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Building a sustainable entrepreneurial environment in smaller communities

Jan 20th, 2012
by ChuckPapaG.

Not sure how it happened, but over the last couple of months people I have never met before reached out to me for my thoughts on developing an entrepreneurial environment in their communities.  I am certainly not an expert on the subject, but those calls prompted me to write this simple primer and share some ideas along with what I know/think.  It’s not a complete guide (there are many books on the subject), or a fully articulated plan, but here it goes.

I have been an active supporter of entrepreneurship initiatives for the last twenty years, and somewhat of a serial entrepreneur/intrapreneur myself, so I occasionally engage in conversations with community, education, and business leaders on ideas and approaches to developing an entrepreneurial environment.  From my experience in places I lived and worked before, influencing policy development through business community engagement, and improving talent development through educational initiatives, are two core components to building a healthy and thriving entrepreneurial ecosystem.  But not enough!  Of all the actions a community can pursue, from sponsoring incubators and donating space to mentoring groups, to the launching of grand marketing and tax-break initiatives to highlight their attractiveness as a destination, the most important, by far, is the development of an active and perpetual early-stage Venture Capital (VC) transaction deal flow environment.  And without the C of VC that deal flow environment remains random and anemic; subject to strokes of luck rather than the result of a strategy.  Without the presence of strong local VC firms, or at least individuals actively providing deal flow to VC firms, the husbandry of early stage companies is left to the pursuit of funding by the three F’s (3F=Friends, Family, and Fools), the randomness of loosely structured part-time-managed Angel networks, or the kindness and whims of high net-worth individuals.  Even though those sources of money are required, they are still not sufficient.

Fostering a self-sustainable environment requires the focused, active, and continuous searching, finding, screening, seeding, and mentoring of the inventors, researchers, budding entrepreneurs, and corporate refugees pursuing the creation of their own companies.  And it is real work that must be based on a clear strategy and requiring dedicated resources, if it is to bear fruit over time.  It is a process that needs its own TME (Time, Money, and Effort/Energy) resources as much as the companies it will eventually produce.  Some people would immediately point out that is the role of the VC firms.  That’s true in a general sense but, unfortunately, because of the structure of most VC funds and the nature of VC’s, that initial ground-laying work is one that is rarely, if ever, funded in smaller communities.

So how can a city or a community overcome that?  I certainly don’t have “the answer” so what follows are highlights of a framework I use to discuss the development of potential solutions.  As usual, feedback is actively sought and encouraged.

First some basic background, with the hope I do not offend the intelligence of my readers.

First of all, what is an early stage company?

An early stage company is an individual, or a group of individuals, with an idea for a company, sometimes a fully articulated business plan but most often not, and occasionally with some minor amount of capital invested in the development of the idea or basic research.  It is not a company with a proven business model, revenues, and a customer base.  If a company has reached that stage of its evolution, it can be funded through multiple channels.  An early stage startup is an idea for a company looking for direction and funding to find a runway to take off from.  Not one on the runway already, in the process of taking off, or early off the ground.  The high infant-mortality quotient for start-ups is well established, but what is not clear is that the infant mortality of really early stage startups is even higher, because many of them never even get a chance to find the runway, let alone become an actual start-up with a chance to succeed or fail.  The often quoted ratio, and one I have personally experienced in my investments and entrepreneurial pursuits, is that of ten early stage investments at least five will completely flame out and return a loss, two to three may break even, two to three may generate a decent return, and one or two may become the break-outs that provide significant returns to the investors over two to five years.  Funding ten early stage companies over three to five years may be enough for a single VC firm but not enough to build a healthy and community-impacting ecosystem.

So what’s a community to do?

Well; it’s a game of numbers and it’s all about the money!  Based on my experience, I believe it takes the funding of 25 to 50 early stage companies per year per one million residents for any Metropolitan Statistical Area (MSA) to maintain a constant deal flow, and make a lasting impact on the community.  For example, the Tampa/St. Pete/Clearwater MSA with its 2.5 million residents should be incubating 75 to 100 early stage companies per year.  Using the anecdotal new-company-mortality-rate data this would generate 20 to 30 self-sustaining companies per year.  Out of those, 5 to 15 will achieve a significant return for the investors and become deal flow accelerators themselves, spawning other start-up companies.  Of course finding hundreds of legitimate early stage companies per year, getting them funded with seed capital, and getting them to the runway and ready for start-up take-off means looking at and evaluating the feasibility of (again based on anecdotal data and personal experience) 300 to 500 ideas/plans per year.  That may appear impossible, but all it takes is awareness, some money, and an active program.  Just through my participation on the advisory board of the University of Tampa’s Center for Entrepreneurship I hear at least ten decent ideas each semester that are worth exploring.

But where can the money come from?

Other than the three F’s, and Angel Investors who fund many start-ups and most, if not all, small businesses, there are a few formal sources of capital for early stage companies: Venture Capital Firms, Strategic Investors, Money Managers for High Net-Worth individuals (HNWI), and Regional Development Organizations.

Venture Capital firms – VC’s maintain an active role in the startups they fund and want to “drop in” regularly at companies they invest, so VC firms and VC’s are generally not nomadic in nature.  They tend to domicile in large metropolitan areas that provide access to institutional capital for their funds, have large universities and large firms who attract and develop talent and spawn new companies for their deal flow, or are great cities for the VC’s to live after they made their money, etc.  Even though some VC firms will fund companies not in their immediate geographic area, they usually require a local connection they trust to co-invest and then represent them on Boards of Directors.  In the absence of that connection – and a very frustrating outcome to local business leaders – more often than not, a startup company funded by a remote VC eventually packs up and moves to a place close to the VC like Silicon Valley, Boston, New York, etc.  If your community is not blessed with an active VC presence, short of finding someone rich who can make a large investment into a VC fund and demand the establishment and funding of a local office, there is not much else a community can do to directly impact their presence.

