Posts on Jan 2020

The One Year, Thirty Minute Challenge :: Week Four :: Culture :: Mentor Mindset

Management guru Peter Drucker reminded us that, “Culture eats strategy for breakfast.” Even the best strategies and tactics, when unleashed into a company with a toxic culture, are headed for certain death. All of you that have worked in a place with a toxic culture just offered up a hearty “Amen”. We’ll visit the topic of culture multiple times during The One Year, Thirty Minute Challenge and this is one of those times. During the course of a consulting engagement, I’m occasionally asked if I have a list of cultural imperatives, that is, attitudes, approaches to work and actions that should absolutely be baked into the DNA of the organization. I do and one of those imperatives is a Mentor Mindset.

Without question, every leader in the organization should have the Mentor Mindset. But I’d advocate for screening for the Mentor Mindset when hiring even the most junior associate. The Mentor Mindset is that baked-in concern an employee has for making the people around him/her better. It’s the opposite of the person who hoards what they know so they can leverage it for more power.

So, here’s this week’s exercise. We’re going to focus on two things – helping you practice the Mentor Mindset and prepping your staff to develop and practice the Mentor Mindset.

Helping you Practice the Mentor Mindset

Below, write one “why” you’d like everyone in the organization to understand. It might be why you forego cheaper raw materials for your product and insist on a specific high-quality input, why you insist that every customer be greeted in a specific way or why you only promote from within.

____________________________________________________________________

____________________________________________________________________

____________________________________________________________________

For the “why” listed above, identify how understanding that “why” will change the way your team approaches their work. Will they be better able to explain to current and potential customers why your widget is better than your competitor’s? Will they have a new-found appreciation of every customer that comes in the door? Will they better understand your goals for the organization? Will they gain insight into an existing process and now be able to make suggestions as to how to improve it since they understand the endgame?

_______________________________________________________________________

_______________________________________________________________________

_______________________________________________________________________

Design a way to “mentor” by disseminating this information to your team. Is the best medium a company-wide meeting? An email to everyone in the organization? A series of departmental meetings? A series of one-to-one meetings? A video posted on the company intranet? Whatever it is, make it happen by the end of this week. After you share the information, gather feedback. Was this new information? Did this correct an errant perception that they had? How will this change their approach to their everyday work? Will this operationally change their work?

If this returned positive results, look for other “whys” you can share.

Here’s a second exercise for you to try. When the next problem lands on your desk that only you can solve, identify someone else on your team that could solve it if they had more training, more experience, more perspective, more information and go find them. Let them know that you don’t want to be the only person in the organization that can solve this kind of problem and you want them to carry this responsibility with you. Then start at the beginning and walk them through the process of solving this problem. Show them how you gather information, explain your thought process in deducing the best course of action, show them the resources you use, show them how you communicate the solution and anything else involved. I realize this will take a lot longer than solving the problem yourself. The next time the same problem surfaces, pass it off to your team member and sit by them as they solve it. Over the course of several instances, let them take the lead. Soon, they will be proficient, and you’ve multiplied the problem-solving horsepower in your organization. And, who knows, they might even find a better way to solve the problem. I’ve written about this approach more thoroughly here.

Helping your Team Practice the Mentor Mindset

When you model this behavior, it’s a strong motivator for your staff do likewise, but here a couple of deliberate ways you can encourage your staff to practice the Mentor Mindset.

  • When you send a team member to a class or conference, ask them to prepare a written recap or short presentation of what they learned. Disseminate their recap or let them make their presentation to the rest of the team.
  • Ask each of your direct reports to share a specific operational task (how they prepare for their staff meeting, how they order raw materials, how they prepare for a sales call, etc) with one of their team members and have them ask that team member if they see any way to improve their work on that task.
  • Ask each person on your team to document one of the tasks they do regularly. Collect all the documents and redistribute them to other team members. Have the team members critique the documents, looking for steps that are unclear or lack a “why”. Send them back to the original author to be updated.

