Monthly Archives: May 2014

The Limitations of Interdependence

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InterdependenceWhat do you think? Will Joe stay or leave?

And, more importantly, what would you do?

Joe had worked in the operations side of his uncles’ technology company for ten years before he told them that he wanted to run his own business.

Good for Joe. That conversation led to the creation of an installation company that was actually separate from the base business, and Joe had his opportunity to be a President. Since they financed the startup, Joe’s uncles owned the new installation business. Within a few years, Joe became a minority shareholder. Today with ten more years now under his belt, Joe and his uncles have equal shares.

Whether you handle computers, telephones, furniture, sun rooms or sound systems, growing an installation business has its challenges. It’s labor-intensive with lots of moving parts, conflicting schedules, union versus non-union jobs, tight budgets, high expectations and too little control over what’s promised.

Installers are dependent on salespeople to make reasonable commitments. In a highly competitive environment, that becomes almost impossible. To get the account or the project, a sales person can feel forced to agree to just about any demand. This pressure is tough enough to handle when the installers are in a department within the core business. Installers in a separate business are dependent on promises made by salespeople in someone else’s company.

So Joe and his uncles negotiated a deal to help the companies be interdependent. The core technology company would get discount pricing and give Joe’s business right of first refusal on their installations. For a few years, the majority of Joe’s installation projects came from the family’s technology business. However, he wanted to grow his business faster and learn how to work with a broad range of customers. Joe can’t hire, train or supervise the sales people in the technology company, but he can develop his own sales department. Today, less than 20% of Joe’s business comes from his uncles’ technology company. Hmm…They are his partners. That could be awkward.

Who gets to decide which companies Joe’s salespeople can approach? What about companies that directly compete with the family-owned technology company? How many other customers can be extended the right-of-first-refusal discount before its value is diluted? Have the installers lost the influence they once had with the technology company salespeople? If the promises made by the family-owned technology business become unacceptable, could Joe charge them more money? Could Joe ever buy his uncles’ shares and become the majority owner? If the family-owned technology company continued to be his largest customer, could Joe change his pricing? If independence is Joe’s primary life goal, could he focus “his” installation company on completely different products or customers than the family-owned technology business?

What do you think? Will Joe stay or leave?

And, more importantly, what would you do?

The Exodus of a Division Head Can be Your Cue to Acquire

What prompts the head of a division to resign?

I am not talking about the person who has led a division for 30 years and retires. I mean resigns. Replacements happen through forced resignation (firing) when a division of a privately held midsized company hasn’t been hitting its numbers. However, unless a serious health issue is involved, resignation of a division head is rare…and is a warning.

Changing positions at that level is not done casually. Division heads often have an equity stake in the business, and their pensions and/or 401Ks can be adversely impacted if they resign. At that career level, few people resign before securing better positions elsewhere…which means that the growth and leadership decisions have been stagnating in the division for some time.

If the products/services of the division have solid growth potential, the resignation of the division head was probably prompted by a power struggle. Maybe the CEO wouldn’t delegate authority to the division head. Good people resign when they are held responsible for achieving results but are not acknowledged or compensated for doing it or when their budgets get raided to support other divisions that aren’t carrying their weight. Division heads expect to fully lead their divisions and not be micromanaged or second guessed.

When a division head resigns, it is not business as usual. Pause. Open up. Don’t make a hasty decision. Promoting a follower from within the division does not address what caused a competent division head to resign. Negotiating with entrepreneurial leader(s) of competing companies can be the wake-up call the CEO needs. When a business is acquired, the due diligence process invites everyone involved to take a fresh look at goals, strategic direction, the logic behind compensation and equity, budgets and delegation of authority.

As an Entrepreneur, Have You Lost Your Authentic Swing?

Businessman ThinkingI love the 2000 movie The Legend of Bagger Vance.

Remember it? Directed by Robert Redford, the movie was based on Steven Pressfield’s 1995 book with the same name. The actors include luminaries Jack Lemmon, Will Smith, Charlize Theron and Matt Damon. This was Lemmon’s final movie which makes it even more important to many people.

In 1931 (during the depths of the Great Depression), the City of Savannah, GA sponsors an exhibition golf tournament with great golfers Bobby Jones, Walter Hagan and the town’s golf prodigy and hero, Rannulph Junuh.

As he caddies, wise Bagger Vance (played by Will Smith) provides sage advice to help Junuh recapture his “authentic swing.” They talked very little about the fairway, sand traps or greens. They talked about post-traumatic stress, the meaning of life, guilt, regret, a broken heart, giving up, accepting responsibility and hiding. You know…light conversation (lol).

As many golfers of today can tell you, finding one’s authentic swing in golf is not just a matter of repetition. Golf is a mental game as much as it is a physical one. When a golfer’s muscles are tight from being angry at work, his/her slice or hook returns on the golf course. When a golfer’s optimism or confidence is compromised, the short game on the green becomes another nightmare. An executive’s capacity to make great strategic decisions is another version of one’s authentic swing.

Presidents of privately held mid-sized companies often don’t have time to play golf or have another similar outlet that offers feedback on whether the president is still centered. It is impossible to maintain your authentic swing when you aren’t centered. Often the all-important feedback comes in the form of poor business results. The president’s loss of his/her authentic swing is taken out on the business.

Sometimes executives just keep showing up when he/she knows he/she is “just not right with the world”. Continuing to show up is important, but just going through the motions can solidify bad decisions (a hook or a slice). Finding what keeps you centered is worth the effort. An executive coach could be your Bagger Vance.

Maybe No One Should Buy the Clippers from Sterling

SterlingWhat happens from here forward regarding Donald Sterling’s ownership of the Los Angeles Clippers has the potential to change the definition of business “ownership.” In my opinion (in addition to all of the lawyers), NBA Commissioner Adam Silver should consult with the National Association of Corporate Boards (NACD). I’ll bet they could provide insight and expanded options.

“The market” knows how to punish a disgraced business owner. Employees and customers who do not respect the owner(s) of an enterprise can hit owners where it hurts the most…their pocketbooks. Products can be boycotted. Lawsuits can be opened.

In this instance, millions of people hope Sterling feels pain swiftly. The sooner the better!

There are numerous examples in the world of professional services where a disgraced owner has lost everything when a new competing enterprise has been established, and the top talent from the previous team was “cherry picked.”

Can’t well connected people like Oprah Winfrey and Magic Johnson start a new team? I would buy some shares of a business owned by Winfrey and Johnson. Why pay Sterling a dime?! Could player contracts be broken? Could the NBA support the new entity?

If/when the NBA forces Sterling to sell his business, a statement of disgust will have been expressed by the employees, the fans and the NBA. But his racist beliefs will not have been changed. If the NBA can legally force Sterling to sell, he will end up with a multi-million dollar windfall (gain) and a precedent will be established that could have an adverse impact the rights of all business owners from here forward.

What constitutes business ownership?

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