What if your team doesn’t win the Game?

Incentives. Games. Contests.

Most companies use games and contests to get employees fired up and to drive results. Who hasn’t run a sales contest or offered an award for perfect attendance?

At the Great Game of Business, we call these “Mini-Games.” They’re short term, intensely focused, rapid improvement campaigns that affect a change, correct a weakness or pursue an opportunity. Like any game or sport, there is a goal, a scoreboard and a reward for winning.

A well-designed business game can be energizing, fun, educational and exciting. But what if you get to the end and you miss the target?

A business owner I work with was recently in that very situation. His particular game had the goal of reducing utility costs over a 90 day period, which didn’t happen. To avoid his team’s disappointment, he desperately wanted to pay the reward anyway and asked me for advice. My feedback wasn’t necessarily what he wanted to hear but in the end he agreed with the advice, which follows:

I had to tell him that if you give the prize anyway you’re training the team that a miss is as good as a win, and to expect something every time you run a game regardless of the outcome.

It’s better to have a post-game meeting, review the results together and have a discussion about what went right and what went wrong (if anything – just because you didn’t win doesn’t mean something went wrong.) It is possible the target was too optimistic, and you can discuss that.

Did everyone really take the game seriously and do everything possible to reduce utilities? Did they encourage each other to turn off lights, close windows, etc.? If not, it should not be a surprise that we didn’t win.

If someone suggests “It’s not our fault we didn’t win so we should get the prize anyway”, that’s an opportunity to talk about the fact that it’s also not the company’s fault. But in reality, it’s not about “fault.” It’s about creating a win for the company AND a win for the employees. Let’s learn together from this experience and do another game, perhaps on another target or maybe go after utilities again.

My advice to him – and to all businesses embarking on using games and contests – is – with the first few games, pick easy targets to virtually ensure a Win. Don’t share that info with the folks, but do it to let them get the feel of a win under their belts and to show you’re serious about awarding the prizes when they win. Every time, do a post-game analysis with the team: What did we learn? What can we continue to do better going forward, even after the game is over? If everyone involved doesn’t learn something about business from the experience, you’re leaving money on the table.

Get your game on and improve your business!

By the Numbers

“The numbers in a business are just stories about people.”
– Jack Stack, CEO of SRC Holdings and author of The Great Game of Business

What are your company’s numbers, and how do you use them to assign accountabilities to departments and people?

Here’s the Great Game of Business approach:

1. Determine your main measure that defines success. We call it your Critical Number. In a small company, it’s likely profit. After all, you have to take in more than you spend. Set a specific target.

2. Visit with the people in each function or department. Ask them how they most directly impact that number. We’re looking for one to three “drivers” … the measurable activities that “drive” your Critical Number. In some departments – like sales – these will be easy to identify. Depending on what role a department serves, the driver may measure a supporting function and won’t necessarily be tied directly to the Critical Number. But every department should be able to define its contribution to success. Ask lots of questions and soon the drivers will emerge. Set specific targets.

3. Have those departments track their drivers on an ongoing basis, and meet weekly to review and discuss improving them.

Here’s how this might look in action:

ComputerFix is a small computer repair company. Their sales target is $1 million, and they’ve selected Profit Before Tax as their Critical Number. The goal: $100,000.

They have 6 service technicians and 4 support staff, including the owner, Pat. The techs generate revenue based on hourly billing. They have determined that if each team member can invoice for at least 75% of his/her time, the company will achieve its sales target. So their driver is Billable Time.

The support staff decides on these drivers for their main functions:

  • Dispatch: 98% customer satisfaction (measured via surveys)
  • Parts Purchasing: 100% on-time delivery
  • Finance: Accounts receivable outstanding < 45 days

The company selects 10 am every Monday for its weekly “huddle.”

At the first huddle, Pat explains that the employees create the numbers; accounting simply records them. Pat asks everyone for their best effort in keeping their drivers moving in the right direction.

When they get to receivables, an insightful discussion ensues. Jan in accounting talks about the importance of making new clients aware of the company’s payment terms. Alex in dispatch offers to send a “Welcome Aboard” email – including payment terms – to new clients. The techs will carry hard copies for new clients. All agree that clarity on payment terms will help customer satisfaction.