Strategic investors – Companies with interest in a specific technology coming out of a local university, the success of a local supplier, or in need of support businesses around one of their facilities occasionally fund start-up activities.  But that happens only when they can see a clear reason not to pursue it as an internal project, or a new division of their own, or if some of their executives are HNWI actively involved in the community.  They generally invest because they can identify what the new company will do to serve their interests, either by creating new technology, exploring new markets, supporting their operations, or extending the life of a product, rather than for the pure economic return on investment.  So a strategic investment in an early stage company that creates a new technology the strategic investor can use, or builds a necessary component required for manufacturing, but breaks even financially as a standalone company returning a minimum gain to its investors, is still a success for them.  Just like with the VC firms, your community needs to be the “right place at the right time with the right startup” for that to happen.

Money Managers – Some High-Net-Worth-Individuals make their own investments and fall under the 3F category randomly pursuing investments presented by friends, or focusing in an area they have a personal interest in.  Those HNWI who have enough money to drive a community as active investors, generally do it through a professional money manager.  Unless the HNWI directs the money manager to invest some of their money in early stage startups, money managers almost never do.  High investment risk in any single start-up is a key reason individuals avoid investing in really early stage companies so when money managers try to do it on their own, because most are financial planner or portfolio management types, they look for lower risk investments and require an on-going business and revenue status before investing, which disqualifies most early stage companies.  Some HNWI’s get around their own, or their money manager’s, risk aversion by spreading the risk and becoming limited partners in VC funds.  Unfortunately for small communities, that money is rarely invested locally because investments are subject to the VC domicile preferences described above.  So if a HNWI wants to help a community, and has enough money, or can pool enough money from other HNWI, the best thing they can do is to either create their own fund, or invest it with a VC firm that commits to opening a local office.

Regional Development Organizations – RDO’s come in many shapes such as State Economic Development Authorities, State-funded investment funds, regional innovation centers and a number of other structures.  These organizations, well intentioned and sometimes well-funded as they may be, most of the times are mired in bureaucracy, are subject to political whims, and rarely staffed by experienced VC’s or executives who can initiate deals and maintain constant deal flow.  The one exception is funds and/or resourced dedicated to funding R&D programs in universities, but they generally don’t step outside their limited role and leave the commercialization of the R&D to other groups.  RDO’s are best in a supporting role, once the initial money is invested by someone else.

So what’s community to do to establish an active program?

I believe a VC Scout (VCS) firm may provide an answer.  A VC Scout firm is, initially, a group of dedicated people who have enough experience, credentials and drive to do the screening work required to start the process and also act as representatives for multiple VC firms.  The VCS firm becomes, in effect, a co-founder of many early stage companies it eventually puts on the run-way for take-off, but once the company is launched, it steps back to a support role.  Eventually the VCS firm can develop its own early stage fund by using some of its returns from being a co-founder in many start-ups and consolidating the local angel, HNWI, RDO, and 3F capital into a more organized structure.

This is not as easy as it may sound.  First, the team working for the VCS firm needs to have a core set of skills:

  • Management and operating experience to screen ideas for feasibility and help shepherd the founders through the initial formation and infrastructure implementation of their companies, as well as a track record that potential investors would respect
  • Temperament and personality to coach and steer the founders from concept/idea to a cohesive business model and plan
  • Financial, economic, and risk analysis capabilities to help founders understand and build economic and financial models and pitch books that can be presented to VC firms
  • Administrative and legal capabilities to deal with the deluge of paperwork required to support multiple companies and negotiating experience in putting funding together for projects
  • Access to an extensive network of contacts who can act as sounding boards and provide industry-specific views around each idea and form the early advisory boards of the start-up companies
  • Access to local incubators, accelerators, etc. who can provide the support required to get from early stage to a start-up, etc.

Each community has people like that, but from what I have observed and personally experienced, the recruiting of the individuals required to build the VCS firm always falls short.  The individuals that fit the profile fall in one of two categories.  They have the skills, and could put the effort required into the VCS but are working as executives and managers in companies or are entrepreneurs themselves and  are not about to go work for free, or a de minimis salary, betting on compensation from the eventual returns, or they are retired executives who have the skills and can afford to do it on the promise of potential returns, but are not interested in working full time or putting in the effort required.  I have seen this pattern play out a half-dozen times in the last ten years and I have come to the conclusion that unless there is enough capital to attract and fund the VCS team initially with really talented people and competitive salaries, it never takes off the ground and the community does not develop with any consistency.

But I also think there are options, and I am convinced, for example, that most communities can leverage existing resources to fund the VCS.

Maybe there is a HNWI who understands the concepts and risk of funding early stage companies, and is actively involved in the community who can either fund the VCS’s operating budget directly, or become a limited partner in a VC fund with the condition of establishing a presence in his/her community.  Because a VCS would be subject to the Virtuous Cycle – Good things bring more good things – and the Fly-Wheel effect – It takes tremendous initial effort to get it spinning, but once it starts it take less and less energy to get it going faster and faster – a few small initial successes will attract more and eventually grow to a self-sustaining model.

Or perhaps a local corporation(s), private equity firm(s), or business organizations in the area who has a long-term view and dedication to the local community can fund the operating budget of the VCS for a period of, say, three years and participate in the long term returns from the equity the VCS holds in the start-ups it launches.  The key is to fund the operating expenses independent of any VC funds the VCS has access to who would not be interested in management fees higher than the norm (1-2%).

What do you think?

Posted in: Entrepreneurship, Personal Thoughts.

So you want to DIY an ERP project….

Jan 5th, 2012
by ChuckPapaG.

