. They have better things to do with their time.
If you're being micro-managed it's probably because you need to be.
3. Your time off is the highlight of the year.
You may have forgotten your mom's birthday, but I'll bet you knew the exact day every semester ended and the start and end of Spring Break. And you lived for snow days.
So it only makes sense to see weekends and vacations as the highlight of your working year, right?
Actually, no: If you feel you endure the workweek just to get to the payoff of the weekend, you're in the wrong business. Find work you enjoy; then you won't see time off as a chance to finally do something fun but as a chance to do something else fun.
While you'll never love everything you do in your professional life, you should enjoy the majority of it.
Otherwise you're not living–you're just working.
4. Getting criticized means you failed.
Here's another pay/paid dichotomy. In college you paid professors to critique your work.
So now that you are the one getting paid, why is it unfair for someone--like a customer, investor, or key partner–to critique your work?
It's not.
When you get negative feedback, see it as an opportunity. Think, "Wow, I didn't realize I wasn't doing that right. I didn't realize I wasn't doing that as well as I could."
Criticism is a chance to learn--and this time you're getting paid to learn.
Never complain when someone pays you to learn.
5. Success is based on toeing the line.
Say you disagreed with a professor's point of view on a particular point. You may even have been right... but the only way to get an A in the class was to parrot the professor's take on the subject. Except in rare cases, confirming and following the rules was everything.
In business, conforming only ensures that you will achieve the same results as other people.
If you want to achieve different results you'll have to think and act differently. Do your homework, think critically, and don't be afraid to create your own path.
But don't be different just for the sake of being different. Be different because it's who you are and what you believe... and because it will get you where you want to go, with your integrity and your sense of self intact.
http://www.inc.com/jeff-haden/entrepreneurs-5-things-to-un-learn-from-school.html
You spent a lot of years in school. You learned a lot.
Some of what you learned you need to un-learn as soon as possible. Here are five key attitudes you should adopt instead:
1. If you only do what you're told, you'll excel.
I know. School was hard.
But not that hard.
If you did what you were told--go to class, do the reading, turn in assignments on time, etc.--you could get As. Initiative was not required and, in fact, was often frowned on.
Now--whether you work for someone else or run your own business--doing what you're told makes you average. Not superior, not excellent... just average.
To be above average, or to achieve better than average results, you must do two things:
- Do what others are willing to do, and do it better, and
- Do what others aren't willing to do
2. Being micro-managed is to be expected.
Sure, you felt overly-controlled in school: Dates, timelines, rules... not to mention the seemingly arbitrary policies and nonsensical assignments. You saw graduation as the day you would finally have more freedom.
Nope.
In school you paid people to criticize, direct, and at times micro-manage you. Now you're the one getting paid... yet you somehow don't feel it's fair that investors, partners, or customers can dictate what you do, sometimes down to the smallest detail?
Don't expect someone to trust you to perform a task or service–and give you money to perform that service–until you've proven you can be trusted to perform that service.
Then, once you've proven your skills, if you still feel micro-managed it's your responsibility to change the situation. Communicate before you are communicated to. Answer questions before questions are asked. Demonstrate your value before you are asked to prove your value.
No one wants to micro-manage you. They have better things to do with their time.
If you're being micro-managed it's probably because you need to be.
3. Your time off is the highlight of the year.
You may have forgotten your mom's birthday, but I'll bet you knew the exact day every semester ended and the start and end of Spring Break. And you lived for snow days.
So it only makes sense to see weekends and vacations as the highlight of your working year, right?
Actually, no: If you feel you endure the workweek just to get to the payoff of the weekend, you're in the wrong business. Find work you enjoy; then you won't see time off as a chance to finally do something fun but as a chance to do something else fun.
While you'll never love everything you do in your professional life, you should enjoy the majority of it.
Otherwise you're not living–you're just working.
4. Getting criticized means you failed.
Here's another pay/paid dichotomy. In college you paid professors to critique your work.
So now that you are the one getting paid, why is it unfair for someone--like a customer, investor, or key partner–to critique your work?
It's not.
When you get negative feedback, see it as an opportunity. Think, "Wow, I didn't realize I wasn't doing that right. I didn't realize I wasn't doing that as well as I could."
Criticism is a chance to learn--and this time you're getting paid to learn.
Never complain when someone pays you to learn.
5. Success is based on toeing the line.
Say you disagreed with a professor's point of view on a particular point. You may even have been right... but the only way to get an A in the class was to parrot the professor's take on the subject. Except in rare cases, confirming and following the rules was everything.
In business, conforming only ensures that you will achieve the same results as other people.
If you want to achieve different results you'll have to think and act differently. Do your homework, think critically, and don't be afraid to create your own path.
But don't be different just for the sake of being different. Be different because it's who you are and what you believe... and because it will get you where you want to go, with your integrity and your sense of self intact.
http://www.inc.com/jeff-haden/entrepreneurs-5-things-to-un-learn-from-school.html
5/10/12
3 Ways to Build Trust In Your Managers
Trust is an essential part of strong leadership. Developing it requires time, patience--and coaching.
Do you trust the people who report to you?
While every leader faces this question, too often the question is framed within the context of right vs. wrong. That is, do you trust your employees to make honest and ethical decisions? In my experience the question of trust should more often be about managerial competence than personal morality.
The trust issue is even more important these days as organizations strive to grow with leaner staffs and fewer resources. The margin for error is slim to none.
Here's an example of what I mean. You notice that a team that reports to one of our direct reports is having difficulty getting a project done on time and on budget. You speak to your direct report--the team's boss--but he seems unable to spot the problem. He is too trusting of his team and lets the members do whatever they want to do. Because the team has always performed well in the past he assumes they will figure out how to get their project back on track. The boss has become too trusting, while you as his boss are losing trust in his leadership as well as the capability of the team.
There is no right and wrong in a moral sense here. It is an issue of managerial poor-performance. Too often I have seen managers let such issues slide because they do not want to confront their people or because they "trust" they will get the job done.
Neither is a good solution. A better alternative is a coaching session, and here are some recommendations for how to conduct one.
Get the whole story. Invite your direct report to tell you his side of the story. This is especially true when things go wrong. Sometimes the manager is clueless; he may be so wrapped up in details that he has lost the bigger picture. For example, he may think he is shepherding the project when it reality he is juggling details and not completing the whole task.
Make suggestions. Ask what the manager will do to rectify the situation. One executive I know makes it a point to teach his people how to ask the right questions at the right time. Such questions are those that challenge assumptions, not in a hostile manner, but in ways that encourage open and honest discussion. Such questions open the mind to alternate ways of thinking.
Gain agreement. Insist on a plan of action. Make certain that it includes specific assignments as well as metrics and milestones, where appropriate. Specificity is essential when it comes to performance improvement.
These action steps, as long as they are backed with strong follow-up, will work but your job as manager is not over. You need to remain vigilant about how your direct report is managing his team. Importantly, you need to find a way to engage this team in ways that enable them to succeed without intense supervision. This means building a value system in which people hold one another accountable for results. When teammates do this, they keep each other engaged. They reinforce their sense of purpose by getting the job done right.
Trust is a bond between individuals or between teams and their supervisors. It can never be expected, nor imposed. It is earned through example and reinforced through success as well as recognition. Vigilance to trust is an essential component of leadership.
Do you trust the people who report to you?
While every leader faces this question, too often the question is framed within the context of right vs. wrong. That is, do you trust your employees to make honest and ethical decisions? In my experience the question of trust should more often be about managerial competence than personal morality.
The trust issue is even more important these days as organizations strive to grow with leaner staffs and fewer resources. The margin for error is slim to none.
Here's an example of what I mean. You notice that a team that reports to one of our direct reports is having difficulty getting a project done on time and on budget. You speak to your direct report--the team's boss--but he seems unable to spot the problem. He is too trusting of his team and lets the members do whatever they want to do. Because the team has always performed well in the past he assumes they will figure out how to get their project back on track. The boss has become too trusting, while you as his boss are losing trust in his leadership as well as the capability of the team.
There is no right and wrong in a moral sense here. It is an issue of managerial poor-performance. Too often I have seen managers let such issues slide because they do not want to confront their people or because they "trust" they will get the job done.
Neither is a good solution. A better alternative is a coaching session, and here are some recommendations for how to conduct one.
Get the whole story. Invite your direct report to tell you his side of the story. This is especially true when things go wrong. Sometimes the manager is clueless; he may be so wrapped up in details that he has lost the bigger picture. For example, he may think he is shepherding the project when it reality he is juggling details and not completing the whole task.
Make suggestions. Ask what the manager will do to rectify the situation. One executive I know makes it a point to teach his people how to ask the right questions at the right time. Such questions are those that challenge assumptions, not in a hostile manner, but in ways that encourage open and honest discussion. Such questions open the mind to alternate ways of thinking.
Gain agreement. Insist on a plan of action. Make certain that it includes specific assignments as well as metrics and milestones, where appropriate. Specificity is essential when it comes to performance improvement.
These action steps, as long as they are backed with strong follow-up, will work but your job as manager is not over. You need to remain vigilant about how your direct report is managing his team. Importantly, you need to find a way to engage this team in ways that enable them to succeed without intense supervision. This means building a value system in which people hold one another accountable for results. When teammates do this, they keep each other engaged. They reinforce their sense of purpose by getting the job done right.
Trust is a bond between individuals or between teams and their supervisors. It can never be expected, nor imposed. It is earned through example and reinforced through success as well as recognition. Vigilance to trust is an essential component of leadership.
1/31/12
I Broke These 6 Business Rules. Why You Should, Too.
I may be a rule-follower by nature. But when it comes to my own company, I've learned when to color outside the lines.
I am not a risk taker. Even as a child, I always did what teachers told me to do and listened to my parents -- well, most of the time. Through college and the early part of my career at technology companies, I followed a linear and predictable path to get to the next level of management, the next promotion, the next raise.
But then I started my own business. That’s when everything changed. No risk meant no reward. I learned that sometimes, the standard rules don’t apply. Especially these:
1. Never Work With Friends and Family.
The first two people I hired were my sister and my best friend’s sister. Why? My sister Lori is the most detail-oriented person I know, and Michelle was Nordstrom-trained on customer service. It’s been 15 years, and they are still with my company, kicking butt and keeping me sane. Sure, we’ve had a few disagreements, but Lori and Michelle have always been extremely committed to our success and respectful of my role as leader. We trust each other and discuss parenting tips as easily as project updates.
2. Get an MBA.
As we’ve learned from Steve Jobs, Walt Disney and Mark Zuckerberg, having an advanced business degree is not required for successful entrepreneurship. Leverage smart people, trust your instincts and just get out there. I gained tremendous insight by joining an angel investment group to see how other entrepreneurs positioned and marketed their companies. Professional organizations in my industry led me to successful owners whom I still tap for advice. And a CEO organization called Vistage gives me access to a braintrust of experts on any business matter.
3. Sales is the Key to Success.
As the business owner, I was the primary rainmaker for years. Unfortunately, I sucked at sales. I hate asking for money. So I hired professional salespeople, and they all failed miserably. Now I understand that my customers hate being sold as much as I hate selling. They really just want someone who will share a cup of coffee and understand their pain, then come up with a solution that doesn’t require even more work. That’s all.
4. You’ve Gotta Get a Plan.
For years, our team didn’t have any formal business plan, just a revenue target and a few key objectives. Of course, like a map-less Magellan, you can waste time and resources. You can even fail to notice when you do reach your goal. But spending weeks discussing and writing a comprehensive plan that few will follow isn’t productive either. Our started simple, and it’s staying that way: One page with an annual revenue target and theme agreed upon by the entire team, followed by one or two major initiatives for each person per quarter. That’s it. When the tech market dipped in 2009, our “plan” allowed us to quickly shift gears. We eased up on major account sales and made a major investment in social media. In the end, that’s what moved our recovery along.
5. Diversify Your Client Base.
Really, we’ve tried for years. But when an industry giant is your largest client and managers tell colleagues in other departments about you, who’s to complain? Word-of-mouth marketing is always a gift. Sure, we’ve worked with many other large clients, and plenty of small clients too, but our largest client is the one that keeps us in business. We work hard to earn their business again every day.
6. Never Work for Free.
There are still rare occasions when we give away our services. Actually, it’s how we started this business--by connecting friends who needed marketing and PR help with friends who provided exactly that expertise. After two years we knew there was a true business opportunity. And while we do have rent, payroll, insurance, taxes and other overhead costs now, there are times when we can’t resist supporting a non-profit organization or an especially close friend.