These huddles are nothing more than common-sense discussions about the employees’ impact on the numbers. This is the best way for them to learn the numbers, and to hold themselves accountable for them.

Running the business “by the numbers” is not just for the owner. It’s for everyone in the company.

Back to Business Basics

Another year has already come and gone? Really?

As you wrap up this year and prepare to start another, consider using the following list to guide your business activities. If you want to consider this a “New Year’s Resolution” list, that’s fine as long as you actually turn this list into reality and stick with it all year.

Set business goals, and have plans for achieving those goals.

Establish written plans for achieving your business goals. Be sure to assign accountability using the following formula: WHO will do WHAT by WHEN?

Run your business by the numbers.

It’s important to regularly review your progress and results. Your review should include:

  • Sales, broken down by product/service or customer segments
  • Gross profit, broken down the same way as sales
  • Major expense line items
  • Net profit
  • Cash balance and cash flow
  • Accounts Receivable, if you extend payment terms to your customers

Look at both month-to-date and year-to-date results, and compare to the same period from the prior year. It’s also a good idea to look at your P&L statement numbers as a percent of total sales. This allows you to spot trends early.

Use time wisely.

Your time is one of your most precious resources, so be sure you’re making the best use of it. Use a calendar and set aside time for planning and review.

“Hire hard” so you can “manage easy.”

Spend as much time as needed with the recruiting and interviewing process to build a strong team who will grow with your company.

Spend quality time with employees.

Rather than waiting a year to discuss performance with your team members, regularly visit with them informally. Get to know their talents, strengths and weaknesses. Praise them for their good work, and coach them when you see opportunities for improvement.

Delegate.

You can’t do it all yourself, so don’t even try. Continually ask yourself, “Is what I’m doing right now the best use of my time and talents?” If not, find a way to delegate those activities to employees or outside vendors.

Spend quality time with customers.

Find out the answers to these two questions:

  1. What’s important to you? (Quality, customer service, product mix, etc.)
  2. How are we doing in those areas?

Develop relationships with your customers.

Find ways to stand out from your competitors and to become the supplier of choice.

Make smart use of technology.

Technology has become so affordable and easy to use that even the smallest home-based business can afford to appear bigger and to level the playing field with larger competitors. Get tech savvy to reduce costs, improve communication, increase productivity and enhance customer service.

Create a winning culture.

Get everyone in your company on the success bandwagon, starting with you. Think and talk about growing, pushing through challenges and achieving goals. Be winners.

Implement these common-sense business practices, and go make the new year your best yet.

An out-of-this-world profit improvement

“The difference between something good and something great is attention to detail.”
– Charles Swindoll

An alien spacecraft lands near a mobile home park (as alien spacecraft are prone to do) and abducts an earthling. As the extraterrestrials examine the human, they’re fascinated that one toe on each foot is much bigger than the other four.

Why aren’t we earthlings similarly surprised when we see another person’s foot for the first time? Because it’s the norm. Like water to a fish. Ho-hum.

And so it is with many of the line items on your financial statements. We take some things for granted, and look right past them. Sometimes, it’s familiarity. Maybe you’re used to glossing over training expense because you always spend less than you budgeted. Sometimes it’s your perceived lack of influence over certain numbers. No matter what you’ve tried, that one number “is what it is.”

One of the first steps to improving your financial results is to start looking at each line item as if you were seeing it for the first time. Letting them become ho-hum is a formula for decline.

Of course, every section of your income statement is an opportunity for improvement, but here we’ll focus on your Cost of Goods Sold, or COGS.

COGS is defined as the direct costs that go into creating the products or services that a company sells. For example, an automaker’s COGS would include the material costs that go into making the car plus the labor costs used to build it. The other costs that don’t directly go into producing cars, like office supplies, support staff and utilities, are considered Overhead Expenses … another topic for another day.

If you’re a service-only business and don’t sell goods, you probably call it Cost of Sales, or COS. Even if your P&L just shows revenue less expenses, and doesn’t include a COS section, you really do have COS … it’s the direct labor cost associated with your billable staff.