Assessing the Enterprise Resource Planning (ERP) capabilities of a company being acquired has become a due diligence component of most Merger and Acquisition (M&A) or Private Equity (PE) transactions, and rightfully so.  Having an outdated or poorly deployed ERP system is, and should be, a red flag and a discount factor for any transaction.  A few months ago, a Private Equity client asked me to put together a quick presentation of my experience with ERP systems and the impact they have on companies. A shortened and sanitized version of the presentation is here; but going back through my presentation notes got me thinking;

A pending M&A transaction is not the only time I have seen an ERP project make or break a company or seriously impact its relationship with its customers.  Any operator worth his/her salt needs to be intimately familiar with the ERP infrastructure of the company they run and directly engaged in major decisions around it.

If you do a Google search on “Failed ERP Implementations” you get over thirty five thousand hits and – depending of whose data you choose to believe – only between ten and thirty-five percent of all ERP projects achieve 100% of their objectives.  Color me purple, but it doesn’t take a math genius to deduce that the remaining sixty-five to ninety percent of projects fail in some way to meet their initial expectations or realize the perilous nature of ERP projects.  Statistics like that, and the publicity of lawsuits against major ERP vendors, should make Chief x Officers (CxO – Executive, Financial , Operating, Information) contemplating a large ERP project think twice about their strategy, their plan, their team, their ERP vendor, and their overall assumptions and expectations about the project.  And many of them do (and thank you to those who call me for help, Ideasphere Partners appreciates your business)!

Over the last fifteen years, of all the challenges I had to address as a technology and operations executive as well as in my Corporate Renewal, Merger & Acquisition, or interim-executive consulting work, issues and projects around ERP systems are usually the most challenging.  There is plenty available research that goes into more detail and offers specific strategies, but for those Do-It-Yourself (DIY) executives who don’t hire any outsiders to help, here are two things you have to do before anything else:

  • If your company does not have an ERP system in place already, better make sure the organization will be ready for one, even before implementation planning starts.  The quality of your plan will depend on how ready the organization is, and the quality of your implementation will heavily depend on how good your plan is.

An ERP system is at a very high level the operating system (OS) of a company.  Just like the OS on a computer, it is the interface between the hardware (business operations) and the software (business strategies), the router of the instructions-for-work to processing centers (customer orders, manufacturing requests, work plans, and schedules), the resource allocation manager (Equipment, service capacity, capital, or people), and the reporter of system performance (financial and operational metrics) to the owners.  And just like only simple computers – on-board controllers and special purpose hardware – can function without a complex OS, only small or single purpose companies can function without an ERP system.  And if your company has a home-grown ERP system you’ve outgrown, or uses a collection of modules from various vendors to perform the ERP function that can no longer scale and you are considering upgrading, keep reading.

Deploying an ERP system where none existed before is a traumatic experience to the organization.  For example, if the company has an each-on-their-own culture and poor cooperation between departments and divisions who are not ready to give up a certain amount of autonomy, accept a level of discipline, and acknowledge organizational inter-dependencies, deploying an ERP system is doomed to fail from the start.  To mitigate that risk, before anything else, make sure you have a solid assessment of the organization and its readiness for change and a solid organizational change plan that includes all aspects of the organization, from sales to manufacturing, to senior management.  There is of course the special cases where the deployment of an ERP system is merely the mechanism an executive team is using to actually drive change, but that’s another blog for another day.  There are many resources on how to effect organizational change, but some of my favored books from my library, not in any particular order, are: Managing Transitions, Influencer, Re-engineering Management, Why New Systems Fail, and Real Change Leaders.

  • If your company has an ERP system already deployed, but it is based on antiquated technology, or a collection of loosely connected modules (i.e. an accounting package, a scheduling package, an inventory management custom app, and a shop floor control system) from various vendors and levels of sophistication, in addition to change management, there are technology and integration issues you need to contemplate before pulling a plan together.

 

All ERP vendors will tell you they can handle any integration issues, but an ERP system, antiquated or patch-work as it may be, if it is functioning at any capacity, it is still analogous to the nervous system in the human body.  Just like the nervous system controls organs as well as thoughts and behavior utilizing a synaptic network, so does the ERP system control operations as well as activities and output utilizing a computer network and electronic transactions.  And once an ERP system is in place, it enables new connections and facilitates activities that are not immediately obvious.  Major ERP changes are like major surgery and you would not want someone to remove or operate on a major organ in your body, without understanding what it would do to you.

 

Before under-taking an ERP project, start by creating an enterprise architecture map and a system interaction chart that shows the various systems and sub-systems, their connectivity and the types of information they exchange.  Creating a simple map will show you the SIPOC (Supplier, Input, Process, Output, and Consumer) relationships that will be impacted when you make a change so you can be prepared.  You will be surprised how Julie from accounting is using some report James creates through the inventory system to manually populate a spreadsheet that sales uses to change the forecast, etc. etc. etc.  Or, how a division IT team connected a supplier to the system through a back-door integration corporate IT is not aware of so they can improve their parts delivery process.  A couple of good books on this area from colleagues I personally know and respect are Enterprise Integration, and Enterprise Information Integration.

And if you don’t think these two first steps are important, drop me a note!  I can tell you enough horror stories to change your mind.

Posted in: Favored Books, Operational Leadership, Things to Know, Things to Manage, Thoughts on being an Operator.

Year-end Bonuses – A cautionary tale…

Dec 27th, 2011
by ChuckPapaG.