I may still be a rule-follower at heart. I still use my turn signals and wait patiently in lines. But one of the most exciting things about being an entrepreneur is being creative and discovering what works best, even if it goes against what others recommend. That’s the beauty of being your own boss.
http://www.inc.com/rene-siegel/i-broke-these-six-business-rules-why-you-should-too.html
I am not a risk taker. Even as a child, I always did what teachers told me to do and listened to my parents -- well, most of the time. Through college and the early part of my career at technology companies, I followed a linear and predictable path to get to the next level of management, the next promotion, the next raise.
But then I started my own business. That’s when everything changed. No risk meant no reward. I learned that sometimes, the standard rules don’t apply. Especially these:
1. Never Work With Friends and Family.
The first two people I hired were my sister and my best friend’s sister. Why? My sister Lori is the most detail-oriented person I know, and Michelle was Nordstrom-trained on customer service. It’s been 15 years, and they are still with my company, kicking butt and keeping me sane. Sure, we’ve had a few disagreements, but Lori and Michelle have always been extremely committed to our success and respectful of my role as leader. We trust each other and discuss parenting tips as easily as project updates.
2. Get an MBA.
As we’ve learned from Steve Jobs, Walt Disney and Mark Zuckerberg, having an advanced business degree is not required for successful entrepreneurship. Leverage smart people, trust your instincts and just get out there. I gained tremendous insight by joining an angel investment group to see how other entrepreneurs positioned and marketed their companies. Professional organizations in my industry led me to successful owners whom I still tap for advice. And a CEO organization called Vistage gives me access to a braintrust of experts on any business matter.
3. Sales is the Key to Success.
As the business owner, I was the primary rainmaker for years. Unfortunately, I sucked at sales. I hate asking for money. So I hired professional salespeople, and they all failed miserably. Now I understand that my customers hate being sold as much as I hate selling. They really just want someone who will share a cup of coffee and understand their pain, then come up with a solution that doesn’t require even more work. That’s all.
4. You’ve Gotta Get a Plan.
For years, our team didn’t have any formal business plan, just a revenue target and a few key objectives. Of course, like a map-less Magellan, you can waste time and resources. You can even fail to notice when you do reach your goal. But spending weeks discussing and writing a comprehensive plan that few will follow isn’t productive either. Our started simple, and it’s staying that way: One page with an annual revenue target and theme agreed upon by the entire team, followed by one or two major initiatives for each person per quarter. That’s it. When the tech market dipped in 2009, our “plan” allowed us to quickly shift gears. We eased up on major account sales and made a major investment in social media. In the end, that’s what moved our recovery along.
5. Diversify Your Client Base.
Really, we’ve tried for years. But when an industry giant is your largest client and managers tell colleagues in other departments about you, who’s to complain? Word-of-mouth marketing is always a gift. Sure, we’ve worked with many other large clients, and plenty of small clients too, but our largest client is the one that keeps us in business. We work hard to earn their business again every day.
6. Never Work for Free.
There are still rare occasions when we give away our services. Actually, it’s how we started this business--by connecting friends who needed marketing and PR help with friends who provided exactly that expertise. After two years we knew there was a true business opportunity. And while we do have rent, payroll, insurance, taxes and other overhead costs now, there are times when we can’t resist supporting a non-profit organization or an especially close friend.
I may still be a rule-follower at heart. I still use my turn signals and wait patiently in lines. But one of the most exciting things about being an entrepreneur is being creative and discovering what works best, even if it goes against what others recommend. That’s the beauty of being your own boss.
http://www.inc.com/rene-siegel/i-broke-these-six-business-rules-why-you-should-too.html
5/3/11
Are You CEO Material?
Ask yourself...
Sooner or later, every growing company reaches a point at which the entrepreneur behind it should start wondering whether he or she is the right person to be CEO. The answer has a lot to do with the company’s stage of development. The person who’s right for the start-up phase may not be right when the business reaches the management stage. Veteran entrepreneur Norm Brodsky found out the hard way that he was a terrible manager.
So how do you know...
Brodsky suggests there’s no tried-and-true formula for evaluating a prospective CEO. Ultimately, of course, the proof is in the pudding: How does the company perform? By the time you see the results, however it may be too late. That said, here are the five criteria Brodsky uses in evaluating a person’s ability to handle the responsibilities of a CEO.
Are you a leader?
First, a CEO has to be a leader, not simply a pied piper. Entrepreneurs are pied pipers. We play seductive melodies, conjure up wonderful images, and entice people into following us. Leadership is different. It calls for keeping a watchful eye on the business and making sure everyone understands what must get done. You need to create a sense of urgency about that.
Do you possess foresight?
Second, a CEO should have the ability to see around corners—that is, to recognize well in advance what has to be done for the good of the business—so that the company is always leading the industry rather than trying to catch up.
Do you love solving problems?
Third, a CEO needs a passion for problem solving. You have to be able to figure out quickly which problems require your attention and which don’t, and then focus relentlessly on getting the big ones solved. It helps to be sort of a person who feels acutely unhappy until a problem is fixed.
Is your ego too big?
Fourth, a CEO has to be able to put the company ahead of his or her ego gratification. Entrepreneurs enjoy the spotlight. That’s fine when the company is establishing itself in the marketplace, but it can become a problem later on. You need to be willing to do what’s best for the company at any given moment, which may include staying out of the spotlight.
Are you financially savvy?
Finally, a CEO must be financia
lly literate in a way that goes beyond accounting. As CEO, you need to be able to use the numbers, not just to understand what has happened but to help you spot trends, identify problems, and head off trouble before it hits you.
What do you think?
Now, there are obviously many other traits not mentioned here, such as having a good strategic sense, working well with people, knowing how to delegate, and on and on, Brodsky says. “I value all those qualities, but the CEO has a special role to play. He or she is responsible for the success of the company as a whole. For that reason, I believe the five criteria I’ve mentioned are the ones to focus on. Do you agree. Lew me know.”
http://www.inc.com/ss/recognizing-what-makes-a-great-ceo
Sooner or later, every growing company reaches a point at which the entrepreneur behind it should start wondering whether he or she is the right person to be CEO. The answer has a lot to do with the company’s stage of development. The person who’s right for the start-up phase may not be right when the business reaches the management stage. Veteran entrepreneur Norm Brodsky found out the hard way that he was a terrible manager.
So how do you know...
Brodsky suggests there’s no tried-and-true formula for evaluating a prospective CEO. Ultimately, of course, the proof is in the pudding: How does the company perform? By the time you see the results, however it may be too late. That said, here are the five criteria Brodsky uses in evaluating a person’s ability to handle the responsibilities of a CEO.
Are you a leader?
First, a CEO has to be a leader, not simply a pied piper. Entrepreneurs are pied pipers. We play seductive melodies, conjure up wonderful images, and entice people into following us. Leadership is different. It calls for keeping a watchful eye on the business and making sure everyone understands what must get done. You need to create a sense of urgency about that.
Do you possess foresight?
Second, a CEO should have the ability to see around corners—that is, to recognize well in advance what has to be done for the good of the business—so that the company is always leading the industry rather than trying to catch up.
Do you love solving problems?
Third, a CEO needs a passion for problem solving. You have to be able to figure out quickly which problems require your attention and which don’t, and then focus relentlessly on getting the big ones solved. It helps to be sort of a person who feels acutely unhappy until a problem is fixed.
Is your ego too big?
Fourth, a CEO has to be able to put the company ahead of his or her ego gratification. Entrepreneurs enjoy the spotlight. That’s fine when the company is establishing itself in the marketplace, but it can become a problem later on. You need to be willing to do what’s best for the company at any given moment, which may include staying out of the spotlight.
Are you financially savvy?
Finally, a CEO must be financia
lly literate in a way that goes beyond accounting. As CEO, you need to be able to use the numbers, not just to understand what has happened but to help you spot trends, identify problems, and head off trouble before it hits you.What do you think?
Now, there are obviously many other traits not mentioned here, such as having a good strategic sense, working well with people, knowing how to delegate, and on and on, Brodsky says. “I value all those qualities, but the CEO has a special role to play. He or she is responsible for the success of the company as a whole. For that reason, I believe the five criteria I’ve mentioned are the ones to focus on. Do you agree. Lew me know.”
http://www.inc.com/ss/recognizing-what-makes-a-great-ceo
3/31/11
How to Poach an Employee from a Competitor
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
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
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.
1/13/11
15 Ways to Never Run Out of Money
Savings, investment, and lifestyle strategies for all ages.
The American economy may be moving like molasses in January, but have no doubt, it is moving. Between late 2008 and 2010, the Standard & Poor's 500 index rose in healthy double digits to the point that many investing stalwarts who stayed in stocks recouped the money they'd lost in that period, and then some. The national savings rate -- income minus taxes and household expenses -- rebounded from a negative number in 2006 to almost 6 percent in October 2010, according to the U.S. Bureau of Economic Analysis.
For many, the economic recovery isn't so much crawling as stalling. But regardless of the state of your finances, now is a good time to begin planning a future that's secure. That means creating a plan to ensure you don't run out of money in the near term or far in the future. And paradoxically, it may mean creating a lifestyle that doesn't place money at its core.
When the Consumer Reports National Research Center recently surveyed 24,270 online subscribers age 55 and up about their finances and satisfaction with their lives, we found some common keys to peace of mind that had little to do with big salaries or high living. They pointed to active steps they'd taken as well as pure luck: enjoying good health, planning ahead, maximizing savings, having hobbies and friends, and staying in a job with a defined-benefit pension, which provides a regular income in retirement for life.
And when we interviewed several survey respondents as well as younger workers still in savings mode, we found another common element. A number mentioned living within, and sometimes below, their means. "Most of our entertainment is with friends and neighbors," said Vernon Chestine, 68, a Charlotte, N.C., retiree who participated in our survey. "I feel really fortunate to be in the position we're in."
In this report, we offer 15 ways to ensure you don't run out of money on your way to personal satisfaction, while you work and after you retire. Our survey respondents and the people we profile on these pages demonstrate their "best practices" that anyone can emulate. Employing just a few of them can pay off big-time in the long run.
Do You Need a Pro?
Among pre-retirees who had consulted a financial planner within the 12 months ending in October 2010, 67 percent reported gains in their retirement accounts during that period. But among those who hadn't met with their planner recently, 59 percent saw investment gains. And 57 percent with no planner experienced gains as well.
Indeed, our survey showed that saving more money and investing more in retirement accounts had the greatest payoff during the period, planner or no planner.
Starting Out
The habits you establish early in life can have a positive impact on your finances.
1. Live Modestly
For those millions of Americans currently out of work or underemployed, that is not a choice. But even when times improve, living within your means has its benefits. Retirees in our survey who were most satisfied with their situation credited living modestly as among the best steps they'd made earlier in life. "Since we never were extravagant people, we live just fine," says Pancho Garcia, 67, of Mebane, N.C., a retiree who participated in our survey.
And self-control has its rewards. Mary-Jo Webster, 39, and her husband, Jamey, 37, bought a house four years ago in Arden Hills, Minn., that was significantly smaller and less expensive than what they could afford. And they resolved to try to live on just one income. That decision paid back with interest when Jamey quit his job in computer technology to stay at home with their twins, Benjamin and Madeline, 2.
2. Keep to a Budget
As the Websters and other young couples we interviewed found, financial discipline is essential. Ensuring your money will last your lifetime begins with knowing how to make your paycheck last the month.
Toward that goal, create a basic spending plan or budget. At its simplest, a budget involves splitting your expenses into have-to's and want-to's, and paying the have-to's first. Start with tracking your spending for a couple of months. You can use free budgeting applications on websites such as Mint and Google Docs, or a pencil, paper, and a calculator. Setting some short- and long-term spending goals may make it easier to stick to your plan. Include payments into an emergency fund until you have at least enough for six months of household expenses set aside.
3. Start Saving Early
Retirees who began saving and planning early -- say, in their 30s -- had greater net worth: $1.1 million on average, compared with $868,000 for those who waited until their 40s, and $651,000 for those who started later, our survey found. Thirty-nine percent of retirees said they regretted waiting to save.
