Building Business Value | Corporate Management Strategies

Committing To The Process

Most people don't do anything of consequence unless they feel emotionally connected to the process. They don't get married, buy a car, take a job, run a marathon, have a child, or do anything of importance without first having an emotional commitment to the process.

Here is a traditional story about commitment. Think about how you can emotionally connect to a new project to make big things happen.

One morning, a debate broke out on a farm. The debate was raised between a hen and a pig. The topic of the debate was "Involvement Is Equal to Commitment." The hen argued, "If someone is willing to get involved, that means he is ready to commit."

The pig said, "No, I don't think so. Getting involved is far from ready to commit."

As they were arguing and it seemed no one could totally convince the other, they heard the voice of the farmer's wife, "Honey, what would you like for your breakfast? Ham, or egg?"

The farmer replied, "I prefer ham."

Then the pig told the hen, "You see, when you lay an egg, you are involved in the breakfast. But when Farmer Jones and his wife have ham and eggs for breakfast, I am committed."

The Big 5 - 0

Last night we celebrated the big 5-0. Fifty candles, fifty years, five decades, four score minus thirty ... fifty years. It's been a month in the workings and we just got around to celebrating Saturday night.  Friends, family, neighbors, clients, colleagues, old ruggers all stopped by to wish me well. Pilots, accountants, Doctors, lawyers, engineers, salespeople, you name it ... they all did their best to make me feel miserable and great at the same time. We ate, we drank, we played music and dodged the thunderstorms all in a wonderful evening of reflection, jokes, tears and song.

My Doctor came by and told me "I've got you this far, you're on your own now". But after a night of reminiscing and thinking about the past and future, you become even more aware that any success you've had and any success you may have is a reflection of those you've shared your life with.

It was a good night to remind myself that I may be standing on third base, but I sure as heck didn't hit a triple!

5 More Mistakes - Do You Want Superpremium Value?

1.  You are mishandling the communications of the corporate strategy.  You've got a new mission and direction as a result of your most recent off-site meeting. Great! Now how are you going to get the word out to your one thousand employees? Are you getting posters designed to illustrate your new mission, vision, or purpose? Are you stuffing paycheck envelopes with a document listing the five new goals of the organization? Most midmarket companies don't take these actions. If they establish a vision, the CEO fails to share it with others.

Other times, a CEO does try to get the word out but does so in a way that the Reverend Bill Hybels of Willow Creek Community Church calls the "Mt. Sinai approach" because Moses came down from Mt. Sinai with the two tablets denoting the Ten Commandments and demanded that they be followed. That top-down approach might have worked for Moses, but it doesn't work in today's business climate.

Consider this from my upbringing on a farm. Cow paths make sense to cows. From a human perspective, the particular route cows choose for themselves may make no sense. But those routes make enormous sense to the cows themselves. People within organizations often operate in much the same way. They get work done by going to certain other people in the organization, regardless of what the organizational chart might mandate. If you try to impose a new structure from above without getting appropriate buy-in, you'll end up with two organizations-the one on paper and the real one. Executives in midrange companies often don't take the time to excite, coach, cajole, and mentor their stakeholders and their employees with regard to new structures, new directions, or new visions. They fail to do so at their peril. 

2. Hey, we're making money!  Often managers focus solely on operational effectiveness instead of thinking about the future. The most effective middle-market leadership teams develop two paths for strategy.  One path represents the present, and that's operational effectiveness. The other path represents the future-value creation. Losing sight of the future and focusing only on making an operation more effective now can leave a company vulnerable to major shifts in the marketplace. If your idea of long-range planning covers only the next ninety days, then this might be an issue in your organization. 
 
3. You are not an S corporation.  If you're formed as an S corporation, you'll have options when it comes time for your exit. C corporations and limited liability company (LLC) formations may be the right formation for your company, but my preference is still Subchapter S. If a publicly traded company (Public) buys a private company (Private), Public can write off everything that isn't cash as goodwill. Both organizations can make what the IRS calls a 338(h) (10) election. This is a fancy term you may want to study because it could save you big bucks. In essence, the election allows Private to treat the sale of its stock as a sale of assets, paying tax only on the asset gain. Public, therefore, gets a stepped-up basis in the assets of Private at a no-tax cost of the purchase and can roll part of that tax break into the premium purchase price it can pay for Private if it chooses. Make sure your legal and accounting teams walk you through this because the benefits and burdens of a Section 338 may seriously affect the economics of a deal and may change your tax situation. The bottom line is that being structured as a Subchapter S gives you flexibility in structuring the best stock, asset, cash, or 338(h)(10) option for your company. 
 
