December 2016 – Bates Creek Consulting

Why Your Staff Quits

Nothing gets done until someone does something. Those someone’s are your staff. Recently a friend quit her job for a new better position closer to home. I couldn’t help but thinking that part of the reason she left was due to how she was treated.

I am not a great “people” person. I am better than Christian Wolff from “The Accountant” as I don’t shoot people and I do have the reputation of being a decent boss. CFO’s in general tend to be quieter than other exec’s, more introspective, we do spend an inordinate amount of time analyzing information, have a large body of technical accounting knowledge and normally emotional intelligence isn’t a prerequisite for the job. Whether you are great at this or not, there are three things I’ve learned that a any senior executive can do to improve their relationships at work. And good relationships lead to lower turnover and higher work satisfaction.

1) Respect your staff. In the movie, Jerry Maguire, Rod Tidwell wanted “quan”. Quan is loosely translated as respect, admiration for skill and the money. Most professionals want their time and skills respected. I hated waiting outside my bosses office for a meeting to begin. I hated getting slide changes for the board meeting 30 minutes before the directors arrived. Respect your people’s efforts. Many senior executives feel more comfortable micro-managing and doing their employees work. Don’t be surprised if your staff doesn’t like it.

2) Talk to your staff. I believe in weekly one on one meetings. The purpose of the meeting is to go over current projects and planning, but you must leave time for the personal. I always started the meeting with a check in and if that was good proceeded to work related issues. Your staff doesn’t leave its humanity at the door when they come to work. Many of my meetings dealt with personal issues, smoothing out work disputes, and understanding more about my staff’s interests, goals and dreams. Unfortunately, a lot of what we do in modern corporations is repetitive and can be a bit dull. If there isn’t a pressing problem, I didn’t cancel the meeting but I’d cut it a little short and we’d focus on mutual interests. If there is a pressing problem the check in was usually cursory. Personal chat is distracting if you are on a deadline.

3) Listen to your staff. If they are dissatisfied it will come out. Usually you are told multiple times before an executive quits. Listening means quieting your voice and engaging with someone else’s story. Listening includes more than just the words. Word selection, intonation, facial expression, eye movements, body position are some of the elements of good listening. Listening takes an effort and your staff can sense when you are putting that effort out and when you aren’t.

Dale Carnegie was right, simply smiling and listening can make a difference in relationships. Often a simple thank you to the staff is all that is required. Turnover is a normal, but lots of turnover occurs because your staff doesn’t feel the quan.

____________________________________________________________

Dr. John Zott is the CFO for Carlson Wireless Technologies, and Principal consultant at Bates Creek Consulting. John is the chair of the Careers Committee at FEI Silicon Valley, a senior adjunct professor at Golden Gate University and comments regularly on issues that affect consumer businesses. If you are a former student, colleague or would just like to connect – reach out.

How Financial Metrics Change when Firms Grow

Ichak Adizes consults with firms about managing corporate lifecycles. He states that there are 10 stages of the corporate lifecycle, one pre-start, four growth, four declining stages, and one for organizational death. There is a lot of good material here for a senior executive to consider, but I am just going to focus on the growth side.

Adizes breaks the 4 growth stages into Infancy, Go-Go, Adolescence and Prime. The problems that growth firms face are all the same. It’s always: people, time and money. However, in a growth environment there are different priorities for financial metrics at different times in the cycle.

Firms in Infancy are focused on cash flow. You’ve only got so much cash and so much research and development to do. We define in months our “runway” left by the amount of cash you have divided by burn rate. When you are out of runway, the firm has to be aloft or you are out of business. In Infancy, it is spending on the right things that must be managed by the senior management team. Treat every spending priority as if you had 6 months of cash left. Good employees believe in the vision and are committed. Budgets are check book oriented. Don’t forget the balance sheet because stretching vendors isn’t generating free cash flow!

Go-Go firms are focused on sales growth. That is what makes them fast growers. In this phase the key financial metric is sales. The company wants as much sales as it can get at a good margin. The focus is on selling to firms that pay on time and offer a good margin. Selling a big order to a distributor who is known for slow payment and low margin isn’t as important as selling to five smaller customers for cash up front and a decent gross margin rate. The best hires are able to step in at any level and take care of the customer. Accountability is diffused and procedures are changed on the spot.

Firms that reach Adolescence struggle with balancing the entrepreneurial spirit with professional management. The key people that could do every job in the department now become assigned to one job and they chafe about the lack of “make it happen” attitude. Profits become more important to the company. I’ve had meetings with CEO’s who complain about the lack of expense discipline after hearing story after story from them about how they’d shipped product timely without any thought of costs. Instilling discipline, procedures and process isn’t easy and it has to be balanced against the flexibility that helped the company grow sales quickly. Adizes says this is the most difficult stage for firms and for founders. Budgeting can become a battle rather than a collaboration. Good executives focus on steady process improvements and increasing accountability.

