I spend a lot of  time in conversations with business executives and professionals.  I’m starting to sense a change coming and I think it’s going to have a big impact on organizations when the economy finally turns around, and finding and keeping talent will be a critical issue again.

I know it’s a generalization, but during the past 25+ years I’ve been working, it seems to me that professionals got out of school and initially went “big company” or “small company”.  Over time, a certain number of people opted out of their initial choice and migrated the towards the other - more often from big companies to smaller ones. It felt like a cascading waterfall of talent into smaller pools – and that was the natural order of things. 

It doesn’t feel like that anymore.

This economic malaise we are in has created so much consternation in the workplace that I’m not sure anyone is happy – and I know they don’t feel safe.  A lot of big company people are telling me that the “loyalty thing” is dead once and for all.  They are tired of the mass layoffs and an impersonal approach to the issues.  They are angry about executive compensation at their firms, and the evaporation of their pensions and 401k plans filled with company stock.  On the other side of the coin, many small company people have had it with the uncertainty of life in an often underfunded company that literally survives on a month to month basis.  Many small companies have cut salaries and eliminated benefits and yet they are still on life support and struggling to survive.  Much like the way my parents’ attitudes were shaped after going through the depression, these experiences will alter behavior for this generation for decades to come. 

So what does it all mean?  Nothing today – it’s still too scary in the job market right now.  But once there is some stability back in the workforce – and there will be eventually -  I think there will be a substantial shuffling of bodies across organizations, industries, and geography.  The old rules of thumb - the safety net and the virtue of resources in big companies, or the benefits of being “a big fish in a small pond” in a smaller organization - will be out the window.  I think people will focus on what makes them happy… am I doing what I want, with people that I like, in a place I want to live? 

If no one can really offer “security” anymore, it has no value - and it eliminates a lot of the reasons people make choices between big companies and small companies in the first place.  I think it will change the way companies attract and retain talent.  That’s probably a good thing.

I’ve spent the better part of the last two weekends working on a project to organize my garage.  I’ve had to repair the walls, build some storage units, and paint.  I would not even pass as a weekend warrior when it comes to home projects, so my tool collection is pretty sparse.  The result: I’ve recently spent more time inside something with a big Lowe’s sign on it than Jimmy Johnson.  Now that I have all the right tools to do the job, all kinds of other distractions have caused my project to be delayed.  Ultimately, I’ve slimmed down my ”ambitious” goals so I can finish it and get the cars back in the garage before the leaves fall!!

The analogy for businesses is too obvious.  Most organizations have made significant investments in facilities, equipment, IT hardware and software, etc.  The bigger issue is the commitment to use them.

Customer Relationship Management (CRM) tools are  a perfect example. Salesforce.com is probably the biggest and best known provider in this space. The company has grown from scratch to $1.1 billion in sales and almost 60,000 customers in less than 10 years.  I’ve used Salesforce.com, and the power of their platform and their tools is incredible. Unfortunately, many organizations that have implemented Salesforce.com and programs just like it, are either not using the capabilities to the fullest, or have essentially abandoned them altogether.

The reasons for this, of course, vary from company to company but there are common threads: 

• No clearly defined strategic or tactical need 
• Poor implementations
• and most important: Lack of ongoing support, training, and “encouragement” (read: requirement) from the organization once implemented

In the end, it always comes down to priorities. A company acquires a shiny new CRM tool and assumes that the staff will figure out how to use it and become more productive.  But do you tell the sales staff to spend time learning how to use the system to the fullest…. or get out and sell?  How many other new systems are these users dealing with?  How many other corporate initiatives and projects suck up their time?

Companies need to have the right tools in order to increase productivity and stay competitive -  but they need to be realistic and ask the right questions before jumping in.  Do we really need this right now? Are we willing to make the commitment to implement it the right way? Will we stick to the plan in the face of all the other projects and priorities floating around the organization?

 As to my garage….. maybe the cars are ok in the driveway until the snow flies.

Whether you love him or hate him, most baseball experts will say that St. Louis Cardinals manager Tony LaRussa is one of the best.  What I find fascinating about him is his unconventional approach to the game and I think there are lessons for us in business. 

Baseball has been around seemingly forever, and part of what makes it so popular across generations is that most of the rules and conventions of the game have not changed – ever.  For example, the pitcher is viewed as the weakest hitter in the line-up and therefore is always penciled in to hit last in the batting order. (In the American league, they don’t even let the poor guy bat at all!)  LaRussa has theories only a mathematician – or tarot card reader – would love, and he backs them up with stats and research.  He will often bat the pitcher in various line-up spots - usually changing it game to game.  He also disregards other “sacred cows” in baseball.  He gets second guessed a lot, but I’m pretty he doesn’t care what others think - he only cares about winning.  