4. You only ask for money when you need it.  A company is only as strong as its banking relationships. A great banking relationship increases value by giving a company the flexibility to use cash when it most needs it. The worst time to ask for money, of course, is when you need it. You should sit down with your bankers monthly to tell them how great you're doing. You probably learned somewhere along the line that it is never a good idea to surprise your boss. Bankers are similar-they don't like surprises either. If they feel they understand the rhythm of your business, bankers are enticed to come to you with better deals, increase your credit line, and give you banking covenants you can work with. 
 
5.  Blood is thicker than water, but not necessarily what the company needs.  A family business can often be an opportunity to find employment for otherwise unemployable relatives. Managers of such companies tend to promote individuals they like or to whom they are related instead of finding individuals who are truly suited for the job being filled. This is not a good way to run a company. In his book The Five Temptations of a CEO, Patrick Lencioni says that when CEOs abdicate the responsibility of hiring, they ultimately lose track of their team.  Family members in the company place a huge burden on everyone involved and make it nearly impossible to execute good business decisions. Sometimes those relatives need to be taken out of those jobs to create a team that acts like a group of qualified professionals.

5 More Mistakes to Avoid ... In Order to Build Superpremium Value

1. Uncle Joe's still chairman of the board.The really good midmarket companies leverage their resources, including their boards of directors and boards of advisors. They use these business-savvy individuals as sources of wisdom and as sources of new business. John McBeth, a serial entrepreneur and CEO of Next Century, has a passion for what he calls a "worthy purpose." He keeps himself accountable by leaning on a top-notch board of advisors who aren't afraid to set him straight. In contrast to this, too many small and midmarket companies tend toward boards of directors that consist of friends and family. Perhaps Uncle Joe loaned the company $100,000 ten years ago, so he still wants to run the show. But friends and family who may have been able to pony up necessary start-up funds back in the day are not capable of providing the outside accountability that experienced business leaders offer.

Many midmarket companies struggle with governance. Entrepreneurs and C-level executives need someone to challenge them and offer the guidance and direction necessary for growth. Uncle Joe may have great fishing stories to share at the board meetings, but he cannot mentor the leadership team when tough, challenging business decisions must be made.

There are other ways to fail to take maximum advantage of your board of directors. For example, a company's board members might have personal agendas that lack transparency. Or a board member might try to buy the company outside the stated strategy of the executive team and the other members of the board. Leaders might isolate and disregard board members whose points of view differ from their own. That's why board diversity is extremely useful. Boards not only provide insight, advice, and support to the CEO, their members should have strong industry and financial backgrounds to add real value to CEO decisions. Board members not aligned with the direction of the company are harmful; those with axes to grind or agendas to meet must be culled. Outside directors give business leaders the opportunity to close the books every quarter, position their companies for the future, talk about plans and leadership development, and generally guide the company with the help of other experienced leaders.

2. You are focusing on revenue instead of value. Midmarket CEOs often get asked "How big is your company?" In American business, size matters. Beyond the preoccupation with numbers and size is a much more important question that is rarely asked: "What impact does your company have in the marketplace?" Is the company a bit player, a role player, or the "leading man" in its market? Typically, business leaders describe their companies in terms of revenue, head count, or plants and equipment. Revenue is an easy answer because that's a scorecard everyone can understand. But when they use this measure, companies shy away from the "value discussion" because value is a much more esoteric concept.

If the average midmarket CEO were asked "What are the five things that make your company valuable?" she wouldn't know the answer. She knows her company has to make money, make payroll, and win more business, but she doesn't know what really makes her company valuable in her marketplace. This results in the tendency to make seat-of-the-pants decisions that are not fiscally prudent. A company might decide to sell a particular product in a market niche, even though no other company is willing to partner with it. Or leaders might decide to keep a line of business going, though it might be smarter to shut the line down and use the resources elsewhere. Know what makes your company valuable to the marketplace and what is core for you.

3. When executives finally do talk about value, they drive everyone crazy. When C-level executives suddenly start talking about value, they often inadvertently strike fear into the hearts of their executives and employees. If value was never a consideration in the past and suddenly it's a big deal, employees may assume that the management is going to sell the company and they'll need new jobs. They may even respond by quitting. When you do bring up the idea of focusing on the enterprise value of your company, use the language carefully. You don't want people jumping off the pier just as their ship is coming in. Make "value creation" a normal part of your leadership vocabulary.