Some great reasons to mine your COGS for improvement opportunities:

  • The improvements fall right to the bottom line. Grow profits using existing sales!
  • It’s one of the biggest costs on your P&L.
  • It’s easy to let COGS become “ho-hum” and thus slowly grow as a percent of sales over time.
  • If there’s a labor component, the failings and shortcomings common to all of us earthlings represent improvement opportunities. Think about wasted time, wasted material, lost productivity, inefficiencies, errors and reworks.
  • Most improvements to COGS have staying power. Negotiate a better price or improve efficiency, and you can likely enjoy that improvement for some time – maybe for years.

Do a detailed analysis of every line item in your COGS, and you might be rewarded with an out-of-this-world profit improvement.

Creating a Company Dashboard

scoreboards

The best numbers to put on your dashboard are the specific numbers that define success for your company. Look at the things going on in your market and industry. What are your company’s trends for the last few years? What are your customers and employees saying? These answers will help determine your dashboard metrics.

Keep the amount of information to a handful of critical numbers so your attention isn’t diluted. Just because you CAN measure something doesn’t mean you SHOULD. Less is more.

Don’t focus only on financial measures. Operational numbers (web hits, turnaround time, customer satisfaction, etc.) can be especially helpful in analyzing progress toward your most important goals.

Finally, once you have a dashboard, use it. It’s not decor – it’s an accountability tool. Put a name next to each number – the person who “owns” that result. Go over the numbers regularly with your team and strive to achieve each target.

Work ON Your Business

Unless you’ve just been released from a long incarceration in a Turkish prison, you know that the concept of working on your business – rather than in it – was popularized by Michael Gerber in his mega-hit book, “The E-Myth Revisited.”

Gerber made many great points (which explains the “mega-hit” part), but the on/in distinction is the big take-away for most readers.

Here’s an excerpt:

“Go to work on your business rather than in it, and ask yourself the following questions:

  • How can I get my business to work, but without me?
  • How can I get my people to work, but without my constant interference?
  • How can I spend my time doing the work I love to do rather than the work I have to do?”

So, what does it mean to work ON your business?

Well, one of Gerber’s main themes is the idea of systems. Systemize everything. Manage systems, not people.

It’s terrific advice, of course, but many small business owners still struggle, even after reading E-Myth. What’s a system? What systems are needed? Where do you start?

My answer: Anything can be a system. A system is simply a way to avoid NOT making things up as you go along.

  • Instead of plucking interview questions out of thin air, create a hiring system.
  • Leaving the coffee pot on overnight, or forgetting to set the alarm? Create a “last person out the door” system.

Here’s a system I’ve used for years in my own businesses:  “Never, ever ask for computer help until you’ve restarted it. Period.”

Simple? Yep. Like I said, anything can be a system. Not all systems are this simple, but you get the idea.

Beyond creating and installing systems, how else can you work on your business?

Perhaps more to the point, how can you find the time to work on your business when you’re consumed by it all day, every day?

Here’s a way to let the ideas and time find you: Constantly be in “improvement opportunity mode.” Every time an error or crisis occurs, stop. Avoid the temptation to put out the fire and get back to work. Analyze what just happened. Was it human error, or could a system – even a simple one – prevent future recurrence? If so, create it right then and there. In many cases, you can do this sort of “post-mortem” work in a matter of minutes.

Planning is a great way to work on your business. As an early riser, my favorite planning time is early Sunday mornings, before my wife gets up. And business trips can turn into mini planning retreats … if you keep the TV turned off in your room.

I know a business owner who tells me he likes thinking about his business while on his riding mower. Some folks really embrace this concept by taking their teams on annual out-of-town planning retreats.

Exactly what you do is less important than developing the habit. Start working ON your business today.

“Do it. Do it now!”  – Arnold Schwarzenegger

Engage your Employees to Beat a Business Downturn

“I have recently had to let some people go. They were great people, but with our financial projections, we had to downsize. Some of my current staff has begun to get a bit discouraged about the company as a result of slowing sales and their friends no longer working here. What are some ways that I can make sure my remaining team stays excited and engaged during a tough time?”
– Worried Business Owner

Get your people involved in the come-back.

Have a meeting and show them the numbers – where revenue was the last few years, and how much it’s dropped off. Explain the relationship between sales, headcount, and profits. Take questions, give straight answers, and encourage discussion.

Share your vision for the future. It might be emerging from the recession stronger than ever, or simply surviving. Regardless, give them the unvarnished truth. And, be sure to set the tone as positive and optimistic.