The Operator’s Blog

As the end of the year draws closer, I‘ve had a number of discussions with clients, and fellow executives and entrepreneurs about year-end performance bonuses. The conversations, for the most part, revolved around the formulas used to calculate the amount, or the benchmarks used to determine the actual performance achieved.  Having been on both sides of the equation multiple times – the recipient of the bonus as well as the determinant of the amount – these “mechanics” conversations are relatively simple and straight forward to have.  What never ceases to amaze me, however, is how often there is relatively little thought invested into understanding what long term behavior the year-end bonus plan encourages, or how the thinking in the design does not extend beyond the current bonus-plan year.  I think that short-sightedness is a failure of executive teams in understanding human nature.  After all, as Upton Sinclair once proclaimed, “It is difficult to get a man to understand something, when his salary depends upon his not understanding it” let alone get the man, or woman, to do something about it that would impact it negatively in such an obvious time frame; twelve months.

Over the years I have seen one-too-many times executives make decisions totally against the long-term interest of their firm, their shareholders, their employees, or their customers, and sometimes downright unethical, just to reach some poorly designed short term objective that impacted their individual year-end bonus.  The sad part, had some forethought been applied to the establishment of the plan by the executive team – instead of assigning the task to some poor HR analyst and hoping he gets it right even though in many cases he doesn’t understand the business – many of the problems could have been averted.

The story below is a cautionary tale and a classic example of what happens when the year-end bonus is not well thought out.  Any language in “brackets” is from company records or interviews and, as usual, comments are welcomed either on the website, or via e-mail.

The new year-end bonus plan for this particular company (not an Ideasphere client at the time) was developed by HR and launched with great fanfare.  Everyone who was on the bonus program took it apart and quickly realized that it assigned almost 90% of the formula to achieving revenue growth.  Both the CEO and the CFO, even though familiar with the Balanced Scorecard framework, signed off on this un-even weighting approach for a “good reason.”  The company planned to file for an IPO within the next couple of years and revenue growth velocity was a critical component of the eventual valuation by the underwriters.  Since the CFO and CEO had a significant equity position in the company, a high valuation was their “retirement ticket”, as one of them put it in an interview.  So starting at the top, the incentives were not tied to profitability, long term customer satisfaction, production quality, or any other associated performance metric.

Even to someone not as sophisticated as these two executives, it was obvious the Ying of Revenue was not harmonized with the Yang of Profitability, and the whole plan could backfire; but that too was rationalized because, after all, this was only a two year approach until the IPO.  After the IPO, the company would have the right environment to “do it right and restore a Balanced Scorecard approach.”  To further “secure alignment up and down the chain,” the plan weighting was applied universally to all managers across the company, regardless if they were in sales or in operations.

Things went great the first year, revenue grew exponentially and year-end bonuses were the highest they have ever been.  It looked like the plan was working as expected, so it was simply re-deployed for the second year without any changes.  Unfortunately, by the time the end of the second year rolled around, the IPO market dried up and, along with it, the potential of a public offering.  Also unfortunate was the fact that because of the focus on the IPO nobody spent any time reviewing the bonus plan, so HR, to meet their deadline of publishing the plan by January 1st,  released it unchanged for the third year.  By the middle of third year profitability had dropped to unsustainable levels, and customer satisfaction, after an initial spike up, went down through the floor into the bowels of hell.  By the end of the third year, finding themselves in a negative cash flow position, the company had to be put up for sale at a “fire-sale price,” as the CFO put it.

So what happened?  During a due diligence performed on the company by yours truly on the behalf of a potential buyer, it became clear that the year-end bonus plan the CEO and CFO hatched a few years prior was the major culprit in the company’s demise.  Because the plan was almost exclusively based on revenue growth:

  • Sales teams focused on selling any deal they could, at any price, to meet the revenue objectives, frequently undercutting, even their lower-priced, competitors by 15-25%.
  • Sales managers frequently approved ridiculously low-priced deals that would normally be rejected, by classifying them as “loss leader deals” justifying the frequent exceptions on imaginary “expected pull-through incremental revenue” from the client.
  • Operating managers, whose bonus was also based on a similarly structured plan, and who were supposed to “pull the cord on potentially unprofitable deals” during the operational risk review process, also ignored the low pricing and approved the deals based on “expected cost savings from operational optimization and economies of scale after on-boarding”.  This basically meant laying off the more senior, and higher paid, customer support folks and the off-shoring of work to the lowest bidder.  To compound the problem,
  • Market Executives, who owned the revenue levels after the deal was sold, approved the deployment of numerous dedicated customer support teams for large clients who threatened to switch because of the bad service, which drove the cost up and wiped out any savings from the layoffs and the off-shoring.

There are a few more details to the story that also contributed to the demise of the company, but if one was to point to the turning-point event that started the death spiral, the launch of the year-end bonus plan is the clear winner.

So, as much as I believe in providing performance-based incentive compensation to as many people in the company, I also believe the year-end bonus plan must be carefully considered and designed with more than twelve months of performance in mind.

Posted in: Operational Leadership, Personal Thoughts, Stories from the field, Things to Manage.

Resume vs Reality – Don’t believe everything you read

Dec 12th, 2011
by ChuckPapaG.







“Don’t believe everything you read.” That’s good advice at any time, but as I was reading this article about the 8 traits that trump the resume, it made me think about some of the resumes and cover letters I’ve seen that made me laugh out loud.  Having read, literally, thousands of resumes and cover letters over the last fifteen years, unfortunately, it seems the more perfect the resume the more scrutiny it deserves. It may be just me, but I have come to believe that a resume is a marketing/PR tool that can be manipulated to say just about anything, so everything needs to be fact checked with people who can provide “color” to any text.

So looked through some old files and found some classic examples from real resumes from people I know and could compare their resume to reality.  These are some examples (slightly edited by removing company or product names).

PS – Any resemblance to text from a reader’s resume is purely coincidental.

People Skills

What the resume says:  As the manager of the help desk, I worked with other managers to build relationships with many departments across our global organization.  I developed a team that was recognized as one with great team spirit and strong relationships and as a result I was assigned to a new group that was struggling with similar issues.