Doing every one of these exercises requires humility. Someone might find holes in your processes. Someone might identify a better way. But, humility is a good thing and, in fact, ought to be one of the attitudes and approaches baked into our culture. This exercise is a good accelerator.

The One Year, Thirty Minute Challenge :: Week Three :: Finance :: Fixed Costs vs Variable Costs

I hesitated to do this one and especially hesitated to do it early in The One Year, Thirty Minute Challenge because it surfaces most frequently with solopreneurs (or those with just a handful of employees). Larger and older companies have already figured it out or else they wouldn’t still be around. However, when I’ve seen it with past clients and corrected it, the results were so dramatic (it’s been the difference between staying in business and going out of business), I felt like I had to share it early on.

It’s really just a math problem. Instead of explaining, let me illustrate and then give the steps for this week’s exercise.

ABC Company charges $60/hour for their widget repairing service. ABC Company is very busy, doing all the widget repair they can handle. They are always booked a couple of weeks in advance. It might be because they are at the lower end of the widget repairing market. Their competitors charge $75 – $80/hour for the same service. The owner of the company pays his widget repairing employees $35/hour (the market rate), leaving him what he calculates as a $25/hour margin. However, at the end of every month, he just has a few dollars in the bank – not even enough to cut himself a check that would equate to 40 hours at minimum wage. So, what’s the problem? It could very well be that the owner is failing to take into account fixed costs.

Fixed costs are those incurred by the business just by being open. They wouldn’t change, even if the business serviced no customers or sold no products.

To illustrate with our fictitious organization, the owner of ABC Company pays each month –

Rent on the Shop $1000
Payments on Two Trucks $600
Tools $200
Truck Insurance $300
Liability Insurance $400
Utilities $400
Cell Phones $400
Accounting Service $150
Internet Service $100
Health Insurance $2500
Advertising $500
Total $6550

That’s $6550 to keep the doors open and the lights on (so to speak). If the two widget repairers get 40 billable hours per week every week, they log 344 hours per month (40 hours per week * 4.3 weeks in a month * two repairers). To cover these fixed costs shaves $19.04 off each hour that ABC company bills ($6550 / 344 hours = $19.04).

When the owner pays the widget repairers, variable costs kick in. Variable costs are those that are driven by volume of work or product produced – for instance, hourly wages, the cost of materials to build a product, shipping costs for a product, etc. In our example, the owner incurs variable costs of $35/hour in wages and an additional $2.67/hour to pay the employer share of Social Security and Medicare.

Here’s what’s left of the $60 the owner collects from customers –

$60.00   Customer rate
– $19.04   To cover overhead (fixed)
-$35.00   To the widget repairer (variable)
-$2.67   To cover employer share of Social Security and Medicare (variable)
3.29   Remaining margin

So, the $25.00 per hour margin the owner thought he was creating with his pricing and salary policy is really $3.29. Now it’s apparent why his competitors are in the $75-$80/hour range for the same service. It’s also apparent why he has no money left to pay himself at the end of the month.

You might be wondering if I’m exaggerating for purposes of this exercise. Unfortunately, the answer is no. I’ve worked with one client where the margin number was 0 and another where the number was in the single digits.

Let’s move on to this week’s exercise.

1.  For the last three months, go through your checkbook or copy of Quickbooks (or whatever your bookkeeping methodology is) and list each fixed expense.

Here’s a starter list (it’s by no means exhaustive). Go through your records and be thorough in finding every fixed expense.

Rent or loan repayment for your place of business

Vehicle payments or leases

Vehicle insurance

Business insurance (property, liability, E&O, etc)

Health insurance

Professional services (accounting, legal, consulting)

Technical services (website, internet, email, desktop support)

Communication (landline, cell phone)

Office supplies

Advertising

Administrative employees (those who would be paid even if no services or product were delivered)

Property Taxes

Total the numbers and calculate a monthly average for fixed expenses

2.  Calculate the opportunity to cover those fixed expenses – 

For service businesses –

For the last three months, calculate the number of hours for which you can collect money from customers (i.e. hourly charges that you can use to cover fixed costs) and calculate a monthly average.