Most young workers today don't have access to traditional, defined-benefit pensions funded by employers, so they have to put enough money away during their careers to generate a comparable income stream. To do so, they need to take advantage of options offered by their employers. A growing number of employers automatically enroll new workers in a 401(k) or other retirement savings plan, typically deferring 3 percent of pretax income into a mutual fund targeted to an expected retirement date. The good news: Most new workers don't opt out of contributing once they're automatically enrolled. The not-so-good news: They also don't raise that contribution beyond the initial 3 percent. For the best results, they should eventually boost their deferrals to at least 10 percent of their income.
The young workers we interviewed appear to be heeding that message, contributing at least enough to their retirement accounts to earn the free money their employers offer in matching contributions. And the benefits of the Roth version of IRAs, 401(k)s, and 403(b)s are gaining attention. If you're single and under 50, and your modified adjusted gross income is less than $120,000 (less than $177,000 for couples filing jointly), you can put up to $5,000 of after-tax income into a Roth IRA and avoid any additional federal tax on that money and its gains if you have the account for five years and wait until age 59 1/2 to begin taking it out. It's a potential boon for lower-income earners who fall into low tax brackets now but may face much higher rates when they retire.
Young, on a Budget, and Planning Ahead
After racking up $8,000 in credit-card debt two years ago from their wedding and a move to Portland, Ore., Claire and Chris Angier, both 30, started tracking their expenses. Claire, a teacher, and her engineer husband follow a simple plan: They put aside money in their bank account toward debt, rent, utilities, and other essentials, and split a set amount to spend as they like. Using cash rather than credit for discretionary spending helps keep them on track. "You physically see the pile getting smaller," Chris says.
The Angiers apply discipline to their leisure pursuits -- he's a marathon runner and she teaches exercise classes -- and to their finances. Chris puts 11 percent of his pretax income into a 401(k) plan, reaping a generous company match. Claire, who's eligible for a pension, puts 5 percent into a 457 retirement plan. They're whittling down their educational debt while paying off a higher-interest car loan. And they're building equity in a rental property in Syracuse, N.Y., purchased on the cheap during their grad-school days.
They frequently discuss their finances. "Talking about money is not a taboo subject," Claire says. No doubt that will help when they welcome their first child this spring. "I think we'll continue to budget," Claire says. Chris adds, "It's a habit now."
The Middle Years
In this age range, roughly late 30s through mid-50s, workers have the potential to earn the bulk of their income. But they also face the competing challenges of putting away money for retirement and funding their children's college educations. Our survey results point to some useful strategies:
4. Diversify Your Holdings
Having a variety of investments -- stocks, bonds, and real estate, among others -- correlated highly with net worth in our survey, regardless of income level. Retirees with seven or more types of investments had an average net worth of $1.4 million. Those with three or fewer had an average net worth of $678,000.
For the average investor, whose savings are mainly in an employer-sponsored retirement plan, diversification means spreading that money among a broad mix of stocks and bonds. Index mutual funds typically have low costs -- a key positive factor in overall performance, says a recent study by Morningstar, the Chicago-based investment research company.
5. Prioritize Retirement Over College
You can borrow money for a college education, but you can't borrow toward your retirement. So while it's fine to start a 529 savings plan for your kids, make funding it a secondary goal.
"Our philosophy is to ensure our retirement savings first," Mary-Jo Webster says. But the Websters expect to have their house paid off by the time their 2-year-olds are ready for college. So then, they'll channel the mortgage money toward tuition.
Speaking of education, consider paying your child a regular allowance, either for chores or good behavior, to help teach budgeting and saving skills. Children who are self-sufficient in money matters could very well be less likely to pose a financial burden to their parents.
The Middle Years: Discipline and Diversification
Mike and Miriam Risko understand harmony. As performers and owners of a music school and store in Ossining, N.Y., the couple, in their early 40s, have been playing off each other's strengths for 20 years. Together, they built a one-person school into an operation employing 30 part-time music teachers.
The Riskos, married 10 years, put a healthy portion of their annual income into a profit-sharing plan. In 2009 they bought the building that houses their business. "They had the good sense to do this early," says Camille Cosco, a chartered financial consultant who has steered the Riskos' savings into a well-diversified mutual fund portfolio.
The couple learned how to stretch their money at a young age. Mike paid his way through college playing guitar. At 22, Miriam, a singer, started to save up to half of each paycheck. A small inheritance she received a few years ago went to a 529 college savings plan for their son, now 7. A 529 plan for their daughter, age 4, is on the to-do list.
Miriam acknowledges the challenge of passing on their money sense. "My son has a piggy bank with all of his change in it. Recently I said, 'Let's open a bank account. You'll get interest!' He said, 'You're not taking my money!'" she says with a chuckle. "We're still working on the piggy bank right now."
Pre-Retirement
From their mid-50s on, many people grow concerned about the adequacy of their savings. The pre-retirees we surveyed, most between 55 and 65, were generally less confident about their prospects than the retirees and those who had retired but still worked part-time. Although 44 percent said they were better off than they were a year before -- and those numbers have gotten better since 2008 -- about one-fifth of pre-retirees said they were worse off financially than they had been a year before. That said, there's still hope if you're behind. Here are some ways to improve your strategy.
6. Stay in the Game
A Fidelity Investments study of the balances of its 401(k) participants age 55 and up found a real benefit to perseverance. Those who continuously contributed to their plans doubled their average account balance in the 10 years ending the third quarter of 2010, which included the financial fiasco of 2008 and 2009.
To be sure, some two-thirds of the doubling in value came from contributions from savers, not from their investments' appreciation. But so what? Those investors are twice as well off in nominal dollars than they were a decade ago, and much better off than people who tried to time the market -- those who sold their stocks during the panic and missed out on a precipitous rise in value that followed.
You should periodically assess your asset allocation -- how your money is divided among stocks, bonds, and cash. As you age, you might want to move more of your assets into less-risky investments. Vanguard founder John Bogle advises that the percentage of your portfolio allocated to bonds and cash should equal your age.
28 Percent
That's the percentage of partly retired survey respondents who said they were highly satisfied with their retirement planning. Only 21 percent of those not yet retired said they were highly satisfied with their planning.
7. Catch Up
Retirees who said they were highly satisfied counted maxing out contributions to an employer-sponsored retirement plan among their best steps. Once you're free of college-finance and child-rearing costs, put the extra savings there until you max out. In 2011 the limit for pretax contributions is $16,500 a year, plus another $5,500 in catch-up contributions for those 50 and up.
8. Pay Off Debt
Accelerate payments on your mortgage with an eye toward paying it off by retirement. That might seem counterintuitive, given the past year's stellar market performance, when putting extra cash in the S&P 500 would have provided a better return. But given the market's ups and downs, that strategy can backfire; just as you're ready for retirement, you could be stuck with losing investments and a mortgage still to be paid. Besides, our survey found a correlation between satisfaction in retirement and lack of significant debt. Nonetheless, an alarming 39 percent of retirees still had at least $25,000 in mortgage debt.
9. Budget for Health-Care Costs
Even with Medicare coverage, expect to pay a significant amount out of pocket for health care. Fidelity Investments published a study last year showing that the typical couple retiring in 2010 would incur $250,000 in health-care costs during their retirement years, outside of their Medicare benefits.
That incredible figure isn't so wild when broken into components: annual premiums for Medicare Parts B and D; deductibles and co-insurance for Medicare Parts A and B, plus cost sharing for prescription drugs; and benefits not covered by Medicare, including eyeglasses, contact lenses, hearing aids, and private-duty nursing. Those figures represent a national aggregate figure, so costs in some regions could be higher.
And that number doesn't take into account the cost of long-term care. To research average costs in your area, go to the National Clearinghouse for Long-Term Care Information and click on "Cost of Care." That cost is not covered by Medicare or other health plans. If you expect your assets in retirement to be under $300,000 (not including your home), you probably can't afford long-term-care insurance, though you might qualify for government help should you need long-term care. If you think you'll have more than $2 million, you can probably afford to pay for your own care, if needed. Those in between might want to consider a long-term-care insurance policy, though be aware that those policies are expensive and complicated.
10. Time Your Payout
Opting to receive your first Social Security check at 62, the minimum age, reduces your payout. Someone born in 1954 who decides to retire at age 62, for instance, would get 25 percent less than he or she would get by waiting until the full-retirement age of 66. If you're tempted to begin your benefits early, be aware that each year you delay, up to age 70, earns you up to 8 percent more in income depending on your age, a respectable guaranteed return.
Pre-retirement: Research and Perseverance
Ken Ranlet started from scratch on his retirement plans after his divorce at age 44. Now 59, Ranlet, of New Fairfield, Conn., feels fairly certain he can retire by 65 in comfort.
How is that possible? Part is luck. The multinational company he's worked for over the past 15 years offers both a 401(k)-like retirement plan and a defined-benefit pension. But Ranlet, who has two grown sons, also saves diligently, lives modestly, and uses every resource offered him. He has always put at least 7 percent of his salary into the company's retirement plan to nab the 50 percent match. When he finished paying his sons' college tuition, he upped his retirement plan contributions to max out. He added the annual "catch up" for those over 50 "the minute I could take advantage of it," he says.
Ranlet also educated himself about diversification, sparing himself some of the losses that many experienced in the 2008-'09 market plunge. "I tried to spread the money around: some international, some short-term bond funds, some long-term bond funds," he says. To plan retirement, he interviewed his parents, in northeastern Pennsylvania, and his aunt and uncle in Syracuse, N.Y., about their retirement lifestyles. Their experiences helped him to "benchmark my own tastes and expectations," he says.
And what are those expectations? A home in less-costly upstate New York, with room for company and his model train sets, and a big woodworking shop in the basement. "I don't live to drive a Maserati. I don't feel I need to take a superfancy cruise," he says. "I can enjoy a week at the Jersey shore just as well. I don't have to have the latest and greatest as long as what I have is serving my needs."
Retirement Years
One element pervades our happy retirees' responses: a pension. Having steady money coming in each month was a common factor in retirees' satisfaction, whether their net worth was $250,000 or more than $1 million. But our survey found that pre-retirees are less likely to have a pension than current retirees.
Sensing a growing market for guaranteed income in retirement, financial companies have invented products and adapted old ones to offer guaranteed income and protect against "longevity risk," the threat that you'll outlive your money. Here are some considerations.
11. Tread Carefully With Annuities
Our survey respondents mostly shied away from annuities, investment-based insurance products that guarantee lifetime income. Only 2 percent of working people and 1 percent of retirees named buying an annuity among the best steps they had taken toward or in retirement. Among the possible concerns: high management fees, stiff sales commissions, and the potential loss of cash value if you die prematurely.
But a new type of deferred annuity called longevity insurance holds some promise for those concerned they'll live beyond their assets. At retirement you pay an insurer a lump sum. Years later, typically at age 85, you begin to receive to a fixed payout. Because you're not paying for as many years of coverage, you don't have to invest as much in these products as you would with an annuity that starts its payouts earlier. Jason Scott, managing director of the Retiree Research Center at Financial Engines, an online personal finance service, projects that a 65-year-old retiree putting about 11 percent of his assets into longevity coverage and the rest into zero-coupon bonds -- which pay all their interest at maturity -- would have 34 percent more money to spend during the subsequent two decades than if he had invested only in the bonds.
12. Follow the 4 Percent Rule
Withdrawing 4 percent annually from your retirement funds has been shown to preserve your capital for at least 30 years in even strained economic environments, assuming you rebalance regularly. In recent years, some economists, including Nobel laureate William Sharpe, have attacked the 4 percent philosophy as inefficient and potentially costly to retirees. Still, many financial advisers hew to it because it's simple to understand.
New mutual funds, called managed-payout or income-replacement funds, attempt to provide investors with a regular payout while leaving the decisions about what to liquidate and rebalance to a fund manager. On the downside, payouts for such funds aren't guaranteed, because they're based on how well the fund does.
Because managed-payout funds are relatively new, their performance is hard to judge. But the Consumer Reports Money Lab recently analyzed how well the components of one such family of funds, the Vanguard Managed Payout funds, had performed. If you had invested in them and then withdrawn your money at rates of 3 percent or 5 percent a year between 1989 and the end of 2009, your holdings would still have grown. Even a 7 percent payout would have basically held its own. Our Money Lab conclusion: The 4 percent rule protects disciplined investors in a variety of circumstances, whether they buy a managed-payout fund or manage their funds themselves.
