Sunday, March 28, 2010

What a horse trial taught me about risk and return!

If a man is alive, there is always danger that he may die, though the danger must be allowed to be less in proportion as he is dead-and-alive to begin with. A man sits as many risks as he runs.

~Henry David Thoreau

I was lucky to be able to be a jump judge recently at the Red Hills Horse Trials in Tallahassee. The horse trials consist of many difficult jumps that horse and rider have to make over without any errors like refusing to jump or stopping before jumping.

My job in the afternoon was to sit on the far side of the jump way out of way of the horse and rider to insure that the horse did not fall after the jump and then radio into control that either the horse and rider made it over the jump or there was some problem.

I was sitting off to one side of the jump to insure that I had good visibility of the jump. I was not anywhere near where the horses were going to land as I just did not want to interfere with the rider and horse, plus I wanted to be safe. Having a horse fall on you just is not a good idea.

All of the horses came from one direction and everything was going well. The horses were doing great over the jump that I was involved with. However, all of a sudden one horse and rider came from another direction as they thought it was a quicker trip to the jump. As they jumped from a way different angle than any other horse, I found myself staring at a horse and rider heading right to where I was sitting as they cleared the jump. As it happened very fast, I had no time to move and saw my life pass in front of me. The rider was able to steer the horse around me and keep going without effecting his time or the safety of the horse.

While this is a great horse story, I walked away with a new appreciation of risk and return. When I thought about the event, the thought of risk just was not in my mind. I thought that it was going to be just a fun afternoon without any risk. Basically, I completely misestimated the risk/ return tradeoff. However, that being said, I plan on going back and being a jump judge again, but this time sitting in a place that no matter what direction the horse comes from I will be safe and exposing myself to a whole lot less risk.

Every entrepreneur needs to make sure that they evaluate clearly what the risks and returns are in any new venture. If this is not evaluated thoroughly, then the entire business can implode.

The recent bank crisis was simply caused by so many bankers not estimating the correct risk/return ratio. This failure was caused by both the failure to assess the risk of property values falling and credit default swaps.

Now go out and make sure that when you take on a new venture, you do a correct assessment of risk/return.

You can do this!!

Sunday, March 14, 2010

Finding out what your staff is doing-Undercover Boss

To linger in the observation of things other than the self implies a profound conviction of their worth.
~Charles-Damian Boulogne

I do not watch TV very much, but the show “Undercover Boss” has so impressed me with the message it sends to all entrepreneurs and managers. The premise of this valuable show is that the CEO of a business goes undercover and works in various entry-level jobs.

I have only seen two episodes of the series – one featuring the CEO of White Castle and another featuring the CEO of Hooters – however, in both of these cases, the experience changed the way the CEO saw the entire business. For example, at Hooters, the CEO saw a manager abuse the serving staff, and at White Castle, the CEO observed the lack of teamwork that existed at many of the restaurants. Additionally, White Castle CEO David Rite saw vividly how difficult many of the jobs were, and more importantly, he saw how policies and procedures imposed by his top staff just did not work in practice.

To me, the message of this show is so important for each and every entrepreneur. That is, from the standpoint of the CEO, your perception of the business is vastly different from that of your employees. Additionally, the problems that you think staff is having are a whole lot different than their actual problems. In one case, a manager at Hooters thought he was doing a great job as he was making his numbers, but his staff despised him and there was an associated decline in morale.

It is so amazing to me to see entrepreneurs who conduct their regular visits to various parts of their operation, see everything looking great and staff appearing so happy, and leave thinking everything is going well. However, management knew the entrepreneur was going to visit, so of course the place was cleaned up and everyone was on their best behavior.

Sure, you need to have scheduled visits to communicate critical news about your operation, but you also must visit unannounced. Visiting without advanced notice and without the escort of the department manager is the only way you are ever going to see what is really going on.

Now you might not be able to go undercover as your company is just too small to make that a feasible option. However, there is no reason why you cannot spend time wandering the various parts of your organization unannounced and talking to the staff about some of their issues. I really believe that more information can be acquired from lower staff levels as they are closer to the customers and have to live with the many rules and procedures that top management has instituted.

If you are to be an effective manager and leader, you must find ways to observe how your organization is really operating and how effective they are. Clearly, the purpose of doing so is not to punish anyone, but merely to find out how the organization really works. While going undercover is an extreme measure, there are so many other ways to extract this valuable information. Suggestion boxes and unannounced visits are just a couple of these options.

Now go out and make sure you have a system in place that allows you to observe and evaluate your organization at the lowest levels of operation.

You can do this!

Tuesday, March 9, 2010

Being Ethical Does Pay!!