For businesses that sell products (this calculation is trickier if you sell multiple products with different price points) –

For the last three months, calculate the number of units across which you can spread the fixed costs and calculate an average.

For retail businesses –

For the last three months, calculate the number of hours you are open, across which you can spread fixed costs and calculate a monthly average.

3.  Calculate the fixed cost to be covered each hour or by each unit –

Service – monthly fixed costs / monthly billable hours = fixed cost to be covered each hour

Products – monthly fixed costs / monthly units = fixed cost to be covered by each unit

Retail – monthly fixed costs / monthly hours open = fixed costs to be covered each hour

4.  Incorporate the fixed cost per hour/per unit into your pricing model.

For service businesses

variable cost per hour

+ fixed cost to be covered each hour

+ desired margin

= Customer price per hour of service

For businesses that sell products

Cost of good sold (labor + materials or purchase price)

+ fixed cost to be covered by each unit

+ desired margin

= Customer price per unit

 For retail businesses, the use of the number is a bit different

 Aggregate price of all goods sold in an hour

 – aggregate cost of goods sold in an hour

 = aggregate gross margin

Aggregate gross margin must be greater than fixed cost to be covered in an hour

Calculate this over the course time to determine which hours the retail establishment should be open.

5.  Check these calculations frequently. As volume (more hours or more units) goes up, fixed costs per hour or per unit go down, until you increase volume enough that you have to add fixed costs (hire another admin person, buy another truck, lease a bigger building). At that point the math changes again.

6.  I realize this week’s exercise can get complicated very quickly. If the simple examples in this exercise aren’t sophisticated enough for your business, consult your accounting or bookkeeping professional.

This exercise is incredibly important and could be the difference between staying around to serve customers for many years or being gone in just a few months.

If you have questions on this week’s challenge, contact me at 816-509-9838 or mchirveno@clearvision.consulting

Use the comments section below to benefit other business owners and managers by sharing insights you gained by working on this week’s challenge.

The One Year, Thirty Minute Challenge :: Week Two :: Business Continuity :: Data

Business Continuity is the discipline that enables your organization to keep operating or quickly return to operations after an unexpected event – be it a natural disaster, man-made incident or even a catastrophic event caused by the actions of an employee or contractor.

The One Year, Thirty Minute Challenge will return to the topic of Business Continuity later this year when we focus on operational items, but this week we’re going to focus on one of the most valuable and irreplaceable assets in your organization – data.

You can buy more buildings, equipment, vehicles and hire more people, but you can’t buy more data. Data represents not just the historical performance of your company, but more importantly, the historical performance of your customers. And nothing is a better predictor of future behavior than past behavior. This data is a rich resource as you use it to increase efficiency and effectiveness internally. Externally, you can use it to segment customers and prospects and communicate with those distinct groups more clearly – even down to the individual level.

In the course of this exercise, I’ll be mentioning companies and products to illustrate specific types of offerings and capabilities. Some of these I use and some I don’t. However, for all of these, I don’t get any type of kickback or referral fee, they are for illustration only.

If you work in a larger organization with dedicated tech resources, you might be saying, “We’ve got this covered. We have a robust business continuity plan and we have people dedicated to taking care of this.” Good enough, but skip to the bottom for some bonus content on the topic of stored data.

Let’s get started.