13. Fill Up a Big Bucket
An intuitive way to manage your portfolio is to put your money into "buckets" depending on when you might need it. In a simple version of this approach, the first bucket should hold enough cash to cover two years of living expenses. The first year's portion should be liquid, say in a bank account or money-market fund. The second year's expenses can be invested in a ladder of CDs or short-term bonds (one- to two-year maturities). Money for a special purpose within five years -- say, a car or vacation -- should be kept in a separate account.
A second bucket can hold short- to intermediate-term bonds and funds. A portion of the bond bucket, say, one-third, can be in a short-term bond ladder, which can serve as an additional emergency fund and generate cash to draw from. With this approach, even in an emergency, "you won't be forced to sell at the bottom of the market," notes Harold Evensky, a certified financial planner in Coral Gables, Fla.
In your second bucket, also include a diversified intermediate-term bond fund or include a mix of attractive corporate and municipal bonds. The remaining third of the second bucket can include Treasury Inflation-Protected Securities, or TIPS.
Your third bucket can hold stock funds and up to a 5 percent stake in commodities, such as a gold exchange-traded fund. As you get into the later stages of retirement, the returns that you earn from stocks can be funneled back into a growing cash-and-bond allocation.
14. Hedge Against Inflation
If you lived through the '70s and early '80s, you can attest to the corroding power of inflation. To protect yourself in retirement, continue to invest a portion of your money in stocks and devote 5 to 10 percent of your money to TIPS and I-Bonds. You can buy TIPS, which have maturities of five, 10, and 30 years, from the U.S. Treasury; a bank, broker, or dealer; or through a mutual fund. I-Bonds are also sold by the Treasury, and at banks and credit unions. When inflation heats up, TIPS grow in value, throwing off more income. I-Bonds pay both a fixed rate of return and a variable inflation rate. As a bonus, interest on I-Bonds and TIPS is exempt from state and local income taxes.
15. Work Longer
Twenty percent of our survey respondents worked part-time in retirement; 37 percent of that group said they needed the income. But the psychic benefits of continued employment also were important to many. More than half said working made them feel useful; 38 percent said they enjoyed work too much to give it up.
In spite of being employed part-time, 45 percent of semi-retired workers under 65 were already collecting Social Security benefits. That's often not a wise choice for those below full retirement age. For every $2 you earn above $14,160, Social Security deducts $1 from your benefits. Once you reach full retirement age, you're entitled to all your benefits, regardless of how much you make. For more information on how Social Security calculates those benefits, check out ssa.gov/pubs/10069.html.
Retirement: A Few Earned Niceties
"We've played it pretty tight all these years, and now we're reaping the benefits," says Daniel Dittemore, 68, about his current lifestyle with his wife, Betsy, 67. With their savings and pensions paying out, the retired couple from Ankeny, Iowa, are enjoying the storied fruits of retirement: time and money to visit their children and grandchildren, a couple of nice vacations abroad, country club membership. Add to that golf, volunteer work, card games, and exercise.
"Most of the steps we've taken are things that any normal person thinking about retirement thinks about," Betsy says. That includes maximizing their 401(k) contributions while they worked and paying off their mortgage. But the couple also lived for years "not within our means, but beneath," Betsy says. They started raising their two daughters in a small, three-bedroom house with one bath and eschewed big purchases like the boats and RVs that sat in their neighbors' driveways.
And in what Daniel called a conscious choice, they chose public-sector jobs known to pay less but provide security later. He served as an urban planner for years, mainly for local governments. She worked part-time in administrative roles, rising to full-time legislative liaison for a state agency.
"Frankly we probably wouldn't have the lifestyle we have if we didn't have pensions," Betsy says. But, Daniel adds, they earned them.
http://financiallyfit.yahoo.com/finance/article-111733-7972-1-15-ways-to-never-run-out-of-money
The American economy may be moving like molasses in January, but have no doubt, it is moving. Between late 2008 and 2010, the Standard & Poor's 500 index rose in healthy double digits to the point that many investing stalwarts who stayed in stocks recouped the money they'd lost in that period, and then some. The national savings rate -- income minus taxes and household expenses -- rebounded from a negative number in 2006 to almost 6 percent in October 2010, according to the U.S. Bureau of Economic Analysis.
For many, the economic recovery isn't so much crawling as stalling. But regardless of the state of your finances, now is a good time to begin planning a future that's secure. That means creating a plan to ensure you don't run out of money in the near term or far in the future. And paradoxically, it may mean creating a lifestyle that doesn't place money at its core.
When the Consumer Reports National Research Center recently surveyed 24,270 online subscribers age 55 and up about their finances and satisfaction with their lives, we found some common keys to peace of mind that had little to do with big salaries or high living. They pointed to active steps they'd taken as well as pure luck: enjoying good health, planning ahead, maximizing savings, having hobbies and friends, and staying in a job with a defined-benefit pension, which provides a regular income in retirement for life.
And when we interviewed several survey respondents as well as younger workers still in savings mode, we found another common element. A number mentioned living within, and sometimes below, their means. "Most of our entertainment is with friends and neighbors," said Vernon Chestine, 68, a Charlotte, N.C., retiree who participated in our survey. "I feel really fortunate to be in the position we're in."
In this report, we offer 15 ways to ensure you don't run out of money on your way to personal satisfaction, while you work and after you retire. Our survey respondents and the people we profile on these pages demonstrate their "best practices" that anyone can emulate. Employing just a few of them can pay off big-time in the long run.
Do You Need a Pro?
Among pre-retirees who had consulted a financial planner within the 12 months ending in October 2010, 67 percent reported gains in their retirement accounts during that period. But among those who hadn't met with their planner recently, 59 percent saw investment gains. And 57 percent with no planner experienced gains as well.
Indeed, our survey showed that saving more money and investing more in retirement accounts had the greatest payoff during the period, planner or no planner.
Starting Out
The habits you establish early in life can have a positive impact on your finances.
1. Live Modestly
For those millions of Americans currently out of work or underemployed, that is not a choice. But even when times improve, living within your means has its benefits. Retirees in our survey who were most satisfied with their situation credited living modestly as among the best steps they'd made earlier in life. "Since we never were extravagant people, we live just fine," says Pancho Garcia, 67, of Mebane, N.C., a retiree who participated in our survey.
And self-control has its rewards. Mary-Jo Webster, 39, and her husband, Jamey, 37, bought a house four years ago in Arden Hills, Minn., that was significantly smaller and less expensive than what they could afford. And they resolved to try to live on just one income. That decision paid back with interest when Jamey quit his job in computer technology to stay at home with their twins, Benjamin and Madeline, 2.
2. Keep to a Budget
As the Websters and other young couples we interviewed found, financial discipline is essential. Ensuring your money will last your lifetime begins with knowing how to make your paycheck last the month.
Toward that goal, create a basic spending plan or budget. At its simplest, a budget involves splitting your expenses into have-to's and want-to's, and paying the have-to's first. Start with tracking your spending for a couple of months. You can use free budgeting applications on websites such as Mint and Google Docs, or a pencil, paper, and a calculator. Setting some short- and long-term spending goals may make it easier to stick to your plan. Include payments into an emergency fund until you have at least enough for six months of household expenses set aside.
3. Start Saving Early
Retirees who began saving and planning early -- say, in their 30s -- had greater net worth: $1.1 million on average, compared with $868,000 for those who waited until their 40s, and $651,000 for those who started later, our survey found. Thirty-nine percent of retirees said they regretted waiting to save.
Most young workers today don't have access to traditional, defined-benefit pensions funded by employers, so they have to put enough money away during their careers to generate a comparable income stream. To do so, they need to take advantage of options offered by their employers. A growing number of employers automatically enroll new workers in a 401(k) or other retirement savings plan, typically deferring 3 percent of pretax income into a mutual fund targeted to an expected retirement date. The good news: Most new workers don't opt out of contributing once they're automatically enrolled. The not-so-good news: They also don't raise that contribution beyond the initial 3 percent. For the best results, they should eventually boost their deferrals to at least 10 percent of their income.
The young workers we interviewed appear to be heeding that message, contributing at least enough to their retirement accounts to earn the free money their employers offer in matching contributions. And the benefits of the Roth version of IRAs, 401(k)s, and 403(b)s are gaining attention. If you're single and under 50, and your modified adjusted gross income is less than $120,000 (less than $177,000 for couples filing jointly), you can put up to $5,000 of after-tax income into a Roth IRA and avoid any additional federal tax on that money and its gains if you have the account for five years and wait until age 59 1/2 to begin taking it out. It's a potential boon for lower-income earners who fall into low tax brackets now but may face much higher rates when they retire.
Young, on a Budget, and Planning Ahead
After racking up $8,000 in credit-card debt two years ago from their wedding and a move to Portland, Ore., Claire and Chris Angier, both 30, started tracking their expenses. Claire, a teacher, and her engineer husband follow a simple plan: They put aside money in their bank account toward debt, rent, utilities, and other essentials, and split a set amount to spend as they like. Using cash rather than credit for discretionary spending helps keep them on track. "You physically see the pile getting smaller," Chris says.
The Angiers apply discipline to their leisure pursuits -- he's a marathon runner and she teaches exercise classes -- and to their finances. Chris puts 11 percent of his pretax income into a 401(k) plan, reaping a generous company match. Claire, who's eligible for a pension, puts 5 percent into a 457 retirement plan. They're whittling down their educational debt while paying off a higher-interest car loan. And they're building equity in a rental property in Syracuse, N.Y., purchased on the cheap during their grad-school days.
They frequently discuss their finances. "Talking about money is not a taboo subject," Claire says. No doubt that will help when they welcome their first child this spring. "I think we'll continue to budget," Claire says. Chris adds, "It's a habit now."
The Middle Years
In this age range, roughly late 30s through mid-50s, workers have the potential to earn the bulk of their income. But they also face the competing challenges of putting away money for retirement and funding their children's college educations. Our survey results point to some useful strategies:
4. Diversify Your Holdings
Having a variety of investments -- stocks, bonds, and real estate, among others -- correlated highly with net worth in our survey, regardless of income level. Retirees with seven or more types of investments had an average net worth of $1.4 million. Those with three or fewer had an average net worth of $678,000.
For the average investor, whose savings are mainly in an employer-sponsored retirement plan, diversification means spreading that money among a broad mix of stocks and bonds. Index mutual funds typically have low costs -- a key positive factor in overall performance, says a recent study by Morningstar, the Chicago-based investment research company.
5. Prioritize Retirement Over College
You can borrow money for a college education, but you can't borrow toward your retirement. So while it's fine to start a 529 savings plan for your kids, make funding it a secondary goal.
"Our philosophy is to ensure our retirement savings first," Mary-Jo Webster says. But the Websters expect to have their house paid off by the time their 2-year-olds are ready for college. So then, they'll channel the mortgage money toward tuition.
Speaking of education, consider paying your child a regular allowance, either for chores or good behavior, to help teach budgeting and saving skills. Children who are self-sufficient in money matters could very well be less likely to pose a financial burden to their parents.
The Middle Years: Discipline and Diversification
Mike and Miriam Risko understand harmony. As performers and owners of a music school and store in Ossining, N.Y., the couple, in their early 40s, have been playing off each other's strengths for 20 years. Together, they built a one-person school into an operation employing 30 part-time music teachers.
The Riskos, married 10 years, put a healthy portion of their annual income into a profit-sharing plan. In 2009 they bought the building that houses their business. "They had the good sense to do this early," says Camille Cosco, a chartered financial consultant who has steered the Riskos' savings into a well-diversified mutual fund portfolio.
The couple learned how to stretch their money at a young age. Mike paid his way through college playing guitar. At 22, Miriam, a singer, started to save up to half of each paycheck. A small inheritance she received a few years ago went to a 529 college savings plan for their son, now 7. A 529 plan for their daughter, age 4, is on the to-do list.
Miriam acknowledges the challenge of passing on their money sense. "My son has a piggy bank with all of his change in it. Recently I said, 'Let's open a bank account. You'll get interest!' He said, 'You're not taking my money!'" she says with a chuckle. "We're still working on the piggy bank right now."
Pre-Retirement
From their mid-50s on, many people grow concerned about the adequacy of their savings. The pre-retirees we surveyed, most between 55 and 65, were generally less confident about their prospects than the retirees and those who had retired but still worked part-time. Although 44 percent said they were better off than they were a year before -- and those numbers have gotten better since 2008 -- about one-fifth of pre-retirees said they were worse off financially than they had been a year before. That said, there's still hope if you're behind. Here are some ways to improve your strategy.