Let me give you one definition of ethics: It is good to maintain life and to further life; it is bad to damage and destroy life. And this ethic, profound, universal, has the significance of a religion. It is religion.
~Albert Schweitzer

There is so much press out there exposing the questionable ethics of our businesses. Just look at how deteriorating ethical standards caused the demise of both Enron and WorldCom. Consider all of the companies that recently received bail-out money from the government and, despite the dire financial straits many of them were in, went on to hold lavish meetings or award their staff with unreasonable compensation. Yet another example, Pfizer was recently fined $2.3 billion by the government for its considerable lapse in ethics. They were selling a drug in unapproved markets.

There are plenty more examples of businesses that have faltered ethically, but the purpose of this column is not to discuss diminished ethical standards in business. Rather, the point is to address the question of whether or not ethics and high-principled values pay off. After all, if businesses and corporations are going to change their behavior or adopt high ethical standards, there should be some real payoff besides the feeling that the business is doing the right thing. Of course, just doing the right thing has a very high payoff as well.

Two researchers, concerned about the value of spending money on implementing and promoting a business’ high ethical standards, set up a study to evaluate this very question. In this study, 218 consumers were broken down into three groups, each appraising the same types of products: coffee and t-shirts. The first group was told that the products were manufactured by businesses with high ethical standards. The second group was told that these same products were made by businesses with low ethical standards. Finally, the third (or control) group was not told anything about the products or the businesses that produced them.

Within each group, participants had to state what price they would pay for the products. The results were the same for each product: consumers would pay a higher price for goods produced by firms that had high ethical values. In fact, the consumers in the high ethics group were willing to pay 15 percent more for the products than the consumers in the control group who knew nothing about the ethical environment in which the products were manufactured. That is, the findings of this limited study showed that consumers were willing to pay a premium if they knew the product they were going to buy was made by a business with high ethical standards.

In the low ethics business group, the consumers penalized the companies for their behavior, expressing a willingness to pay 20 percent less than the control group for the same products. As illustrated by this study, the perception of low ethical values by businesses is very costly.

This study made one additional important finding: improving ethical standards or behavior would only raise prices to a certain level. Once this price point was reached, additional ethical behavior did not increase prices.

The overall implication of this study is that having high ethical standards is more than just good feelings. It is also good business as high ethical standards have a positive impact on the price at which firms can sell their products. It just makes sense that consumers want to cast their vote in the marketplace for those firms that are upholding high ethical values, and conversely, will penalize those that do not.

Now go out and make sure your firm has high ethical standards and that this message is passed along to consumers.

You can do this!!

Monday, March 1, 2010

Being a Great Role Model for your Staff

Good leaders make people feel that they're at the very heart of things, not at the periphery. Everyone feels that he or she makes a difference to the success of the organization. When that happens people feel centered and that gives their work meaning.

~Warren Bennis

There is an old saying: “A fish rots from the head down.” While these are tough words, the point is that the behavior of an entrepreneur or manager influences how each team member views the organization and their job.

We were helping one business that was having a ton of problems with morale and infighting among employees. The employees hardly talked to one another, and when they did, it was normally an argument of some kind. Additionally, they just did not trust one another. For all these reasons, this was a very unpleasant environment to work in.

It turns out that this business was run by two partners who had a truly love-hate relationship. At times, they loved one another; other times, they could not tolerate one another. They would argue in front of their staff and would frequently raise their voices when having these confrontations.

The owners honestly did not understand the significant impact their behavior was having on the staff and their productivity. They never really thought that their behavior would be emulated by staff.

After numerous coaching sessions, they finally started to understand how their behavior was to blame for the staff’s disharmony and the associated loss in productivity. Whether this change in behavior lasts, we still do not know.

In another case, a manager was having problems getting his staff to come to work on time. As we discovered, he would frequently come in late and offer no explanation as he was “the boss.” It was surprising to me that he did not see how his behavior was influencing that of his staff. He honestly thought that he was better than his employees and that he could operate under a different set of rules. Of course, this outrageous behavior eventually cost him his job.

A final example is the entrepreneur who drove his new Porsche to work and told his staff how much it cost and how proud he was that he could afford it. The next day, believe it or not, he announced that he would be implementing some drastic cost-cutting measures. Clearly, this entrepreneur was sending the wrong message. There is nothing wrong with having a nice car, but not in times when cost-cutting is being done.

Sometimes it is useful to arrange for someone from outside of your organization to come in, shadow you and evaluate your effectiveness as a role model. Someone coming in from the outside will be so much more honest with you than a staff or family member.

Now go out and be the best role model you can be. It makes such a difference in your staff and your staff’s performance.

You can do this.