4. You have no conflict resolution skills. Many midmarket companies are run by individuals with distinct competencies in a given area⎯for example sales, finance, or technical matters. Often these individuals are not experienced executives who have gone up through the ranks, so they don't always understand how to balance the competing⎯and they really are competing⎯needs and desires of the different arms of an enterprise. Some of these CEOs simply cannot handle the conflicts. Instead, they let them brew until their companies destroy themselves. If no clear direction is given, "ambiguity gaps" are opened. Failure to resolve disputes quickly and effectively is practically a guarantee that companies will self-destruct.

5. The bosses can't take a vacation. At too many companies, the founders can't take vacations because they haven't figured out how to build effective teams, replicate themselves, or take other important steps in the value-building process. Sometimes it's not that they can't figure out how to build those teams⎯they just don't want to do so.

It's important for leaders to learn how to let things go. Their resistance to this may stem from different root causes. They may have a deep fear that the company will go to pieces if they don't handle everything themselves. The identity of many executives is so tied up in their role in their companies that they have no idea how to back off, take a lesser role, or even leave. One company made an office in the building for the founder, who would come in and do nothing. It's extremely emotional for a business owner to watch someone else essentially rear his child. Letting go requires the ability to bring in new leadership and, when the time is right, to leave. But that's a tall order for most executives.

Is Superpremium Value Possible? Don't Make These Mistakes...

1. You have the wrong sales model.  Companies early in the growth cycle typically need direct sales forces - teams of individuals who are inside the company and know what's going on. While service-oriented companies normally rely on practice leaders (leaders who are responsible for profit and loss and have a vertical market expertise like telecommunications or energy) to sell, product companies normally rely on traditional salespeople. These are the bag-toting salespeople you see out there selling stuff. As the company develops a more mature product and begins to offer training, service, and other add-ons, it becomes time to change the channel models. For example, that's the time to get into affiliate marketing on the Web or build channels of distribution for your products and services that can leverage your mature product line. Yet many companies try to off-load their sales responsibilities too soon. A company's product or service may not be well defined enough to command respect in the marketplace and the company may not have a support infrastructure to handle calls or complaints from customers so all sorts of problems can happen. Practice leaders in the market still have a role to build relationships, and traditional salespeople may still be needed-not everything fits into an Internet shopping cart. However, close scrutiny of the sales model your company is using is important.
 
2. Any revenue is good revenue! No, it isn't. Executives who feel that way are coming from a scarcity mentality in which they believe that if they don't scoop up every piece of revenue, regardless of whether it makes sense for the company, they're going to starve to death. They get used to selling anything to anyone. By contrast, an abundance mentality means focusing on a niche and dominating it. If a company doesn't dominate a niche market, when it comes time for the marketplace to put a value on it, the market won't know what kind of company it is. A prospective buyer will not be able to determine if the acquisition will be a good fit. A company needs to develop a sustainable market advantage, focus on that advantage, and brand itself in the eyes of its marketplace or it is not likely to succeed.
 
3. We won, but we don't know why. For a company to secure a superpremium valuation, it must show how it dominates a niche and sustains business in that niche. Far too many companies can't figure out how to repeat what they did well. When you ask their leaders how they succeeded, they have no idea. They rarely run a postmortem of their winning or losing bid with the objective of building a knowledge base of the lessons they learned. They also fail to perform what politicians call "opposition research." They don't know what positives or negatives people are saying about them or about their competitors. Typically, the last item added to a budget and the first item chopped in tough times is marketing, even though the information a marketing team provides adds value.
 
4. The wrong people are in the wrong seats on the bus. In Good to Great, Jim Collins offers the outstanding analogy of having the right people on the bus-the best possible mix of managers, technical people, sales and marketing folks, and so on. It's not just about having the right people on the bus: make sure that they're also in the right seats. As a former CEO, I have a degree in computer science and an MBA, so if you have great energy, I like you. If you are really working hard and have a great attitude, you'd have to mess up a lot for me to fire you. But as for salespeople, I can't read them. I can't tell who's going to be good at sales because the candidates all have great energy, at least in job interviews. Many CEOs who come up through the finance or technical tracks don't like salespeople because they are constantly making promises that the rest of the organization has to somehow keep. Brad Antle, the successful former CEO of SI International, suggests getting your team involved so they'll be invested in the success of the new hire. Clarify the metrics of success with all parties so you can objectively assess your team. The challenge is to build a team who can hire the right talent even if you personally don't have the competency to recognize it.
 