Managing a business is also full of rules and conventions taken for granted.  I can think of  a number of assumptions that are followed every day by just about every company: the importance of an annual budgeting process;  the need for formal performance reviews; the belief that the best sales people are motivated by commissions … you get the picture.  When we hear stories of organizations that don’t follow these conventions, we assume they are trendy… or small … or outliers … or in a different business than we are.  But are they?  Remember when the underlying assumptions behind outsourcing, flex hours, virtual offices, and job sharing seemed trendy and ridiculous?    

I realize it’s hard enough to deal with all the issues that happen on a daily basis without looking for trouble.  Plus, there are all kinds of people inside and outside of the organization ready to second guess the decisions made in the corner office (cubicle, car, or Starbucks these days). 

If you are really running the business to win, you should take a tip from the Cardinal’s skipper: do some research and question those basic rules and conventions - at least once in a while.

This post is the first of a series on managing working capital in small businesses…

All small business owners know that positive cash flow is the lifeblood of the business. Knowledge, however, does not always equate to action.  Many of the businesses we are consulting with today have issues with working capital, and they don’t always understand why.  Not all businesses have the same components of working capital, but the basic formula is similar:  the cash paid to create something vs. the cash received by selling it.   The tricky part is the timing of these events, and what we call ”working capital momentum”.

First, let’s assume that the business is getting paid more than it costs to create and sell its product and/or service (otherwise it would be an airline or auto manufacturer ~ a little humor).  That leaves the timing of the cash flows as the main issue.  When we explain the timing issue we use this basic chart:

Unless you run an all cash business, expenses are almost always paid out faster than payment for services is received. For some small businesses, the working capital shortfall (bar in red) is funded by the owners.  Most other businesses have working capital lines of credit from banks to fund the monthly shortfall.  These are often supported by a percentage of the outstanding accounts receivable.  The challenge is to manage that shortfall to a reasonable level and keep it relatively constant from month to month.  That is where momentum can play such a big role.

When a business is profitable and growing, sales are increasing which allows more availability of the line of credit. When sales are strong, companies can be more “credit selective” with their customers and avoid the slow payers.  Vendors always want business from growing customers and will often discount goods and services or offer extended payment terms.  Higher sales also generally lead to more profits which allows the line of credit to be paid down.  All this leads to increased working capital availability which can now be used to reinvest in the business and pursue even greater growth.  This business is on a roll.

Today, however, the economy has pushed a lot of businesses to the other side of that momentum swing.  Sales, and therefore accounts receivables, are decreasing.  Because of this, at the time the business needs cash the most, the line of credit availability shrinks.  Those clients that are paying, take longer. The working capital gap (red bar) begins to grow.  In response, businesses often get desperate – they cut prices and sell to customers that have shaky credit. These sales have smaller profit margins and are less likely to be collected.  As the cash dwindles, payments to vendors are delayed.  The rumors start, and customers look for alternative providers.  The cycle continues, and this business is on a downward spiral.

When we encounter businesses on the downward momentum side of working capital, we try to narrow the focus and get back to the basics: reduce the cash spend and increase the cash collected – quickly.  It’s usually the most difficult part of running a small business, and the reason so many fail in the first few years of existence. 

We’ll lay out some approaches we use – and some things to avoid - in future posts.

“Web 2.0” and “cloud computing“  are all the buzz these days.  The concepts are not new - but have gone mainstream as companies try to figure out how to ride the wave and take advantage of the technology.  But as my pilot buddies like to tell me, clouds are not the problem… it’s the lightning inside those clouds. 

It’s easy to see the potential benefits to using software applications in this way: the ability to access the software from any PC with internet access; the ease of sharing data with others;  continuous data backups; nothing to install; automatic upgrades of the software – just to name a few.  The widespread availibility of netbooks and smartphones - with their ”internet anywhere” capabilities, and scant storage - will make these applications even more important.  But what happens when you do lose your internet connection?… and what happens when the software service provider’s system goes down? 

All this week, Register.com, a large internet service provider has had a disastrous roll-out of an upgrade to their web based email system.  We use Register.com for our website and blog hosting as well as for our email, and for several days now the email has either been unavailable or working intermittently.  It’s not the first time they have had issues, and they bungled the communication and support just as poorly as the technical issues.  Just search “register.com” in Twitter, and you will get an idea of how bad this week has been for people who use their email hosting services.  Right or wrong, not having our business email working has been disorienting – not to mention bad for business.

IT experts will tell you that the big players have built redundant systems and the reliability will continue to get better and become a non-issue.  Even the industry titans, however, do have issues.  In January, software-as-a-service pioneer Salesforce.com experienced an outage that disrupted all its customers. In mid-May, Google services were hit by an outage which apparently affected one in 10 of its users.   Just two weeks ago, Amazon who is not just an online retailer, but a cloud-computing provider, suffered a seven hour outage.