Identify all of the data collected or stored by your organization. Here’s a starter list –

  • Financial data in your accounting system
  • Sales data in your order entry system
  • Customer and prospective customer data in your CRM system
  • Operational data in your ERP system
  • Inspection data in your manufacturing system
  • Marketing performance
    • Website analytics
    • Response rates from advertising campaigns
    • Response rates from email campaigns
    • Social media posting with responses
  • Shipping data in your logistics system
  • Supply order history and vendor performance in your procurement system
  • Employee data (including tax and benefit selection) in your HR system
  • PLC programming for your manufacturing equipment
  • Computer code for any software developed in-house
  • Policy and operations documentation
  • Promotional materials (templates, logos, sales collateral)
  • Legal documents (incorporation papers, employment contracts, client contracts)
  • Usernames and passwords for company accounts (website code, website hosting, accounting system, CRM system, social media accounts, online banking, eftps.gov, state DOR, state unemployment)

 

Enlist the help of others on your team to identify other data created or collected in your organization. Also include the location of all important documents that only exist in a physical format (signed contracts, incorporation papers).

With your complete list in hand, identify where all of that data resides. For example –

Data Location Backup
Quickbooks Accounting System Bob’s PC
Customers and Prospective Customers salesforce.com
Website Mary’s PC
Sales collateral, logo Tom’s PC
Incorporation papers File cabinet in Amanda’s office

Some users might use have an application installed locally (Quickbooks, for example) but save the data file on the company’s local server. Make note of both. In case of a failure, you’ll need a copy of the application and a copy of the data.

Now circle back and note (in the third column) where that data is backed up (i.e. a complete, up-to-date, readily accessible copy). If you use cloud-based applications (Software as a Service or SAAS), for example – Quickbooks Online, salesforce.com, zoho.com, your data and applications are already automatically available in case of a localized emergency. However, for all other data that resides on a local personal computer or local server inside your organization, note where the data is backed up. This is essential in case the piece of equipment that houses the data has a catastrophic failure or the entire location is destroyed or becomes inaccessible.

Consult with your in-house or contract technology expert to craft a data backup plan for each piece of data. For all locally hosted data, select a backup solution that, at least daily if not more often, makes a copy of all data and stores it on devices that are not in the same physical location as your organization. Here are a few options to consider –

  • For mission-critical data residing on a local computer or server, you might consider an always-on cloud based backup like carbonite.com. Any time the device connects to the internet, the carbonite.com software will push an updated copy of the files you select to their cloud storage site – all happening without any intervention from the user.
  • There are cloud-based storage solutions available from many excellent providers including Amazon (AWS) and Microsoft (Azure). These services can certainly be used for backups, but many companies have opted to store their live applications on these cloud-based services instead of on local servers. They are fast and reliable.
  • Many companies have crafted hybrid private/public cloud solutions where data is stored both locally in a company-owned hosting facility and in a public cloud facility – sometimes simultaneously.
  • For all paper-only documents, consider scanning them and keeping an electronic copy.

 

Remember, the goal here is business continuity. You want as little disruption as possible to your operation in the case of a natural or man-made disaster.

Once your backup plan is in place, check backups regularly and make sure you can restore production systems from the backed up data.

If your organization uses specialized hardware to create, capture or utilize data (barcode scanners, RFID scanners), you’ll want to have spare hardware on site to restore operations immediately.

For some organizations, being closed for even several hours can represent the loss of thousands of dollars in revenue. Having a strong business continuity plan, especially as it relates to data, can ensure that you can continue to provide services, create goods, bill customers and pay employees without disruption.

Finally on a semi-related note, create, if you don’t have one, a document destruction policy. Data is incredibly valuable but it also creates liability for your organization. A well-crafted, strictly-enforced document destruction policy can mitigate that liability. After consulting with tax and legal professionals, let’s say that you decide you need to keep 7 years of financial records and, for marketing reasons, you need to keep 10 years of customer order data. At that point, securely destroy all other data. If you have other data, outside the scope of your document destruction policy, it can be subpoenaed during a legal proceeding – going back decades if you still have it available. However, if you can demonstrate that you have a document destruction policy and you follow it by destroying all data outside the boundaries of the policy, you can eliminate that potential exposure. In addition, you don’t have to pay to store it and don’t have to pay to retrieve it should be requested.