As firms mature into the Prime stage the company balances profit growth, controls and cash flow. Return on investment and risk management become important for the CEO/CFO to manage. The strategy is working, profits and sales are increasing and there is a good balance between entrepreneurial spirit and control. The locus of effort is in longer term planning rather than on day to day operations. Watch for signs of creeping bureaucracy and procedures that kill initiative. New initiatives require taking risk and too much risk management means that the business will stop investing in the future. The senior management team should be setting stretch goals and pushing the company to think outside itself. The focus has to be on the future and maintaining performance.

Eventually if the company is unable to balance return on investment with sales growth and risk management efforts result in too few initiatives taken, the company begins to decline. I’ve followed dozens of mature firms that talk a lot about growth in sales and earnings but don’t grow consistently. Plans are all short term in nature which contribute to the choppy results and don’t create a long term competitive advantage. Often there is increased turnover in the executive ranks, rather than solve the problems we choose to change the players. The focus of the firm is inward, rather than outward. Often sales increases are driven by large increases in invested capital as growth is forced, rather than planned. Discussions about how mergers will help the management team achieve the bonus plan become relevant.

It is easier to stay in the Prime phase than to recover from a fall. To get back to Prime requires leadership by the CEO/senior management team and commitment by the Board to focusing on the profitable core of the business. Firms that fail to face previous mistakes and poor capital allocations can struggle for years.

Dr. John Zott is the CFO for Carlson Wireless Technologies, and Principal consultant at Bates Creek Consulting. John is the chair of the Careers Committee at FEI Silicon Valley, a senior adjunct professor at Golden Gate University andcomments regularly on issues that affect consumer businesses. If you are a former student, colleague or would just like to connect – reach out.

Becoming a more rational executive, five good techniques

I teach behavioral finance. That is the study of how people make financial decisions and how those decisions differ from the perfectly rational. We are currently in the part of the semester that deals with corporations and how they vary from perfect rationality.

I teach behavioral finance. This is the study of how people make financial decisions and how those decisions differ from the perfectly rational. We are currently in the part of the semester that deals with corporations and how they vary from perfect rationality.

Anyone who has spent any time in business knows that business life is not perfectly rational. There are big ego’s, incorrect incentives, limited analytical resources and group think. The hierarchical nature of large institutions also increases the likelihood that the organization won’t respond timely, which is also irrational.

When we do the class I collect stories of corporate irrationality from the students. There are many. We also brainstorm techniques for staying rational at work.

Here are five techniques for CFO’s to add rationality to decision making. Three of these approaches can be attempted prior to embarking on the strategy, the last two are ways to are for after you’ve taken a path and it isn’t working.

1) What is the base rate for success on this strategy? Why should our efforts be any different than the base rate?

This technique is basically applying your circumstances to historical base rate stats, which is called Bayesian inference. A common application I’ve used this technique is estimating the likelihood of success for a new product. The base rate for product failure in the market is between 40-90%. For example, we’ve come up with a product concept that we feel is good, but faces several technical hurdles to reach the market. The chances of product success is then a function of the chances of success on each of the two steps: finishing the product and obtaining success in the market. Identifying the risks improves the planning process.

2) Conduct a pre-mortem. This is a concept that Gary Klein wrote about in the HBR, September 2007. The idea is to imagine that your project or strategy has failed spectacularly and then ask the question “Why did this happen?”. Hindsight is a powerful tool and it changes your perspective. Problems that were lurking in your subconscious get a chance to be aired. The resulting list of “reasons” for failure become improvements to the plan. Identifying timing, resource or scope issues prior to beginning the project results in cheaper and easier fixes. CFO’s are often the department of “no”. This technique allows you to get the whole team to think critically about a plan without being the wet blanket.

3) Stay intellectually and emotionally distant enough to use your judgement. Optimism and confidence in business are great. Being a part of a team that is conquering a market is a peak experience but that experience can blind CFO’s to reality. Denise Shull writes about using emotion to make better decisions. CFO’s and CEO’s, if good, live both inside the organization and outside. The outside perspective means that you are aware of the challenges within the business and secondly you can look at the business with a clear mind. Founders are, in general, terrible at this, but professional management can’t be.

Here are two techniques for after you are involved in a project that you think might be going bad.

4) If we knew then what we know now, would we still go ahead? This is a way of focusing on the sunk cost question. A full commitment to an ok strategy is better than a weak commitment to a great strategy. I’ve been in a lot of projects where significant investments of time and energy have been invested and then we find out a key fact that makes the project a lot less attractive. However, because we are all fully committed we ignore when key facts have changed.

5) “What would happen if somebody took us over, got rid of us — what would the new guy do?” asked Andy Grove of Gordon Moore in 1985, and this question is relevant for every senior executive. Firms get into ruts. Sometimes the answer is clear but because of institutional momentum management teams never think about the obvious choice.