6. Stay in the Game
A Fidelity Investments study of the balances of its 401(k) participants age 55 and up found a real benefit to perseverance. Those who continuously contributed to their plans doubled their average account balance in the 10 years ending the third quarter of 2010, which included the financial fiasco of 2008 and 2009.
To be sure, some two-thirds of the doubling in value came from contributions from savers, not from their investments' appreciation. But so what? Those investors are twice as well off in nominal dollars than they were a decade ago, and much better off than people who tried to time the market -- those who sold their stocks during the panic and missed out on a precipitous rise in value that followed.
You should periodically assess your asset allocation -- how your money is divided among stocks, bonds, and cash. As you age, you might want to move more of your assets into less-risky investments. Vanguard founder John Bogle advises that the percentage of your portfolio allocated to bonds and cash should equal your age.
28 Percent
That's the percentage of partly retired survey respondents who said they were highly satisfied with their retirement planning. Only 21 percent of those not yet retired said they were highly satisfied with their planning.
7. Catch Up
Retirees who said they were highly satisfied counted maxing out contributions to an employer-sponsored retirement plan among their best steps. Once you're free of college-finance and child-rearing costs, put the extra savings there until you max out. In 2011 the limit for pretax contributions is $16,500 a year, plus another $5,500 in catch-up contributions for those 50 and up.
8. Pay Off Debt
Accelerate payments on your mortgage with an eye toward paying it off by retirement. That might seem counterintuitive, given the past year's stellar market performance, when putting extra cash in the S&P 500 would have provided a better return. But given the market's ups and downs, that strategy can backfire; just as you're ready for retirement, you could be stuck with losing investments and a mortgage still to be paid. Besides, our survey found a correlation between satisfaction in retirement and lack of significant debt. Nonetheless, an alarming 39 percent of retirees still had at least $25,000 in mortgage debt.
9. Budget for Health-Care Costs
Even with Medicare coverage, expect to pay a significant amount out of pocket for health care. Fidelity Investments published a study last year showing that the typical couple retiring in 2010 would incur $250,000 in health-care costs during their retirement years, outside of their Medicare benefits.
That incredible figure isn't so wild when broken into components: annual premiums for Medicare Parts B and D; deductibles and co-insurance for Medicare Parts A and B, plus cost sharing for prescription drugs; and benefits not covered by Medicare, including eyeglasses, contact lenses, hearing aids, and private-duty nursing. Those figures represent a national aggregate figure, so costs in some regions could be higher.
And that number doesn't take into account the cost of long-term care. To research average costs in your area, go to the National Clearinghouse for Long-Term Care Information and click on "Cost of Care." That cost is not covered by Medicare or other health plans. If you expect your assets in retirement to be under $300,000 (not including your home), you probably can't afford long-term-care insurance, though you might qualify for government help should you need long-term care. If you think you'll have more than $2 million, you can probably afford to pay for your own care, if needed. Those in between might want to consider a long-term-care insurance policy, though be aware that those policies are expensive and complicated.
10. Time Your Payout
Opting to receive your first Social Security check at 62, the minimum age, reduces your payout. Someone born in 1954 who decides to retire at age 62, for instance, would get 25 percent less than he or she would get by waiting until the full-retirement age of 66. If you're tempted to begin your benefits early, be aware that each year you delay, up to age 70, earns you up to 8 percent more in income depending on your age, a respectable guaranteed return.
Pre-retirement: Research and Perseverance
Ken Ranlet started from scratch on his retirement plans after his divorce at age 44. Now 59, Ranlet, of New Fairfield, Conn., feels fairly certain he can retire by 65 in comfort.
How is that possible? Part is luck. The multinational company he's worked for over the past 15 years offers both a 401(k)-like retirement plan and a defined-benefit pension. But Ranlet, who has two grown sons, also saves diligently, lives modestly, and uses every resource offered him. He has always put at least 7 percent of his salary into the company's retirement plan to nab the 50 percent match. When he finished paying his sons' college tuition, he upped his retirement plan contributions to max out. He added the annual "catch up" for those over 50 "the minute I could take advantage of it," he says.
Ranlet also educated himself about diversification, sparing himself some of the losses that many experienced in the 2008-'09 market plunge. "I tried to spread the money around: some international, some short-term bond funds, some long-term bond funds," he says. To plan retirement, he interviewed his parents, in northeastern Pennsylvania, and his aunt and uncle in Syracuse, N.Y., about their retirement lifestyles. Their experiences helped him to "benchmark my own tastes and expectations," he says.
And what are those expectations? A home in less-costly upstate New York, with room for company and his model train sets, and a big woodworking shop in the basement. "I don't live to drive a Maserati. I don't feel I need to take a superfancy cruise," he says. "I can enjoy a week at the Jersey shore just as well. I don't have to have the latest and greatest as long as what I have is serving my needs."
Retirement Years
One element pervades our happy retirees' responses: a pension. Having steady money coming in each month was a common factor in retirees' satisfaction, whether their net worth was $250,000 or more than $1 million. But our survey found that pre-retirees are less likely to have a pension than current retirees.
Sensing a growing market for guaranteed income in retirement, financial companies have invented products and adapted old ones to offer guaranteed income and protect against "longevity risk," the threat that you'll outlive your money. Here are some considerations.
11. Tread Carefully With Annuities
Our survey respondents mostly shied away from annuities, investment-based insurance products that guarantee lifetime income. Only 2 percent of working people and 1 percent of retirees named buying an annuity among the best steps they had taken toward or in retirement. Among the possible concerns: high management fees, stiff sales commissions, and the potential loss of cash value if you die prematurely.
But a new type of deferred annuity called longevity insurance holds some promise for those concerned they'll live beyond their assets. At retirement you pay an insurer a lump sum. Years later, typically at age 85, you begin to receive to a fixed payout. Because you're not paying for as many years of coverage, you don't have to invest as much in these products as you would with an annuity that starts its payouts earlier. Jason Scott, managing director of the Retiree Research Center at Financial Engines, an online personal finance service, projects that a 65-year-old retiree putting about 11 percent of his assets into longevity coverage and the rest into zero-coupon bonds -- which pay all their interest at maturity -- would have 34 percent more money to spend during the subsequent two decades than if he had invested only in the bonds.
12. Follow the 4 Percent Rule
Withdrawing 4 percent annually from your retirement funds has been shown to preserve your capital for at least 30 years in even strained economic environments, assuming you rebalance regularly. In recent years, some economists, including Nobel laureate William Sharpe, have attacked the 4 percent philosophy as inefficient and potentially costly to retirees. Still, many financial advisers hew to it because it's simple to understand.
New mutual funds, called managed-payout or income-replacement funds, attempt to provide investors with a regular payout while leaving the decisions about what to liquidate and rebalance to a fund manager. On the downside, payouts for such funds aren't guaranteed, because they're based on how well the fund does.
Because managed-payout funds are relatively new, their performance is hard to judge. But the Consumer Reports Money Lab recently analyzed how well the components of one such family of funds, the Vanguard Managed Payout funds, had performed. If you had invested in them and then withdrawn your money at rates of 3 percent or 5 percent a year between 1989 and the end of 2009, your holdings would still have grown. Even a 7 percent payout would have basically held its own. Our Money Lab conclusion: The 4 percent rule protects disciplined investors in a variety of circumstances, whether they buy a managed-payout fund or manage their funds themselves.
13. Fill Up a Big Bucket
An intuitive way to manage your portfolio is to put your money into "buckets" depending on when you might need it. In a simple version of this approach, the first bucket should hold enough cash to cover two years of living expenses. The first year's portion should be liquid, say in a bank account or money-market fund. The second year's expenses can be invested in a ladder of CDs or short-term bonds (one- to two-year maturities). Money for a special purpose within five years -- say, a car or vacation -- should be kept in a separate account.
A second bucket can hold short- to intermediate-term bonds and funds. A portion of the bond bucket, say, one-third, can be in a short-term bond ladder, which can serve as an additional emergency fund and generate cash to draw from. With this approach, even in an emergency, "you won't be forced to sell at the bottom of the market," notes Harold Evensky, a certified financial planner in Coral Gables, Fla.
In your second bucket, also include a diversified intermediate-term bond fund or include a mix of attractive corporate and municipal bonds. The remaining third of the second bucket can include Treasury Inflation-Protected Securities, or TIPS.
Your third bucket can hold stock funds and up to a 5 percent stake in commodities, such as a gold exchange-traded fund. As you get into the later stages of retirement, the returns that you earn from stocks can be funneled back into a growing cash-and-bond allocation.
14. Hedge Against Inflation
If you lived through the '70s and early '80s, you can attest to the corroding power of inflation. To protect yourself in retirement, continue to invest a portion of your money in stocks and devote 5 to 10 percent of your money to TIPS and I-Bonds. You can buy TIPS, which have maturities of five, 10, and 30 years, from the U.S. Treasury; a bank, broker, or dealer; or through a mutual fund. I-Bonds are also sold by the Treasury, and at banks and credit unions. When inflation heats up, TIPS grow in value, throwing off more income. I-Bonds pay both a fixed rate of return and a variable inflation rate. As a bonus, interest on I-Bonds and TIPS is exempt from state and local income taxes.
15. Work Longer
Twenty percent of our survey respondents worked part-time in retirement; 37 percent of that group said they needed the income. But the psychic benefits of continued employment also were important to many. More than half said working made them feel useful; 38 percent said they enjoyed work too much to give it up.
In spite of being employed part-time, 45 percent of semi-retired workers under 65 were already collecting Social Security benefits. That's often not a wise choice for those below full retirement age. For every $2 you earn above $14,160, Social Security deducts $1 from your benefits. Once you reach full retirement age, you're entitled to all your benefits, regardless of how much you make. For more information on how Social Security calculates those benefits, check out ssa.gov/pubs/10069.html.
Retirement: A Few Earned Niceties
"We've played it pretty tight all these years, and now we're reaping the benefits," says Daniel Dittemore, 68, about his current lifestyle with his wife, Betsy, 67. With their savings and pensions paying out, the retired couple from Ankeny, Iowa, are enjoying the storied fruits of retirement: time and money to visit their children and grandchildren, a couple of nice vacations abroad, country club membership. Add to that golf, volunteer work, card games, and exercise.
"Most of the steps we've taken are things that any normal person thinking about retirement thinks about," Betsy says. That includes maximizing their 401(k) contributions while they worked and paying off their mortgage. But the couple also lived for years "not within our means, but beneath," Betsy says. They started raising their two daughters in a small, three-bedroom house with one bath and eschewed big purchases like the boats and RVs that sat in their neighbors' driveways.
And in what Daniel called a conscious choice, they chose public-sector jobs known to pay less but provide security later. He served as an urban planner for years, mainly for local governments. She worked part-time in administrative roles, rising to full-time legislative liaison for a state agency.
"Frankly we probably wouldn't have the lifestyle we have if we didn't have pensions," Betsy says. But, Daniel adds, they earned them.
http://financiallyfit.yahoo.com/finance/article-111733-7972-1-15-ways-to-never-run-out-of-money
12/14/10
How to Promote From Within
Establish a company culture that nurtures talent and promotes high-performing employees on the basis of merit.
Many people in the workforce have experienced the feeling of being stuck in the same position far longer than the proclivity of their interests and ambitions. This often leads to a general feeling of angst regarding their job, causing employees to seek out another company for more challenging prospects. Consequently, this works against business owners who will lose a high-performing employee in the process. Instead of watching as their talent pool slowly dwindles, employers are better off establishing a company culture of promoting from within.
"It's important for companies to promote from within. Otherwise, there's no career path for the people there and it forces [employees] to constantly be job hunting because they know they're not going anywhere in that company," says Penelope Trunk, founder of Brazen Careerist, a networking hub for young professionals.
While leadership development programs are great for identifying existing talent within your ranks, it's also a good idea for business owners to establish an overall company culture of promoting from within. The following will provide steps, examples, and advice for advancing your high-performing employees into positions within the company that are commensurate with their talent.
How to Promote From Within: Hire Right the First Time Around
Craigslist may be cheap and tempting, but it's not necessarily the best way to go if your long-term goal is to promote from within.
"Spend the necessary amount of money on recruiting because you're stuck with who you're recruiting if you promote from within," says Trunk.