The question today is not whether or not to move forward with these types of applications – that train has left the station.  The question is how to protect your business from the interruptions that are going to happen. Even small companies need to have fallback options for internet access.  I just don’t know of any businesses these days that can survive very long without it.  In addition, it can’t hurt to have another “business” email account with one of the public services in the event your company’s e-mail services are unavailable – as happened to us this week.  It’s a common sense business issue: take some time and think about what kinds of internet based applications your business utilizes, then figure out how you will run things when they aren’t available.  

Trust me – those clouds don’t look very dangerous, but the lightning lurking inside might be deadly.

I attended an International Growth Conference hosted by ACG Chicago last week.  The keynote speaker was Tom Friedman, the Pulitzer Prize winning author and New York Times columnist.  His speach was focused on his latest book  ”Hot, Flat and Crowded: Why We Need a Green Revolution”.  The bulk of the speech he gave to ACG is available on his website.  The choice of Tom Friedman was a fairly daring one given the very pro-business crowd, and I’m not sure that ACG wasn’t actually hoping for the “World Is Flat” Tom vs. the “Hot, Flat and Crowded” Tom.

Tom Friedman’s current message is not an easy one to swallow:  global warming, the stunning rise of the middle class around the world, and rapid population growth is converging in a way that makes our planet dangerously unstable.  He likes to tell audiences that Al Gore should apologize because he has underestimated the impact of climate change on our planet.  Friedman believes in dramatic changes including carbon taxes, cap-and-trade systems, and/or a renewable energy mandate to level the playing field with fossil fuels.  He points out that a real green revolution means that somebody will get hurt and feel pain – that’s what a “real revolution” looks like.  It’s a thought provoking book, and if you are serious about understanding today’s global climate issues, it’s worth the read.

What is interesting to me is that so many Americans are not only unconvinced, but angry, about the threats Friedman speaks about and the changes proposed.  Many attendees during Friedman’s speech shook their head in disagreement – and in some cases, frustration and disgust.  I had a discussion with someone after the speech that said that liberals were forcing through energy legislation to hurt business and to further socialist causes.  Late last week, an ultra-conservative Wall Street Journal columnist wrote yet another piece saying scientific skepticism on global warming is growing “everywhere”.  The on-line version garnered almost 400 of the nastiest comments that I have seen from WSJ readers.

Look, disagreements and the ability to debate the issues is a part of what makes our country great.  I can’t help but wonder, however, if 50 years from now the global warming naysayers will look like the ancient scientists who thought the world really was flat; or doctors that said cigarette smoking was safe; or maybe the people who still believe our manned trips to the moon were staged events.  I strongly doubt that they will look vindicated.

An interesting offshoot of the current green movement and increased focus on clean technologies are the “odd couple” disagreements they often create. It’s not just between business interests and environmental groups, or conservatives and liberals – the fights are increasingly between environmentalists themselves.  To rephrase one of the basic rules of physics – “every proposed solution to our country’s energy problems comes with an equal and opposite environmental issue”.  The veracity of the opposition on both sides reminds me of the old Mad Magazine Spy vs. Spy cartoons.    

A few examples: current solar energy solutions generally require vast amounts of land, and water for cooling to work effectively. Water availability and usage, however, is a real issue – particularly in the west. In addition, developers there are wrestling with environmentalists who believe the projects threaten habitats for endangered species like the desert tortoise.  Wind power is expanding in the US at an increased pace. Detractors, however, point to issues with bird and bat populations (bats II) ; noise concerns; and the need to install high capacity transmission lines across the country to bring the power to where it is needed.  First generation biofuels have been made from plant sources – like corn and sugarcane – but their production has interfered with food and feed production.  Even the smart grid movement has environmental detractors who believe the technology to manage consumption just prolongs the use of fossil fuels.

Then there are the looming issues around a carbon tax.  The EPA recently proposed carbon impact calculations which take into account direct and indirect land use – i.e. when solutions replace farmland and carbon-capturing forest land. The ethanol and solar industries have already cried foul, as these proposed calculations could handicap these alternative energy sources in the future.            

It’s a difficult situation – with stimulus funds and tax credits pushing “shovel ready” projects, and opposition forces pushing to slow things down.  Ironically, The US Chamber of Commerce – not usually considered a bastion of environmental awareness – has jumped into the argument and is trying to get projects moving.  They have labeled the issue “green tape”, and say that many terrific projects have been funded, but are often are delayed or don’t get built at all because of various local and environmental concerns. They even developed a site called Project No Project, which outlines what they call “radical environmental activism” that slows down the permitting, and development of large scale clean energy projects.