What it should have said:  When I was the manager of the help desk I spent most of my time personally handling any help desk calls that came from senior executives of our company.  I was the personal help desk engineer for our C-Level executives and spent most of my time on their floor.  My department was so poorly managed that the entire team united against me and complained to HR, which resulted in an intervention and my eventual transfer to another department where I no longer manage people.

Grace Under Pressure

Resume: As a part of the CFO team that managed the three acquisitions completed in the last four years I was with the company, I have become adept at handling complex transactions and high pressure situations.

Reality: I was the CFO’s regular golfing partner, so every time I was at risk of being laid-off he found something for me to do on special projects.  Unfortunately, during the last acquisition I managed to upset the CFO of the company we were acquitting so much with my whining, he asked for my removal from the team.

Integrity and Moral Fiber

Resume: As the President of our largest division I was responsible for the operations of the company across the world.  Because of the high standards I set for performance, and personal and regular visits to our operating facilities, the division met all revenue and profitability objectives and was the most profitable group in the company.

Reality: As the President of the division, I did everything I could to bury bad news and manipulated the cost structure of our products by reducing quality and selling an inferior product to our customers to make my numbers look good.  I had multiple extra-marital affairs and used my regular “operations review” trips as the cover for my visits to my various “friends” across the globe.  My expense report regularly included “client entertainment” expenses even though I rarely met with actual clients.

Work Ethic

Resume: Because of my work ethic, great understanding of operations, and strong performance I was promoted to VP of Operations.

Reality: I regularly claimed to be “working from home” and that I was on multiple conference calls early in the morning with our Asian operations and therefore not available for any meetings before 10:00am.  After about six months of successfully working less than a couple of hours per day, during a re-organization project, the outside consultant working with our CEO figured it out and I was fired. Oh, the reason I was promoted to VP initially was because I found a way to automate an operations report and cut the time required to complete it from hours to minutes so my reports were always on time (even though I had no idea what they meant).

Charisma:

Resume: As a sales person, my good sense of humor and easy going personality enables me to interact with many levels inside the manufacturing organization and deliver great service to my clients.

Reality: I had a great relationship with the team on the manufacturing floor workers and we frequently exchanged sexually explicit jokes and pictures via e-mail.  Unfortunately when I was promoted and transferred to an office environment, and was asked to sell to a higher level within client organizations, I offended so many people they had to transfer me back to selling to production floor supervisors. (How my client allowed this one to keep his job, I am still trying to figure out)

Ambition:

Resume: My career with the company spanned six years in a number of positions with progressively larger responsibilities.

Reality: Everyone thought I was a smart person so they moved me around to get exposure and find my niche.  After failing to impress multiple supervisors, they finally figured out I was all talk and no action so they fired me.

Leadership Abilities:

Resume: My experience in the military has honed my leadership abilities and prepared me for any position of responsibility.

Reality: I was a desk clerk with a Non-Commissioned-Officer rank because I had a college education.  I never lead anyone and the only responsibility I had was to submit inventory reports on time.

Positive Attitude

Resume: During the final stages of the company reorganization I was put in charge of the team that closed a number of plants.  Despite the challenging environment, I maintained good relationships with the workforce and managed the plant closure without any negative incidents.

Reality: I was put in charge of the plant closure team because nobody wanted me around the office because of my negative attitude.  Thankfully the HR director on the transition team was a real people person and he kept everyone positive.

 

What are your favored examples?





Posted in: Personal Thoughts, Stories from the field.

Micromanagement masquerading as Attention to Detail

Nov 16th, 2011
by ChuckPapaG.

A couple of years ago, the owners of a company stuck in a no-revenue-growth and high G&A environment for the previous five years, asked me to work with the company executives to figure out how they could renew themselves and start growing again.  One of the things I do, part of the Ideasphere diagnostic process is to look through a collection of e-mails between the Sr. Executive in charge and his operating managers (selected and provided by the Sr. Executive himself) and sit through a few executive and other meetings as an observer, again selected by the Sr. Executive.  Within a day or two I can usually find the initial root causes of the problem and outline some immediate steps to take.

The Sr. Executive graciously agreed to the process and provided me with access to a few e-mail chains to review as well as invitations to a couple of “critical” meetings.  As I started reviewing the e-mail chains, the old adage “God is in the details, so is the Devil” kept running through my mind.  I know it’s a cliche, but it’s been drilled into my head from early on in the military and in my development as an executive so after reading the initial set of e-mails I was extremely impressed at the level of detail this Sr. Executive was involved in.  After all, hands-on involvement and attention to detail is a characteristic of successful leaders from executives like Jack Welch, Steve Jobs, and Bill Gates to military leaders like Patton, Nimitz, Schwartzkopf, and Petraeus.

But then something funny happened.  As I read through more e-mails, my admiration turned to surprise and finally disappointment at the level of micromanagement behavior this Sr. Executive displayed.  The result of the micromanagement behavior was one of the main reasons this company was stuck and the change had to start with the top managers.  Having been in the position to give feedback on micromanaging a couple of times over the years, I knew the immediate response would be “I am not micromanaging, I am paying attention to detail,” and since micromanagement is a negative term when used around other managers, I thought it would be best to explain the term through specific examples.  Below is an edited version of my talk along with real examples from this company. Please read on and decide;

Are any of these examples playing out in our company or the organization you lead?

As always, feedback is welcome both private via e-mail as well as public through comments on this blog.

Attention to detail is not the same as micromanagement.  The former is a behavioral pattern individuals display while the latter is generally a leadership disease.  One can be a micro-manager without actually being a person who pays attention to detail and vice verse.  The former, when properly leveraged, is a desired attribute for a good leader; the latteris the characteristic of an ineffective leader.  Let’s face it, if a leader is not trained and conditioned to empower, mentor and allow her staff the latitude to make honest mistakes, or generally lacks the desire to do those things, she is probably already a micro-manager.