Ask for their active participation and support. First, banish the rumor mill and negativity. If your people have concerns or complaints, they should voice them in company meetings, to a supervisor or to you. No grousing around the water cooler.

Put a mechanism in place to collect ideas for improving the situation: Customers. Marketing and sales activities. Cost of goods. Overhead expenses. Productivity. Receivables. Cash.

Of course, your team will want to know how things are going. Have regular follow-up meetings and post results on the wall. Show them that their ideas are being implemented. Share the results, and acknowledge those who submitted ideas. Learn from mistakes and celebrate even small wins.

That’s it. Transparency, engage your team, be smart and work hard.

 

It’s Free!

free

It’s a typical day at Bob’s Company, Inc. Bob notices that a recently-hired employee is now eligible for dental benefits. So, Bob hands her an application. As he walks away, she asks, “What’s the cost?”

Bob’s reply? “It’s free. The company pays for it.”

If this was a movie rather than an article, the startling shower music from “Psycho” would come on at this point.

Or maybe it would turn into a take-off from “Young Frankenstein.” Instead of “It’s alive!” the line could be “It’s Free!”

Shame, shame on Bob. He wasted a terrific opportunity for a “teachable moment” with a new employee.

Of course it’s not “free.” Every benefit provided by the company costs good money.

Free. What was Bob thinking? He should have responded something like this: “Our dental insurance costs about $25 per month. The company pays for it. It’s part of your compensation – just as our other benefits are.”

Too often employees think only about base wage or salary when the subject of compensation arises. This happens because we business owners and employers let it happen. You’re likely to hear something like “I make $35,000 per year.” You are very unlikely to hear an employee say, “Well, my base is $35,000, but on top of that my employer generously pays another $12,000 for my health insurance. Counting my paid time off, my other benefits and my payroll taxes, I cost my employer a whopping $58,000 per year.”

So, how do we get our “bang for the buck”? How do we get our employees to recognize and appreciate all aspects of the compensation package – so the company can enjoy a fine ROI in the form of increased employee satisfaction, improved productivity and reduced turnover? How do we drive the “entitlement culture” out of our companies?

Here are some approaches to use:

  • During hiring interviews, listen for signals. If the candidate is focused like a laser beam on your vacation plan or grimaces noticeably when you explain that you don’t pay 100% of the health insurance, these are not good signs. (Note: Yelling “Next!” is not a tactful way to end an interview.)
  • Your candidate job offer letter should outline the entire compensation package and focus on the total value – not just the salary.
  • Make ongoing education part of your company’s culture. Talk about the cost of doing business. Let your folks know how much insurance rates go up every year. Make sure the employees know that they have a vested interest in the company’s success … if they help the company succeed, you can continue to subsidize their insurance costs and provide excellent benefits.
  • Print a year-end statement for each employee, showing his or her total compensation and benefits costs.
  • Consider all aspects of compensation costs when budgeting and projecting pay increases. Example: Let’s say you like to provide an average 4% pay increase per year, and your total company compensation expense (including benefits) is $800,000. A 4% overall increase is $32,000. If you expect your health insurance to go up $5,000, you now have $27,000 left for salary increases. (Back to education: Explain your rationale and the math to your employees. Involve them in the decision. Maybe they want more salary increases and are willing to bear more of the insurance costs. If they help make these decisions, you’ll get better buy-in.)

You invest lots of money in your company in the form of salaries and benefits. Chances are, payroll and related expenses are the largest line items on your income statement. Spend the additional time and effort to maximize the investment. Done right, it can pay you back many times over.

PS: Bob’s story has a happy ending. He realized the error of his ways and corrected his statement to his employee.


What’s Your Number?

numbers

“What gets measured gets managed.”

 It’s hard to argue with that piece of wisdom. That said, here’s another old saw to consider:

“If everything is important, then nothing is important.”

Between these two valuable quotes is a balance and a guideline for business owners.

All businesses have certain numbers that define success. Some, like profit, are universal. Every business must take in more than it spends, so an argument could be made that this number – profit – is a definition of success for every business.

But what about other numbers? There’s certainly no shortage of other things to measure – sales, costs, margins, cash … the list goes on and on.

They’re all important. But don’t forget: “If everything is important, then nothing is important.”

Focusing on a small, carefully-selected handful of numbers and actually doing things to improve them is much more likely to lead to overall success than scattershot oversight of dozens of different numbers.