If you have questions on this week’s challenge, contact me at 816-509-9838 or mchirveno@clearvision.consulting

Use the comments section below to benefit other business owners and managers by sharing insights you gained by working on this week’s challenge.

 

The One Year, Thirty Minute Challenge :: Week One :: People :: Critical Path

List three people whose absence, if they quit or were unable to work, would have significant operational impact on the business.

  1. _______________________________________
  2. _______________________________________
  3. _______________________________________

 

For each of those people, identify the operational impact.

  1. ________________________________________________________________________________________________________
  2. ________________________________________________________________________________________________________
  3. ________________________________________________________________________________________________________

On the graph below, plot the three people listed above based on their probability of leaving and the risk to the organization if they were to leave.

Presumably, if they made it into this exercise, they’re going to land in the top half of the graph – i.e. their departure poses a risk to the organization. There are two situations that could make a departure particularly perilous –

  • The employee is a critical path component in your company’s delivery of products or services – i.e. if this employee was gone, your ability to generate revenue would be crippled. Depending on the length of the absence and the depth of this employee’s involvement in critical path activities, this could put the entire enterprise at risk.
  • The employee is a single point of failure – i.e. this employee is the only one who possesses a particular skill or a particular body of knowledge.

 

In either of these situations, the urgency for addressing a departure ratchets up significantly. For this exercise, the action items below assume the only variable is the employee’s decision to stay or go. However, no person or company is exempt from unplanned events. That being the case, addressing these Critical Path employee issues is always urgent even if the current employee(s) is the most loyal and dependable in the organization.

For all the employees in this exercise (on both sides of the vertical axis), create the list below.

Employee Most Critical Skill Successor Percent Ready
Mary Set up new vendor Hannah 50
Bob Enter new orders Alice 20
Mary Do Payroll Steve 0
Tim Update Admin Settings in CRM Sarah 80

It’s possible, maybe even desirable, that a single employee will be listed more than once. If they have more than one critical path skill or single point of failure capability, you might want to split those skills and capabilities among multiple successors thereby eliminating the single point of failure. List the successors and their percent of readiness.

Create an action plan for each successor to make them proficient in the critical path responsibilities. The plan should include –

  • Knowledge to acquire
  • Skills to master
  • Experience to accumulate
  • Relationships necessary for execution and support

 

Assign mentors for each activity (it might be someone besides the current employee), establish milestones and set target completion dates. Check in with the mentors and successors to ensure that skills transfer is taking place.

If you have no one in the organization who could successfully execute the work of these critical path employees, start the process of recruiting, hiring and onboarding suitable successors. In addition to your normal regimen of finding new employees with shared values and cultural fit, add the skills required for these tasks to the job requirements.

Finally, for those employees who plot to the right of the vertical axis (high risk to the organization and likely to leave), move quickly to mitigate the risk. What can you do to keep them in the organization until you’ve identified and trained a successor? If they are seeking greater challenges, can you assign them more interesting work while they identify and train their own successor? Given the critical nature of the activities it might be unlikely, but can you identify a vendor, contractor or consultant who could step in if the employee’s departure put the business at risk?

Finally a bit of homework (definitely more than the 30 minute exercise). Document the work of every critical path employee. Create documentation that details –

  • The “why” behind each of their activities
  • The people they interact with to accomplish the activities – vendors, customers, peers, supervisors and subordinates
  • The systems they use (including usernames and passwords)
  • The data they enter into those systems
  • Any equipment they use to perform the work
  • Who they call if that equipment malfunctions
  • Any materials they use to perform the work
  • Where they obtain replacement materials
  • Any reports they use to inform their work
  • Any notifications they make prior to, during or after the work
  • And finally, complete, step-by-step instructions for the work itself

If successors are not on board when you start this documentation process, you might have to do it yourself to make sure it’s complete and easy to follow.

If you have questions on this week’s challenge, contact me at 816-509-9838 or mchirveno@clearvision.consulting

Use the comments section below to benefit other business owners and managers by sharing insights you gained by working on this week’s challenge.