Headhunters, established networking events, online networks, and word of mouth recommendations can lead to reputable prospects in lieu of blind ad posting. However, no matter what method you choose to line up an employee, their performance is ultimately what matters most. Luke Holden, co-owner of Luke's Lobster, shifted several of his employees that began in food preparation positions into managerial positions over the course of the company's first year, including his general managers and director of catering and special events. "We haven't necessarily gone in the direction of finding someone that has a ton of previous experience, but rather hiring good, smart people that want to learn and achieve."
Ooshma Garg, formerly of Anapata and founder and CEO of Gooble, an online marketplace for home cooked food, has implemented an eight to ten week trial-to-hire strategy. "When I meet someone who I think will be a great fit for our company, I'll meet with them and if we decide that we want to try out this relationship, we'll set a certain project for them with a completion date that is typically eight to ten weeks away (our trial periods are always eight to ten weeks) and a set deliverable," she says. The deliverable will be a metric and will vary depending on the position. "For instance, if I were to hire someone on the marketing end or the sales end, I would say, 'this metric is that in eight to ten weeks, you'll bring 250 new chefs to the Gobble network,'" Garg explains. For a more technical position, the metric may be for a developer to improve upon or to create a program within the Gobble infrastructure. During the trial period, Gooble provides class credit for candidates who are students, and a stipend for those who are not.
"When I haven't followed this method, I can definitely see the difference, see the problems that occur when you put someone into a role without having worked with them before and without having developed them from day one," says Garg.
Once you have the right people onboard, how can you make sure that your employees move up accordingly?
How to Promote From Within: Make Your Employees Take Risks
Trial and error is a great learning process for everyone, and your employees aren't exempt from occasional failure. However, it's how they handle new tasks that will show you what they're made of, and if they have the potential to take on an increasing number of responsibilities. Advises Trunk, "sometimes when you're training someone to be promoted, you should give them work that they've never done before, and they'll mess it up. But the company culture has to respect that people who are learning mess up, and that's okay as long as they're learning."
How should a manager go about allowing an employee to botch a task? Trunk states that if you're managing an employee closely, you should be able to identify the exact area the employee will miscalculate. "If you know where they're going to fail, you can catch them before they do any damage," says Trunk. "You can say, 'well, you did this wrong and here's the thing that you should ask next time.'" She says that a good manager can manage all failure so that it's a learning experience.
In this case, a manager can decide indendently how much time they want to invest in helping the employee during the trial and error process. Based on the needs of the company, a manager may want to continue training an employee or, after a sufficient period, opt to promote someone else or hire an external candidate. At that point "it's a cost benefit analysis," says Trunk.
How to Promote From Within: If An Employee Wants More Responsibility, Give it to Them
Natalie Reinert started out as a merchandise hostess at Walt Disney World Resort in 2005. Desiring more responsbility, she took matters into her own hands. "I went to my leadership and told them I would like to move up, and they agreed I could do that," she says. Six months later, she became a coordinator. After informing her area leader that leadership (the lingo for management at Disney) was her ultimate goal, Reinert was assigned a mentor from the leadership casting team. She was then given a breadth of challenging tasks that included tracking the financial data in her assigned store, working with other departments to determine shelf inventory, and creating an efficient system to track customer orders. Leading up to her leadership assessment, "I mock interviewed with at least a dozen managers from across the park who volunteered their time to work with me," says Reinert. She became a retail guest service manager in 2008.
However, some people have remained in entry-level positions through their entire time with Disney, lacking the initiative to advance into positions that require additional levels of responsibility. Disney is a large conglomerate organization that requires an abundance of personnel. However, smaller companies or businesses in general that want to make sure their staff is working to the fullest extent of its potential can choose to adopt an "up or out" policy.
"An up or out culture tends to make people higher performers," says Trunk. "If I start seeing that [my employees are] not going to grow at my company, I try to counsel them about what they should be doing and where they would grow. Really, any good manager shouldn't have to fire someone. They should be making it totally clear that this isn't the right job for them and that person should want to leave anyway. The term is called counseling out as opposed to promoting from within."
Garg takes a different approach with respect to challenging her employees. She requires that they create a specific set of goals for themselves prior to being hired. During her initial meeting with a prospective employee prior to the commencement of their trial-to-hire period, she gives them a survey in which they are required to list three goals that they would like to achieve during their working relationship with Gobble, which do not have to relate directly to the position for which they are being hired. "What do they want to learn about? Do they want to learn how start-ups get customers? Do they want to learn about how start-ups do accounting? It doesn't necessarily have to relate to their role, but I want to make sure that they're developing themselves personally as well as professionally," she says. Those goals are later reassessed every quarter, along with performance evaluations as per their duties with Gobble. Garg credits this method for allowing her staff to visualize their goals. "I think that's helped people achieve their goals and, thus, take on more responsibilites almost consistently every three months," she says. "I am promoting them by using their own goals and their own chosen deliverables."
How to Promote From Within: Value the Teaching Experience
Managers are referred to leaders at Disney "because it's about finding talent and teaching," says Reinert. "A big part of your job is teaching."
When Reinert first notified her superiors that she desired to advance into the position of coordinator, the company provided her with a binder filled with information, including the classes that she could take through Disney University and other management in various Disney support offices that she should meet with in order to better understand the chain of command.
"The only way to get someone to the next level is to have very strong coaching and very strong mentoring. If you don't reward people for good mentoring, then people aren't going to get the mentoring they need to be promoted," states Trunk.
For a smaller businesses, it is essential that management offer creative and cost-effective ways for employees to reap the benefits of on the job education. Presently, Gobble employs between five to ten people, which includes full-time and part-time workers, as well as interns. Garg has adopted an inclusive culture within her start-up so that employees can both learn and grow simultaneously.
"As much as I can, I leave meetings and events open that I am invited to for our employees to attend. So, if I'm meeting with an investor and an employee's personal goal is to one day start their own company or to understand how founders communicate or how founders fundraise, I will do my best to try and include them in one or more meetings that investors may consent to," she explains.
Garg is well aware of the apprehension that some of her associates may feel when it comes to including their staff in the intimate details of company operations, but she has found that many of those fears are misdirected. "Some founders might be afraid that involving employees in so many events or meetings may encourage them to leave or find other job opportunities or find other interests," she says. "But what I find is that it absolutely increases their loyalty to you and to the company because they understand that you care about them and not just their work."
How to Promote From Within: Be Open and Encourage Feedback
Do your employees feel comfortable talking to you? This may be a great indicator of your company's future success when it comes to promoting from within. Managers should be open to evaluation in the same way they allow their employees to be evaluated.
"I think it's important to consistently get feedback from your teammates; constantly culling your teammates to ask how their job is going, how you're doing your job, how you can do it better, the good things you're doing, constantly getting 360 feedback," says Holden.
Stacey Thomson, public relations manager at Disney Institute, the external training division for all of the Walt Disney Companies, believes that companies should institute open door policies that extend to both private and professional matters. "If you truly have that open door policy, then they're going to feel comfortable coming to you and saying, you know, 'I saw this position posted in XYZ division of the company and I'd really like to put my name in the hat for that,'" she says.
As with family, a close knit team may not be able to imagine the loss of high-performing employees that have become essential to the fabric of their department. However, Thomson stresses that, although those employees may be doing a great job, your best bet is to promote them into a position where they can do a better one.
"In reality, those employees will probably leave on their own if you don't encourage them."
http://www.inc.com/guides/2010/12/how-to-promote-from-within.html
Many people in the workforce have experienced the feeling of being stuck in the same position far longer than the proclivity of their interests and ambitions. This often leads to a general feeling of angst regarding their job, causing employees to seek out another company for more challenging prospects. Consequently, this works against business owners who will lose a high-performing employee in the process. Instead of watching as their talent pool slowly dwindles, employers are better off establishing a company culture of promoting from within.
"It's important for companies to promote from within. Otherwise, there's no career path for the people there and it forces [employees] to constantly be job hunting because they know they're not going anywhere in that company," says Penelope Trunk, founder of Brazen Careerist, a networking hub for young professionals.
While leadership development programs are great for identifying existing talent within your ranks, it's also a good idea for business owners to establish an overall company culture of promoting from within. The following will provide steps, examples, and advice for advancing your high-performing employees into positions within the company that are commensurate with their talent.
How to Promote From Within: Hire Right the First Time Around
Craigslist may be cheap and tempting, but it's not necessarily the best way to go if your long-term goal is to promote from within.
"Spend the necessary amount of money on recruiting because you're stuck with who you're recruiting if you promote from within," says Trunk.
Headhunters, established networking events, online networks, and word of mouth recommendations can lead to reputable prospects in lieu of blind ad posting. However, no matter what method you choose to line up an employee, their performance is ultimately what matters most. Luke Holden, co-owner of Luke's Lobster, shifted several of his employees that began in food preparation positions into managerial positions over the course of the company's first year, including his general managers and director of catering and special events. "We haven't necessarily gone in the direction of finding someone that has a ton of previous experience, but rather hiring good, smart people that want to learn and achieve."
Ooshma Garg, formerly of Anapata and founder and CEO of Gooble, an online marketplace for home cooked food, has implemented an eight to ten week trial-to-hire strategy. "When I meet someone who I think will be a great fit for our company, I'll meet with them and if we decide that we want to try out this relationship, we'll set a certain project for them with a completion date that is typically eight to ten weeks away (our trial periods are always eight to ten weeks) and a set deliverable," she says. The deliverable will be a metric and will vary depending on the position. "For instance, if I were to hire someone on the marketing end or the sales end, I would say, 'this metric is that in eight to ten weeks, you'll bring 250 new chefs to the Gobble network,'" Garg explains. For a more technical position, the metric may be for a developer to improve upon or to create a program within the Gobble infrastructure. During the trial period, Gooble provides class credit for candidates who are students, and a stipend for those who are not.
"When I haven't followed this method, I can definitely see the difference, see the problems that occur when you put someone into a role without having worked with them before and without having developed them from day one," says Garg.
Once you have the right people onboard, how can you make sure that your employees move up accordingly?
How to Promote From Within: Make Your Employees Take Risks
Trial and error is a great learning process for everyone, and your employees aren't exempt from occasional failure. However, it's how they handle new tasks that will show you what they're made of, and if they have the potential to take on an increasing number of responsibilities. Advises Trunk, "sometimes when you're training someone to be promoted, you should give them work that they've never done before, and they'll mess it up. But the company culture has to respect that people who are learning mess up, and that's okay as long as they're learning."
How should a manager go about allowing an employee to botch a task? Trunk states that if you're managing an employee closely, you should be able to identify the exact area the employee will miscalculate. "If you know where they're going to fail, you can catch them before they do any damage," says Trunk. "You can say, 'well, you did this wrong and here's the thing that you should ask next time.'" She says that a good manager can manage all failure so that it's a learning experience.
In this case, a manager can decide indendently how much time they want to invest in helping the employee during the trial and error process. Based on the needs of the company, a manager may want to continue training an employee or, after a sufficient period, opt to promote someone else or hire an external candidate. At that point "it's a cost benefit analysis," says Trunk.
How to Promote From Within: If An Employee Wants More Responsibility, Give it to Them
Natalie Reinert started out as a merchandise hostess at Walt Disney World Resort in 2005. Desiring more responsbility, she took matters into her own hands. "I went to my leadership and told them I would like to move up, and they agreed I could do that," she says. Six months later, she became a coordinator. After informing her area leader that leadership (the lingo for management at Disney) was her ultimate goal, Reinert was assigned a mentor from the leadership casting team. She was then given a breadth of challenging tasks that included tracking the financial data in her assigned store, working with other departments to determine shelf inventory, and creating an efficient system to track customer orders. Leading up to her leadership assessment, "I mock interviewed with at least a dozen managers from across the park who volunteered their time to work with me," says Reinert. She became a retail guest service manager in 2008.
However, some people have remained in entry-level positions through their entire time with Disney, lacking the initiative to advance into positions that require additional levels of responsibility. Disney is a large conglomerate organization that requires an abundance of personnel. However, smaller companies or businesses in general that want to make sure their staff is working to the fullest extent of its potential can choose to adopt an "up or out" policy.
"An up or out culture tends to make people higher performers," says Trunk. "If I start seeing that [my employees are] not going to grow at my company, I try to counsel them about what they should be doing and where they would grow. Really, any good manager shouldn't have to fire someone. They should be making it totally clear that this isn't the right job for them and that person should want to leave anyway. The term is called counseling out as opposed to promoting from within."