Rather than focusing on the important things in need of the leader’s attention (Steve Jobs was legendary for driving every detail of the user experience), micromanagement behavior is often a tool used by insecure or incompetent managers to abuse people over minutia and to shift the focus of conversations from the leader’s responsibility to the employee.  Micromanagement is the tendency of executives to manage minutiae they are comfortable with across the organization regardless of their position and role, or the people who are available or responsible to handle the actual work.  To cure the disease leaders must shift their thinking and support behaviors like Teamwork, Mentorship, Skill Development, Empowering, Trust and Verify, and Responsibility instead.  Leaders must believe their people want to, and can, be valuable, and they want to matter.  But it has to start at the top.  If the Sr. Leaders do not demonstrate the right behavior, the rest of the organization, taking their cue from them, will not do it either.

For example, the Sr. Executive wanted to know the status of various initiatives every day at a detailed task level and demanded to be copied on all timeline reports from dozens of projects across the company.  Then at random intervals he would pick a random report, search for and find a task that was behind schedule, and call the project managers to verbally abuse them for being behind schedule, most of the times without any context on why the deadline was missed, or changed, and some times from a report that was three or four days old and no longer relevant to that task status.

Now don’t get me wrong, I understand the need to keep to timelines; it is a core principle of the SMARTT religion (Specific, Measurable, Achievable, Relevant, Time-bound, and Trackable) of which I am both a preacher and disciple; but, timelines time-bound against what?  There is S.M.A.R. before T.T.  A list of all the major activities the organization is pursuing and all the tasks that are late in every project is a sea of data that adds no value if the late tasks have not been identified as critical, prioritized against the myriad other initiatives with timelines, and pursued through the people that own them rather than based on a simple report.  Besides, depending on what the executive team agrees the priorities are, and what resources are or can be made available, the level of commitment to deployment, etc. every single timeline can be, and will be at some point be changed.

Even though he talked about Quality, this executive had an obsessive belief that to get things done they had to be done quickly, so he pushed artificial deadlines regardless of the complexity of the challenge or the impact on quality.  Of course, as I have observed repeatedly at many companies, without the right context, the “get it done now” approach does not always solve the problems.  More often it has the opposite effect.  Rushing the launch date of a product feature to meet a client’s immediate need, does not solve the fact the company does not have a consistent Product Development methodology or follows a roadmap.  It just delays the inevitable failure of the overall approach for a little while, and then it simply returns with a vengeance.  The pattern was consistent.  A project manager, a software development team leader, and a QA person would provide an estimate on a feature; then the Sr. executive would cut it half, or sometimes by two thirds and tell the project manager to enter that into the plan.   Then when the date was missed there would be an all-hands-on-deck meeting so the Sr. executive could berate everyone involved.  Being a big believer of the Agile Methodology myself, observing this approach to determining deadlines just made me cringe.  Of course the plan never worked and the inside joke was that the dates were there simply to be missed so the Sr. Executive could come in and exercise her right to scold the team for missing deadlines and to tell them they did not meet expectations.

Again, not to be confused with the need for organizations to move faster in a global competitive environment, but there is a reason nine pregnant women can not give birth to a baby in one month.  Some things are just not results of an arithmetic exercise and have to go through a process of development and maturation.  By not being patient (or understanding it for that matter) with the process of software development, the executive contributed to the chaotic environment the division operated in.  Product releases were frequently missed, or introduced new bugs because of unintended consequences, leading to increasing customer dissatisfaction and the reluctance of any customer to be a reference.  To compound the problem, most employees, after the initial valiant attempt to meet the deadlines, resorted to cutting corners or simply just ignored the project plan and worked at whatever pace they thought was “fast enough.”  That, in effect, made any attempt to hold people accountable for deadlines almost impossible.  Eventually the good employees just got tired of being berated and left.  The employee turn-over was so much higher than the average that recruiters were cutting their rates to have this company as a client.

And then there were the all-hands-on-deck meetings…

This executive would call meetings and summon entire project teams to his conference room so he could “personally fix the problem since no one else seems to care about deadlines or knows what they are doing.”  I sat in a couple of those meetings and it was painful.  The reason the problems kept coming back was because crucial conversations and real teamwork never took place, and this Sr. Executive continually rejected the input of his most valuable resources, his employees, in favor of his own personal opinions.  Just like what I found reviewing the e-mail chains, in many cases people jumped to providing a quick solution to look good in front of the executive before they knew what the real problem was, without asking people with expertise for their input, or ignoring the commentary of any one who disagreed, regardless of the validity of the response or the depth of knowledge of the people contributing.

In every one of the meetings I attended, the perceived or designated “leader” mimicked the Sr. Executive’s behavior and proceeded to drive decisions and dates without framing the problem, or asking for others’ views of it.  The leader did most of the talking, rather than most of the asking and listening, and when the people in the meetings attempted to provide a well thought out answer to questions, they were dismissed, and rather dis-respectfully if they could not complete their sentence in a few seconds. The meetings went on for the prescribed period, minutes were taken, and a status report was created for the Sr. Executive to read, and everyone left them satisfied something was accomplished.  However, to the outside observer, none of the root problems were really solved; some information was exchanged; the superiority of the leader was confirmed; a superficial victory was declared; and the troops were dismissed.  Until the next time (which usually came every couple of weeks).

I am all for teamwork and collaboration and meetings are a great way to do that.   I write often about effective meetings and frequently prescribe collaborative and cross-functional projects as a means to solve some vexing problem.  However, if every problem could be solved in a one hour meeting, or by pushing through it with strong opinions, devoid of facts, or a view and analysis of the root causes, I and other change agent executives like me would have been out of a job a long time ago, and the team this Sr. Executive had in place would have solved them as they came up never to be seen again.