Like the old Spy vs. Spy cartoons, it often seems like the protagonists could get more accomplished if they worked together, but instead they just can’t help sabotaging each other’s efforts.  It’s just another one of the complicating factors in the confusing state of Cleantech.  

I got a note the other day that one of my all-time favorite teachers, Jim O’Laughlin – “Jimmy O” to the students – was retiring from Loyola Academy in Wilmette, IL. after more than 35 years teaching high school English.  I immediately recalled all the ways he made classes come alive, and the impact he had on me and countless students … too many years ago.  

We have all been impacted by great teachers. Like Jim O’ Laughlin, they filled the classroom with passion, and made you do the very best you were capable of.  The best ones continued to do it class after class, year after year.  They adapted to changes, but they never lost their excitement for teaching.  In fact - that’s why the best teachers do the job. They thrive on inspiring others and are fueled by the belief that their students might just leave the class better than when they started.

Business leadership should be like great teaching.  The best leaders make the business come alive.  Whether in the meeting room or shop floor, their passion for the business shows.  The great business leaders strive to bring out the most in their employees.  It isn’t about getting the highest compensation or lots of press – it’s about inspiring others and facilitating success for the entire team.  Great business leaders aren’t only good at high level strategy and decision making, they are at their best in the trenches - working with employees – day in, and day out. 

We can learn a lot from the best teachers we ever had - like Jimmy O.  They are the model for real business leadership.

I am a big fan of Culver’s Restaurants.  They are famous for their terrific frozen custard and great “butterburgers” with almost 400 locations throughout 17 states.  The stores are bright and clean, and they have figured out how to attract and train friendly and competent staff.   If you haven’t been to one, you need to go.

I do, however, have an observation about Culver’s…. the menu is too big.  They’re famous for their frozen custard and burgers, but they also offer several chicken sandwiches; pork and beef choices; fish plates; fried chicken; lots of soups and salads; side dishes - even hot dogs!  It often takes a long time to order because the menu board is daunting for people in line.  Food is cooked to order and delivery can be slow in busy periods.  It has to be harder to train the kitchen staff than at most fast food restaurants, and it must be a nightmare to order food supplies.  Are these extra choices on top of the main things that bring people in, worth the extra expense and headaches?

I think the larger lesson is this: entrepreneurs never want to miss a sale, and it’s hard to say no to a perceived customer need.  Product and service additions seem like a way to grow the business and it’s easy to assume that the incremental costs are minimal.  On top of this, many businesses are in “survival mode” right now, and experts are telling them “..don’t stand still“  and  “..find other outlets“.

Unfortunately, these moves are often more complicated and costly than planned, and they can lead to unintended consequences - i.e. the longer wait times in the Culver’s example.  New ventures can easily become a distraction.  Often, using precious cash to add products or services that have iffy returns will make things worse in a hurry. Finally, the brand can suffer if customers no longer understand the company’s core offering.  These issues may not be applicable to Culver’s, but they happen a lot.  

Our advice is not to stand still…. but before deciding on a product or service addition, ask a few questions:

• Have we really done everything we can to grow our core business before adding more products or services?
• Do we have an accurate incremental cost analysis and reasonable sales forecast? 
• Are we considering all the possible impacts to the business beyond incremental costs?
• Will these additions improve - or confuse our branding?

The answers will often lead to refocusing efforts on the core products and services, and a conclusion that in many cases – less is actually more.

Virtually everyone that runs a businesses will tell you that they value honesty and open communications. They’ll say it’s the very foundation of their strategy to attract and maintain great talent.  Scratch a little deeper, however, and you’ll find that many organizations don’t like to be too honest or too open in their communications – particularly when it comes to the financial situation of the company.  Worries often center around the fear that employees will leak the information to competitors, or it will change their compensation expectations.     

We’ve always believed it’s a mistake to hide the numbers and not be financially transparent.  And in this difficult time of workforce reductions, layoffs, and salary and benefit reductions - it is more important than ever to share the information.  We advise clients to share key financial data with employees - no matter what the size or ownership structure of the business is.   As Jim Long likes to say, “….no one wants to play in a game where you don’t know the score”. 

It isn’t absolutely necessary to give everyone the entire profit and loss statement or the actual dollar figures ….although we usually do.   It IS important to give employees an idea of how the business is doing relative to the budget…. historical periods…. and the competition.  By keeping people in the dark on how the company is doing, you force them to make assumptions, or believe the rumors that circulate within all companies.  For us, fears about leaks to competitors sounds a lot more like employee satisfaction issues than it does about the availability of the data.  To be honest – we haven’t heard a strong reason yet, for hiding the numbers.

You should hire the right people – and then let them know how the business is doing financially.  Employees like to feel trusted, and they want to know if they are winning the game…..  don’t hide the score from them.