Garg takes a different approach with respect to challenging her employees. She requires that they create a specific set of goals for themselves prior to being hired. During her initial meeting with a prospective employee prior to the commencement of their trial-to-hire period, she gives them a survey in which they are required to list three goals that they would like to achieve during their working relationship with Gobble, which do not have to relate directly to the position for which they are being hired. "What do they want to learn about? Do they want to learn how start-ups get customers? Do they want to learn about how start-ups do accounting? It doesn't necessarily have to relate to their role, but I want to make sure that they're developing themselves personally as well as professionally," she says. Those goals are later reassessed every quarter, along with performance evaluations as per their duties with Gobble. Garg credits this method for allowing her staff to visualize their goals. "I think that's helped people achieve their goals and, thus, take on more responsibilites almost consistently every three months," she says. "I am promoting them by using their own goals and their own chosen deliverables."
How to Promote From Within: Value the Teaching Experience
Managers are referred to leaders at Disney "because it's about finding talent and teaching," says Reinert. "A big part of your job is teaching."
When Reinert first notified her superiors that she desired to advance into the position of coordinator, the company provided her with a binder filled with information, including the classes that she could take through Disney University and other management in various Disney support offices that she should meet with in order to better understand the chain of command.
"The only way to get someone to the next level is to have very strong coaching and very strong mentoring. If you don't reward people for good mentoring, then people aren't going to get the mentoring they need to be promoted," states Trunk.
For a smaller businesses, it is essential that management offer creative and cost-effective ways for employees to reap the benefits of on the job education. Presently, Gobble employs between five to ten people, which includes full-time and part-time workers, as well as interns. Garg has adopted an inclusive culture within her start-up so that employees can both learn and grow simultaneously.
"As much as I can, I leave meetings and events open that I am invited to for our employees to attend. So, if I'm meeting with an investor and an employee's personal goal is to one day start their own company or to understand how founders communicate or how founders fundraise, I will do my best to try and include them in one or more meetings that investors may consent to," she explains.
Garg is well aware of the apprehension that some of her associates may feel when it comes to including their staff in the intimate details of company operations, but she has found that many of those fears are misdirected. "Some founders might be afraid that involving employees in so many events or meetings may encourage them to leave or find other job opportunities or find other interests," she says. "But what I find is that it absolutely increases their loyalty to you and to the company because they understand that you care about them and not just their work."
How to Promote From Within: Be Open and Encourage Feedback
Do your employees feel comfortable talking to you? This may be a great indicator of your company's future success when it comes to promoting from within. Managers should be open to evaluation in the same way they allow their employees to be evaluated.
"I think it's important to consistently get feedback from your teammates; constantly culling your teammates to ask how their job is going, how you're doing your job, how you can do it better, the good things you're doing, constantly getting 360 feedback," says Holden.
Stacey Thomson, public relations manager at Disney Institute, the external training division for all of the Walt Disney Companies, believes that companies should institute open door policies that extend to both private and professional matters. "If you truly have that open door policy, then they're going to feel comfortable coming to you and saying, you know, 'I saw this position posted in XYZ division of the company and I'd really like to put my name in the hat for that,'" she says.
As with family, a close knit team may not be able to imagine the loss of high-performing employees that have become essential to the fabric of their department. However, Thomson stresses that, although those employees may be doing a great job, your best bet is to promote them into a position where they can do a better one.
"In reality, those employees will probably leave on their own if you don't encourage them."
http://www.inc.com/guides/2010/12/how-to-promote-from-within.html
9/28/10
How to Fire an Employee Without Being Sued
Firing an employee may be a sticky subject, but by creating a plan of action and following procedure, you'll avoid lawsuits associated with terminating an employee illegally.
Firing an employee may be a necessary act but it has the potential to be a legal minefield. Terminations can lead to legal claims based on a variety of potential allegations, including discrimination, retaliation, wrongful discharge, wage and hour liability, defamation, and so on. Mishandle firing an employee, or terminate someone in the heat of an argument without paving the groundwork, and your business and its employees could be paying for it for years to come.
And, yet, firing an underperforming or troubled employee may be the best move for your business. It may improve morale among better performers. It may rid the business of a cancer.
“Firing an employee is both the worst day of your life and the best day,” says Jerry Osteryoung, director of outreach at the Jim Moran Institute at Florida State University’s College of Business. “That’s because when you let someone go it affects their family and their livelihood, and it’s tough. But it’s also the best day of your life because, normally, if you have to fire someone, that person has been a pain in the butt for a while, and it’s time for them to go.”
In business, however, it’s important to make sure that you prepare well before firing an employee and that you follow the law and your own company procedures. The following pages outline steps to lay the groundwork for firing an employee, holding a termination meeting, and following up after termination.
Dig Deeper: How to Fire an Employee
How to Fire an Employee: Prepare to Fire an Employee
The groundwork for an effective termination of employment should be laid long before the termination decision. “The biggest mistake people make is they don’t prepare for it. They don’t work with the employee ahead of time to help the employee succeed so that firing is a last resort. People tend to put up with behavior until they say, 'I’m through,'” says Nancy M. Cooper, chair of the labor and employment group of Garvey Schubert Barer, a law firm based in Portland, Oregon.
A firing should never be a surprise. If you have worked with an employee to identify problems, goals, and performance metrics, that employee is going to know whether they measure up or not. “Once you go through everything and see that the employee is still not meeting expectations, nobody is going to be shocked,” Cooper says.
The first step is to make sure you have documented your efforts with the following:
- The company’s employment application
- An employee handbook describing unacceptable employee behaviors
- Policies describing the company’s right to discipline and terminate employees
- Job descriptions or other documentations that specify performance expectations
- Performance appraisals
- Records of disciplinary counseling and formal disciplinary action
- Written documentation of the findings of any internal investigation related to the termination
Since these documents will be legally discoverable in the event a former employee sues the company, it is critical they be clearly written, accurate, and do not contain “inflammatory” statements about the individual.
It may be best to consult with a human resources attorney before taking steps to fire an employee to make sure you are covering the bases. “The number one thing you have to make sure of is that you don’t violate any laws,” Osteryoung says. “There are a lot of plaintiff’s lawyers who love to sue businesses because they failed or did not follow the correct procedures in firing an employee.”
Dig Deeper: How to Write a Termination Notice
How to Fire an Employee: Think Through, and Review, the Decision to Terminate
An employee should never be fired on the spur of the moment, and especially not in the heat of anger, Cooper says. “You want to take some time to reflect,” she adds. A decision to terminate employment should be reached only after careful review of all relevant facts and documents.
An important, but often neglected, step in the termination process is obtaining a thorough and independent review of the decision. Sometimes that involves calling in another set of eyes and ears – maybe the direct supervisor, a member of the human resources department, or in-house or outside legal counsel. “If it’s an incident, talk to people and make sure the employee you’re focusing on is really the one to blame,” Cooper says.
The purpose of the independent review is to make sure that:
- The firing is justified by the facts
- The firing is legal under all applicable laws
- The decision to fire follows company policies and procedures, such as those in the employee handbook
- The decision to terminate is consistent with the company’s handling of similar situations in the past, regardless of race, gender, age, etc. of the employee being discharged.
“You want an audit trail. You want to document everything,” Osteryoung says. “You can’t just say, ‘I’ve tried to talk to you 16 times already.’ There are a litany of things you need to do.”
Dig Deeper: Furloughs vs. Layoffs
How to Fire an Employee: Hold a Termination Meeting
Even under the best circumstances, an employee discharge can be a difficult and stressful situation for the employee and the managers involved. “More often than not the problem is that entrepreneurs wait too long to fire an employee,” Osteryoung says. “If you have a problem employee, they don’t get better. They can affect the morale of your whole workforce because others are thinking, ‘Why aren’t you doing something about this problem employee?’ It’s like a cancer. The sooner you surgically remove it, the better.”
By following the steps below, managers can reduce their anxiety about conducting an employee termination and can help the employee deal with the termination in a healthy way.
Prepare for a termination meeting. A termination meeting should be carefully planned in order to minimize potential legal liability, protect employees and company property, and reduce emotional distress to the employee being discharged, experts say. Issues to consider include:
- Why hold a meeting? A termination meeting should be held face-to-face. Firing an employee via e-mail or text or over the phone is likely to anger the employee and contribute to feelings that they are being treated unfairly, Cooper says. By meeting in person, you are showing the employee respect and treating them the way you would want to be treated.
- Who should attend? Generally, at least two company representatives should be present. The employee should not be permitted to bring a lawyer, co-worker, or family member to a termination meeting. “Always have a witness, preferably other management or someone at a higher level than the employee,” Cooper says.
- Where will the meeting be held? It is best to conduct the meeting in a private, neutral location, such as a conference room. If the office is a big, open area, then try to schedule the meeting after hours to provide the employee some privacy, Cooper says. The company representatives should be seated by the door so that, if the employee becomes hostile, he or she cannot block the exit, experts advise.
- What will be said during the meeting? A script should be prepared before the meeting so that the meeting can be kept short, not more than 5 to 10 minutes. “Keep it factual,” Cooper recommends. “The one who will be emotional is the employee.” The message should be simple: the employee is being terminated because they have failed to meet performance expectations or address other problems that you had already outlined with them.
- Are special security measures needed? In extreme situations, it may be appropriate to have security personnel standing by, depending upon how the employee is likely to react. At a minimum, have the employee’s passwords, accounts, access to buildings, computers or other company assets disabled before the meeting to prevent the employee from doing damage to the business after they are fired.
- How will logistical matters be handled? Make sure to address how the employee’s final paycheck will be delivered, how company property should be returned, and how long benefits will be continued.
- Will severance pay be offered in exchange for a release of claims? A company that does not have a severance plan subject to the Employee Retirement Security Income Act (ERISA) may want to consider offering the employee severance pay. Generally, severance should only be awarded if the employee agrees to sign a separation agreement that releases the employee from any claims against the company, Cooper says. “If you’re just paying severance out of the blue and you don’t get a signed release of claims, you have no protection,” she says. She advises against issuing severance unless it is a risky termination because that sets a precedent for other employees to expect severance if they are fired.
Dig Deeper: Learn from the Layoff Pros
How to Fire an Employee: Follow Up After the Firing
The terminating managers should attempt to keep the meeting professional, brief yet complete, under control, and humane. You may want the employee to be escorted back to their office after the meeting to collect personal belongings and then be escorted out of the building.
One of the most important things to do in the termination meeting is to treat the employee with dignity and respect. This can be demonstrated by showing sensitivity to the employee’s reactions, wishing the employee success in future endeavors, and being willing to speak with the employee after the meeting to answer questions about his or her transition out of the company. The terminating managers should also write down what was said at the meeting, in the event of a lawsuit.
Employee discharges don’t end with the termination meeting. Several tasks have to be effectively managed after the termination, including:
- Informing remaining employees on a need-to-know basis about the termination
- Handling reference requests appropriately, consistently, and in a way that will reduce the potential for lawsuits
- Dealing with claims for unemployment insurance benefits or other benefits so as not to trigger further problems for the organization
These post-termination activities should be handled with the same degree of planning and care as the actions before and during the termination meeting. “Once you let an employee go, you immediately have to have a staff meeting with those who need to know,” Osteryoung says. “Tell the staff briefly what happened and why. You need to stop the rumor mill very quickly. But you don’t want to provide too many specifics.”
http://www.inc.com/guides/2010/09/how-to-fire-an-employee.html
9/16/10
Increasing Productivity - 5 Tips for Looking at the Big Picture & Improving Your Overall Effectiveness
Have you ever concentrated on something so hard that the world seems to recede into the background? Like when you see a blemish on your chin and it begins to take on the dimensions of a quarter? Or when you are shuffling through a business proposal that you must deliver that day to an unsupportive group of peers?
Each, in their own right seem to gobble up every inch of computing brain space as you mull over advantages, consequences, causes, and reactions of others. Our level of anxiety over the mind numbing details might eventually increase to such an extent that other areas of our life run out of control. It gets to the point where nothing in business and in life is getting done. You are no longer productive!
When I allow myself to drift into single minded focus, my husband will look at me with an incredulous expression on his face and announce “You are just not seeing the big picture!”