I can’t share what happened next but here is a hint.  Maybe I am just old school, but if this was a company I was the owner of, observing those meetings would have been the proverbial straw that broke the camel’s back.  I would have called the Sr. Executive into a meeting and would have held a meaningful conversation about his “I am an executive therefore I am a GOD who needs no input from you peons,” attitude.  Not a nasty conversation, but rather a crucial conversation in the spirit of renewal, growth, and transitioning the company to the next level.  Then I would ask the management team to define no more than a half dozen projects across the company that demanded their complete attention and make discussion of those projects part of their weekly staff meeting.  All other projects would be assumed OK, unless a project manager or project sponsor escalated an issue to the executive team based on a predefined Risk Management Assessment matrix.

But that’s just me!

Posted in: Personal Thoughts.

Big companies and strategy development

Nov 7th, 2011
by ChuckPapaG.

I have a framed copy of this letter from Nov 15 1876  hanging in my office.  It reminds me that sometimes having a long career and reaching senior positions in a large company, or expert status in an industry, does not necessarily make us any better than anyone else at developing long term strategies.  That’s why strategic thinking needs external inputs and challenges on a regular basis, and strategy development is a continuous process not an event.

What prompted this blog entry is a conversation with an old client from a few years back who, a few weeks ago, told me he believes his industry is not “really under siege” from new companies with new technology and that the ten year product strategy I helped them develope seven years ago, before the iPad, Cloud, Open Source,  etc. is still right for “at least the next five years.”  And I quote: “Chuck we loved what you did for us,  your ideas and we are a believer in your product development methodology, but our executive team is too busy and we do not think we need to re-assess our strategic initiatives every year.”  After I got up from the floor, I sent him a framed copy of the letter.  He is a good sport and today he sent me an e-mail asking for time to “talk strategy” and a picture from his office with the letter hanging right next to his “XXX of the Year” award from five years ago;-)  Sometimes a picture is truly worth a thousand words!

 

 

Posted in: Personal Thoughts.

When you are too stupid to know better, don’t try to be clever!

Oct 28th, 2011
by ChuckPapaG.

I generally believe most people, even ones with average intelligence like my self, are smart enough to watch out for, and protect, their own self-interest in most cases. But not all people do it, and not in all cases. It’s a bell curve distribution of: Some people do it all the time and all people do it some of the time, but not all people do it all the time, and certainly none do it none of the time. Of course there is always that 1/10th of 1 % special class of people who simply don’t know what’s in their best interest, let alone know to watch out for it. They are the ones who need help figuring their interest out before they decide whether or not to protect it. Some people, like small children and people with legitimate mental disabilities fall under this category; they are the ones we, as a society, need to actively protect. But some are either simply knuckle-drugging, dumb-as-a-rock individuals who are too stupid to know better or have such a super-inflated sense of ego they think they are invisible and indestructible. And some, the worse combination, are both too stupid and with an un-justified high perception of their mental capacity to protect their own interest. It’s a situation with one of those individuals that got me started on this blog.
Joe (not his real name) and Jack (not his real name either) both were involved with, and have an equity interest in a company (SmallCorp) that had been wronged, and was in the process of suing MegaCorp. A win by SmallCorp would not only be the morally right thing to do, it would have most likely resulted in monetary compensation to SmallCorp, which would raise the value of Joe and Jack’s respective interest in the company.
Independently Joe has an on-going dispute with Jack that is moving through the court system and has nothing to do with the MegaCorp case. Joe loaned Jack money and wants it paid back. Jack refuses to pay it back because he believes it was not a personal loan, despite the cancelled checks made out to him personally and many witnesses to numerous conversations confirming the personal nature of the loan.
Fully aware of the dispute between them, but because the were both active participants in the transaction, the SmallCorp attorneys nevertheless ask Joe and Jack to provide their respective testimony to support their case against MegaCorp.
Joe cooperates but Jack proceeds to send the following e-mail (slightly edited to remove real names) to the SmallCorp attorneys (grammatical errors not corrected):

Dear SmallCorp attorney,
Thank you for your call this afternoon. After careful consider of our conversation, the amount of time that has lapsed, as well as Joe’s most recent threat of a law suit against me for an alleged personal debt that I dispute, my memory of many of the facts are unclear without being refreshed.
Please feel free to share with Joe, that should he be willing to release me (in writing) from his alleged claim I’m hopeful I can refresh my memory.
Jack.

Now, by most standards, the above would be viewed as a vailed attempt of extortion, but the ethical and legal implications of the content of this e-mail are not the subject of this blog (even though I would love to hear what you think about it). The issue is whether or not Jack is a legitimately mentally challenged person, simply too stupid to know better than to put something like these comments in an e-mail, or he is an egomaniac convinced he is being clever.
Here is my take: The fact that he thought enough to come up with a plan to leverage one transaction to get something in the other one, indicates he is not mentally challenged. That leaves the second or third option. I think it’s a combination of both! You see anyone who knows anything about the legal system in the US would recognize that offering to, in effect, sell your testimony for a price taints it, and potentially exposes you to legal action. It would have been a clever play, but for the fact that putting it in the e-mail above made Jack’s testimony practically useless because, even if he was to tell the truth, the defense attorneys would destroy his credibility by exposing this e-mail, which is subject to discovery.
That’s exactly what made the SmallCorp attorneys drop their case against MegaCorp rather than risk losing a legitimate case because of Jack’s tainted testimony. So the “clever” game backfired. The dropped case means that SmallCorp and therefore both Joe and Jack, lost any potential gain from the lawsuit. To make things worse, Joe is now even more upset and steadily proceeding with the court case to collect on the loan. Jack failed to protect his self-interest and managed to lose on both counts.
I think one of the morals of the story is this: If you are too stupid to know what’s in your best interest, and don’t actually have the intellectual capacity to pull it off, don’t start playing “clever” games . Your chances of success are low and they will most likely backfire. Oh, and if your ethical standards are this low as to resort to extortion, you deserve what you get.
What do YOU think?