Some business owners create a scoreboard or “dashboard” of metrics – to pull selected numbers out of the blizzard of income statements, balance sheets and other reports – and single them out for an appropriate amount of attention.

This is how the “What gets measured gets managed” piece comes into play.

So, how do you cut through the scads of potential metrics which might be worthy of your undivided attention, and discover the select few which will truly make a difference?

Think about your business. Two questions:

1)    Are there things related to your specific business model that are absolutely critical to ongoing success? For instance, if you are the low price leader, then cost of sales is likely a primary area of focus.

2)    Are there things going on in your business right now that deserve attention? Examples might include things like declining quality, too much dependence on one customer, or high employee turnover.

If you find that there are specific things that warrant a permanent place on your scoreboard, then add them and leave them there. Or, perhaps you’ll discover that a temporary issue needs attention – so it gets a spot, only until it is resolved.

In most cases, these big-picture, corporate-level “critical numbers” will have underlying “drivers” – activities which must be done to move the number in the right direction. A simple example: weight loss. If your critical number is pounds, the drivers would be calories in (eating) and calories burned (exercise.)

The best drivers measure activities and behaviors, as in this weight loss example. If you want to change a number, you’ve got to change someone’s activities or behaviors.

These are the numbers that deserve a significant amount of time and attention. That’s not to say other numbers aren’t important. They’re just not as important.

Identify and break out your critical numbers and drivers. Get them on a scoreboard for all to see. Talk about them. Teach and learn about them. Assign responsibility for them. Track them. Most importantly, be sure to move them in the right direction.

Your business will be more successful for the effort.

It’s the Spread

“Thirty six thousand dollars!”

“You’re proposing to pay him thirty six thousand dollars a year? We can’t afford that.”

“It will be tight, but I’m pretty sure that’s what it will take to get him. I really like this candidate.”

Discussions such as this happen all the time in small businesses. The company is in a hiring mode, the recruiting and interviewing has happened, and now it’s time to narrow it down to a specific candidate and make an offer.

It can be agonizing. I’ve been there and I’ll bet you have, too. Help is desperately needed but the best candidate seems too expensive. Heck, maybe any candidate seems too expensive.

Let’s listen in on the discussion the other interested parties in this situation are having:

“Thirty six thousand dollars!”

“Honey, you were making forty thousand when you were laid off. I don’t think we can afford to accept thirty six.”

“It will be tight, but I’m pretty sure that’s the best they can do. I really like this company.”

Two sets of people on either side of a salary negotiation. Both are looking at the same number and of course considering things from their vantage point, and with their own interests in mind.

The number they’re all focused on – annual salary – is the number we all use. Employers use annual salary to measure the cost to the company, and employees use it as the measure of compensation received.

But let’s dig deeper. What’s the real, full cost to the company for a $36,000 per year employee?

Salary                               $36,000
Plus payroll taxes           $  3,750
Plus benefits                    $  6,000
Total cost to company:  $45,750

What appears to be a $36,000 cost is in reality going to cost the company almost $46,000.

Now, let’s look at the employee’s side of the ledger.

Salary                                                           $36,000
Less payroll taxes                                        $  2,754
Less income tax withholdings                    $  7,200
Less employee’s share of benefits cost     $  1,000
Employee take-home:                                 $25,046

To drive home the point:

Employer cost                                  $45,750
Less employee take-home              $25,046
Difference                                          $20,704

That’s quite a spread between the company’s actual cost and the employee’s actual spendable net.

I suggest that these are the two numbers that deserve the attention of the folks involved. In this light, the annual salary almost becomes meaningless.

Yet, time and energy are spent negotiating a number that has little real-life importance.

I know – we won’t stop talking about annual salary. Too much pride is tied up in that number, and it is admittedly a convenient yardstick.

To me, the big deal is the spread. Here are the take-aways:

  •  Employees deserve to know what it costs their company to employ them, and the total value of their compensation package. Let’s tell ‘em.
  • Both employers and employees can help reduce the spread. For instance, employers can choose pre-tax benefits, reducing payroll tax. Employees can make healthy choices and wisely spend deductibles and company-provided benefit dollars.

I’d rather spend my time cooperating with employees to reduce the spread than arguing over annual salary. How about you?