You see, I was taught that the devil is in the details and consequently the big picture will take care of itself if I address every single little nuance – such as correcting a spelling error in a love letter sent to me by my fiancé’. I think that was the first clue to my husband Rick that our marriage would take on interesting elements.
When You Become So Focused On One Particular Thing – You Miss Other Opportunities in Business and in Life
A classic caution in driving is to avoid highway hypnosis where the driver’s eyes are so locked onto the road ahead that they don’t see what is developing around them. This is a ripe condition for accidents to happen. Well, we are doing the same thing when considering the changes we want to make in our personal life, careers or businesses.
When we do strategic planning, all of the elements related to our business need to be evaluated through a non judgmental process. Awareness of our surroundings can actually help us prioritize and focus on “what is” and “what needs to be” in our business decisions.
To achieve productive focus, try following the tips below before you make any short or long -term decisions.
5 Ways to Look at the Big Picture and Improve Overall Productivity While Reducing Stess and Anxiety…
1. Figure out what your present economic environment looks like? Has there been a downturn or growth in your area of expertise? What have other businesses like yours experienced and does that mirror what is happening to you? Once you have an accurate depiction of how your business arena is developing, you can begin to address areas to update, change or enhance.
2. Evaluate how your business is impacted by turnover? Is your time taken up in orienting new hires or actively working to maintain key employees in terms of running your business? Is your staff working at optimum levels and enjoying the work they do? If you are a single entrepreneur, are your physical and mental resources charged up and in good working condition? Often our personal energy overrides the physical or mental exhaustion we may feel and you may not even be aware your engine is slowing down. Take a personal inventory and do what you must in order to retain your vitality.
3. Take a solid look at your current financial situation. What amount of funds or business do you need to survive through an economic downturn and how much do you need in order to thrive? What resources do you have available to you to shore up your financial portfolio? Once these questions are answered, it will give you the foundation you need to establish business decisions.
4. Realistically evaluate your product or service offering and determine if the marketplace still wants it. Even though you feel the public needs what you have, a fickle public will purchase what it wants and may leave you behind. Consider taking active steps to interview other entrepreneurs and professionals as well as current and past clients for real-time information. Decisions made in a vacuum are never a good thing.
5. Assess what steps you need to take to catch up to the technology changes occurring in social networking, online meetings, and communication tools. Even though technology continues to evolve daily, you can utilize resources that meet your needs currently and through the next couple of years. Understand how your customers and clients relate to you and act accordingly.
Perspective is a wonderful thing. We may not like what we see (like an expanding waist line in the mirror.) But once we understand what is really happening, we can then take the necessary steps to fix it or build upon the successes that are already in place.
Focus on the big picture while enjoying the nuances of the individual elements that make up the image and environment. You will improve your overall productivity and at the same time reduce your stress and anxiety.
9/14/10
10 Mistakes That Start-Up Entrepreneurs Make
When it comes to starting a successful business, there's no surefire playbook that contains the winning game plan.
On the other hand, there are about as many mistakes to be made as there are entrepreneurs to make them.
Recently, after a work-out at the gym with my trainer -- an attractive young woman who's also a dancer/actor -- she told me about a web series that she's producing and starring in together with a few friends. While the series has gained a large following online, she and her friends have not yet incorporated their venture, drafted an operating agreement, trademarked the show's name or done any of the other things that businesses typically do to protect their intellectual property and divvy up the owners' share of the company. While none of this may be a problem now, I told her, just wait until the show hits it big and everybody hires a lawyer.
Here, in my experience, are the top 10 mistakes that entrepreneurs make when starting a company:
1. Going it alone. It's difficult to build a scalable business if you're the only person involved. True, a solo public relations, web design or consulting firm may require little capital to start, and the price of hiring even one administrative assistant, sales representative or entry-level employee can eat up a big chunk of your profits. The solution: Make sure there's enough margin in your pricing to enable you to bring in other people. Clients generally don't mind outsourcing as long as they can still get face time with you, the skilled professional who's managing the project.
2. Asking too many people for advice. It's always good to get input from experts, especially experienced entrepreneurs who've built and sold successful companies in your industry. But getting too many people's opinions can delay your decision so long that your company never gets out of the starting gate. The answer: Assemble a solid advisory board that you can tap on a regular basis but run the day-to-day yourself. Says Elyissia Wassung, chief executive of 2 Chicks With Chocolate Inc., a Matawan, N.J., chocolate company, "Pull in your [advisory] team for bi-weekly or, at the very least, monthly conference calls. You'll wish you did it sooner!"
3. Spending too much time on product development, not enough on sales. While it's hard to build a great company without a great product, entrepreneurs who spend too much time tinkering may lose customers to a competitor with a stronger sales organization. "I call [this misstep] the 'Field of Dreams' of entrepreneurship. If you build it, they will buy it," says Sanjyot Dunung, CEO of Atma Global, Inc., a New York software publisher, who has made this mistake in her own business. "If you don't keep one eye firmly focused on sales, you'll likely run out of money and energy before you can successfully get your product to market."
4. Targeting too small a market. It's tempting to try to corner a niche, but your company's growth will quickly hit a wall if the market you're targeting is too tiny. Think about all the high school basketball stars who dream of playing in the NBA. Because there are only 30 teams and each team employs only a handful of players, the chances that your son will become the next Michael Jordan are pretty slim. The solution: Pick a bigger market that gives you the chance to grab a slice of the pie even if your company remains a smaller player.
5. Entering a market with no distribution partner. It's easier to break into a market if there's already a network of agents, brokers, manufacturers' reps and other third-party resellers ready, willing and able to sell your product into existing distribution channels. Fashion, food, media and other major industries work this way; others are not so lucky. That's why service businesses like public relations firms, yoga studios and pet-grooming companies often struggle to survive, alternating between feast and famine. The solution: Make a list of potential referral sources before you start your business and ask them if they'd be willing to send business your way.
6. Overpaying for customers. Spending big on advertising may bring in lots of customers, but it's a money-losing strategy if your company can't turn those dollars into lifetime customer value. A magazine or website that spends $500 worth of advertising to acquire a customer who pays $20 a month and cancels his or her subscription at the end of the year is simply pouring money down the drain. The solution: Test, measure, then test again. Once you've done enough testing to figure out how to make more money selling products and services to your customers than you spend acquiring those customers in the first place, roll out a major marketing campaign.
7. Raising too little capital. Many start-ups assume that all they need is enough money to rent space, buy equipment, stock inventory and drive customers through the door. What they often forget is that they also need capital to pay for salaries, utilities, insurance and other overhead expenses until their company starts turning a profit. Unless you're running the kind of business where everybody's working for sweat equity and deferring compensation, you'll need to raise enough money to tide you over until your revenues can cover your expenses and generate positive cash flow. The solution: Calculate your start-up costs before you open your doors, not afterwards.
8. Raising too much capital. Believe it or not, raising too much money can be a problem, too. Over-funded companies tend to get big and bloated, hiring too many people too soon and wasting valuable resources on trade show booths, parties, image ads and other frills. When the money runs out and investors lose patience (which is what happened 10 years ago when the dot-com market melted down), start-ups that frittered away their cash will have to close their doors. No matter how much money you raise at the outset, remember to bank some for a rainy day.
9. Not having a business plan. While not every company needs a formal business plan, a start-up that requires significant capital to grow and more than a year to turn a profit should map out how much time and money it's going to take to get to its destination. This means thinking through the key metrics that make your business tick and building a model to spin off three years of sales, profits and cash-flow projections. "I wasted 10 years [fooling around] thinking like an artist and not a business person," says Louis Piscione, president of Avanti Media Group, a New Jersey company that produces videos for corporate and private events. "I learned that you have to put some of your creative genius toward a business plan that forecasts and sets goals for growth and success."
10. Over-thinking your business plan. While many entrepreneurs I've met engage in seat-of-the-pants decision-making and fail to do their homework, other entrepreneurs are afraid to pull the trigger until they're 100% certain that their plan will succeed. One lawyer I worked with several years ago was so skittish about leaving his six-figure job to launch his business that he never met with a single bank or investor who might have funded his company. The truth is that a business plan is not a crystal ball that can predict the future. At a certain point, you have to close your eyes and take the leap of faith.
Despite the many books and articles that have been written about entrepreneurship, it's just not possible to start a company without making a few mistakes along the way. Just try to avoid making any mistake so large that your company can't get back on its feet to fight another day.
5/25/10
Driven to Distraction
Are your business problems making you insane? In his debut column, 37signals co-founder Jason Fried argues that one of the keys to success is to let your lazy side guide you.
I think of myself as wildly ambitious and unapologetically lazy. Though we've all heard about the good things that come from ambition, laziness gets a bad rap. That's unfortunate. I can attribute a healthy chunk of my success to the positive returns of laziness. Laziness has the best ROI in the business.
Let's start at the beginning. I launched my first real company, a Web design company called Spinfree, in 1996. It was a solo show: just me, a desk in my apartment, and some self-taught mediocre Web design skills. But it was all I needed. The jobs rolled in, and my clients were happy. I could pay the bills, stash away some savings, and work when and where I wanted.
But I wasn't happy. Rather than building confidence, I was accumulating doubt. As my business expanded, I grew nervous and self-conscious. I began to feel as if my accomplishments weren't enough, that I had to take things to "the next level." I thought if I didn't get there fast enough, I'd be bowled over by the competition.
When I bid on projects against larger design firms, I started saying "we" instead of "I" in an attempt to sound bigger. The proposals submitted by my rivals were long and shiny, so mine had to be longer and shinier. I even began badmouthing the competition -- people I'd never met. That's ugly.
The thing is, I didn't need to do any of these things. I thought I did, but I didn't. I was inventing problems. I was making things hard on myself.
How did I figure this out? Laziness. I got tired and let down my guard and wound up learning something important about myself: I love work, just not hard work. I think hard work is overrated. My goal is to do less hard work. And what's hard? Acting like someone else, writing elaborate proposals I don't believe in, and flinging mud at the competition. That's hard and horrible work.
So I put my laziness to work for me. Instead of long proposals, I wrote short ones. Instead of worrying about competitors, I ignored them. And here's what happened: My company got more work. I found better clients. I slept better. I woke up better. I was happier. And, most of all, running a business became a lot easier.
Fifteen years later, this continues to be the most important lesson I've learned as an entrepreneur: Most of the stuff you agonize about just doesn't matter. Truth is, things are pretty easy and straightforward -- until you make them hard and complicated.
This is the ethos that drives what we do at 37signals, the company I co-founded in 1999. We make simple Web-based collaboration software for small businesses and groups. We have millions of users -- and millions in profits -- but we're just 16 people. We don't act any bigger or smaller. We don't put on airs. We just are who we are.
We don't worry much about what the competition is doing. We don't worry about growing pains we don't have yet. We don't spend time on five-year plans and forecasts, because in my experience, they just don't matter.
We invent software, not problems. Real problems will find you; you don't need to invite fake ones to dinner.
Yet that's precisely what many business owners do. I spend a lot of my time speaking with entrepreneurs and entrepreneurs-to-be. They e-mail me, call me at the office, hit me up on Twitter, or introduce themselves at conferences and events. And for the most part, they have one thing in common: They're scared. Worried. Insecure. Just like I was.
It's easy to see why. Conventional business wisdom breeds paranoia. If you don't get big fast, you lose. If you don't obsess about the competition, you will be crushed. If you don't make long-term plans, you'll be staggering in the dark.
Come on. Conventional wisdom is tired, upset, groggy, scared, and a pain in the ass to work with. It doesn't have to be like this.
Instead of spending your time worrying about what could, might, or may happen, spend your time on what matters now. Are your customers thrilled with your service today? Is your inbox flooded with word-of-mouth referrals today? Do your employees love their jobs today? Can people find what they're looking for on your website today? Be honest with yourself. If the answers aren't satisfactory, then I'd suggest that you truly have something to worry about -- no matter how beautiful and comprehensive your business plan is.
Tomorrow. Eventually. Next quarter. Next year. Five years from now. Exit strategy. Throw these words away. They don't matter. Today is all you have in business. Tomorrow is just today again. Next week? Seven todays in a row. A month isn't 30 days. It's 30 todays.
I'm not suggesting you stop thinking about the future. I'm telling you to stop stressing about it. Go on, get lazy.
Jason Fried is co-founder of 37signals, a Chicago-based software firm, and co-author of the book Rework, which was published in March. This is his first column for Inc.
http://www.inc.com/magazine/20100401/driven-to-distraction.html
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