Posted in: Personal Thoughts, Stories from the field.

Why should I help you?

Oct 5th, 2011
by ChuckPapaG.

One of my morning e-mails from a couple of weeks ago made me really think about the “Pay It Forward” philosophy I’ve practiced for the last twenty-five or so years. I struggled all day with how to reply and below is the e-mail I sent to the originator (names changed to protect the innocent) the next day. Two weeks later, I am still thinking about it, so I told the original author I was going to write about it in my blog and he is OK with me sharing my response, because we both want to know others think. When is the Pay It Forward philosophy applicable?

Dear John,

It’s been almost two years since the last time we connected so it was good to get your e-mail with your latest news yesterday. Glad to hear the family is doing well and sorry to hear you may be looking for a job soon. In this crazy economy, that’s a tough spot to be in, and I appreciate you asking me to connect you to Mike. I will be happy to do it, and will do it in a separate e-mail later today. Now, normally I would have done it without even a second thought, but I did struggle with your request and I wanted you to know about it. Why you ask? Well, let me explain.
Even though we’ve known each other for years, we are mainly good business acquaintances, rather than close personal friends. But we have worked on a couple of things together, we know about each others’ families, and we have a bit more than just a casual business connection, so I was not surprised you asked for my help. I also know you to be a competent executive, so I understand you feeling positive I would sponsor you (because that is what a personal reference to fellow executives in my network would be). So the struggle was neither familiarity nor competency.
Here is the thing that made me think hard and over-night before making the introduction.
Last year when I was helping Mary look for a job through connections in my network, over the course of a month I e-mailed you twice and called you three times about making some introductions for her. Neither I, nor Mary, heard back from you; Not even a polite “Sorry I can’t help”, which would have been enough by the way.
So here we are today, a year later, because you know your job is in jeopardy (and yes I know it’s through no fault of your own), you want me to introduce you to Mike. Mike is a good friend, well connected in your industry, and I am sure will help you based on my recommendation. Ironically, Mike is also the guy who, despite the fact he runs a multimillion dollar company, last year, based on my recommendation, introduced Mary to a couple of companies in his portfolio and one of them actually hired her. I am sure between my network and his, we will connect you to the right people and help you find your new job.

But I think if I only help you without sending you this e-mail, I will miss the opportunity to remind you of one of the three rules I believe are important in our life and give you a fish, rather than teaching you to fish. You heard them many times when we worked together, but here they are again, “The Rules”:

Be good at what you do.
Do the right thing.
Help others.

John, I watched, and helped you progress through your career because you follow the first two rules. Now I want to make sure, as you continue to go on to bigger and better things, you don’t forget the last one. This job situation is just a temporary set-back and won’t matter in the long run. Trust me on this one! You see, we all have our ups and downs in our careers and I doubt you will be the exception. I hope what will matter in the long run, and this experience, is that you will remember this e-mail about the third rule.
Help others (even when it’s not convenient).
Or, as the sign in one of my mentor’s office says “Careful who’s head you step on on the way up, because you may need their shoulders on the way down.”

My friend, I hope you read this for what is intended, sharing some wisdom gathered over many years, receive it in good spirit and remember it. I also hope the introductions Mike and I make for you pay off sooner rather than later and you land in a new position that gives you a new platform to shine on.

As always, available to help,

Chuck P.

Posted in: Personal Thoughts.

A talk about Leadership – Thoughts on the Future

Oct 4th, 2011
by ChuckPapaG.

Talking to High School students about Leadership.  That was my challenge last week as the Keynote Speaker for a Florida Association of Student Councils rally.  I thought it would be important to keep the message short and focus on only a couple of important things.  This 30 minute video of the talk by my friend Wayne Rasanen and the presentation material at Prezi.com are the results.

Posted in: Operational Leadership, Personal Thoughts, Things to Know.

Relentless Objectivity and Flawless Execution vs Faith and Hope

Sep 23rd, 2011
by ChuckPapaG.

A very new-age oriented prospective client was questioning me about my two core principles of “Relentless Objectivity” and “Flawless Execution.”  His view was that there are things that cannot be objectively assessed that make a difference, like faith, spirit, etc. and that flawless execution is pursuit of perfectionism that is not realistic.

It’s not the first time I’ve heard those arguments so I thought I would write something about it.  As usual, please send me thoughts/comments at c.papageorgiou@ideasphere.com.

Relentless Objectivity is not a replacement for faith, spirit, positivity, or hope.  It is simply about honing the ability to remove as much of the personal biases we all bring to any situation and to observe, analyze and understand the impact of our decisions and actions.  One of my favorite views on the subject is from Admiral Stockdale, who I met many years ago and who’s book “In Love and War” is one of the most powerful accounts of the Vietnam War I’ve ever read.  This is from the Wikipedia bio entry about him: “You must never confuse faith that you will prevail in the end – which you can never afford to lose – with the discipline to confront the most brutal facts of your current reality, whatever they might be.”

As far as flawless execution, it is not about the pursuit of perfection.  It is about the pursuit of well thought out plans and the development of solutions that can be executed by “mere mortals” like the rest of us without errors.  In business, hope is not a strategy, neither is faith.  Maybe it’s because I am an operator and therefore biased and not necessarily relentlessly objective on this matter, but execution is what converts faith to action and translates strategies and  hopes to results.  I have seen many cases where a mediocre strategy flawlessly executed delivered results far superior to a great strategy poorly executed.

Both principles are not plateaus to be reached but rather a way of thinking and doing business.

Posted in: Favored Books, Personal Thoughts, Things to Know.

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