5. You have misalignment of your core values. Jack Welch once wrote that you can tell a company has reached maturity when you can fire the top sales person for a breach of ethics.  In other words, if you're making so much money that you can afford to let go of your biggest revenue-generating employee because her ethical values are not consistent with the company's, then you're in a really good place. You have to be very clear about what your values are. This doesn't mean your company can't be diverse. Companies need diversity of thought and appearance to benefit from the broadest range of knowledge and opinion, but companies also need to be aligned in terms of values. One way to avoid misalignment of your staff with your vision is to be very clear from the beginning.
 
 During the interview process or when making a selection for your inner circle, make sure you check the "alignment" box. Make certain each team member's values are aligned with the stated values of the company and your personal values (even if "make money at all costs" is your company's core value). At TiVo, the most important value is "creating a work/life balance for the employees."  Bringing a hard driving, make-money-at-all-costs manager into an environment like TiVo's, would create a huge and unnecessary conflict.

Are You Smarter than a Fifth Grader?

Take a look at twenty-five mistakes that business leaders make that almost ensure a subpar business valuation. How many apply to you or your business? There is a test at the end, so pay attention.

1. Do you have great financial advisors?

2. Is your business plan based on reality?

3. Is your ego in check?

4. Have you fallen into the 'success' trap?

5. Do you still have fire in your belly?

6. Do you fully benefit from the advice of your board?

7. Is your focus on value and not revenue?

8. Have you had honest discussions on exit planning?

9. Can you manage conflict on your team?

10. Can you take vacations with relative ease?

11. Does everyone who matters know your strategy?

12. Do you think beyond monthly and quarterly results?

13. Are you an S-Corp?

14. Are your banking relationships strong?

15. Would you hire your entire leadership team again?

16. Does your sales model match your product line?

17. Do you dominate your niche?

18. Do you know your competitors?

19. Can you hire outside your personal competency?

20. Is your leadership team aligned to company values?

21. Is your customer base single threaded?

22. Can you build a much larger organization?

23. Do you have capital to grow?

24. Can your company scale?

25. Can your company make big changes if needed?

How did you make out? Total your yes answers. If you answered yes
23-25 times,  you're probably in the top tenth of 1 percent of leaders.
20-22 times,  you're good to go.
16-19 times,  take this quiz again-and be honest with yourself.
12-15 times,  you're one of the gang - time to do your homework.
0-12 times,  you're just like the rest of us - better get some help.

One Girl's Take on Being an American

On Monday, my daughter received a certified package from the Immigration and Naturalization Service. On this very special day, she dropped the tag of legal alien and became a citizen. So how does a red blooded nine-year old Cambodian native celebrate? She convinces her mother to take her to Model’s to buy football shoulder pads. You read right. This forty-five pound, soaking wet, ball of fire celebrated her citizenship in the best way she knew … a new set of pads!

Now what does this have to do with building business value? Nothing! But it does tell us what she values and it’s just about the coolest thing I’ve seen in a while.

Educate the Candidate - Part 4 in the Entrepreneurial Hiring Process

This step occurs every time you go through the interview process, even if you have decided that the candidate is not a match. Every candidate must leave your organization saying to themselves: "Man, I want to work for this company!" Just as many of us would like to own a top-of-the line Mercedes Benz, so to do most candidates want to work for an innovative, market leading company. Make your company the Mercedes Benz of potential employers. In this way, you become a destination for prospective employees.

Smart companies don't just interview anymore; they sell. You need to look at the interviewing process as an opportunity to sell your value proposition to prospective employees.

Develop a stump speech that you deliver to every prospective employee. Describe how your company builds business value: your business focus, economic model, operating parameters, and your core processes. Talk about your culture. Talk about their ability to act like an owner of your business.

Remember, attitudes change when people accept something new as appropriate and possible. Your first interview with a prospective employee is the best time to start explaining what is appropriate and possible in your organization. It's the best time to start affecting their attitude. You will need to spend some time explaining the specific job or role you seek to fill. Most people want to know about that. You also need to describe the basics like benefits, vacation time, and so forth. But spend most of your time talking about your culture. Think about how easy the interview would be if you had already made the determination that the candidate was well qualified and you were simply trying to get them to join your team. Sell your culture by truthfully saying that:

• 1. We feel we are given the opportunity to do what we do best every day.
• 2. We believe our opinions count.
• 3. We are committed to doing our best.
• 4. We really understand the link between our work and the company's mission.

If your company owns these attitudes in the minds and hearts of your employees and prospects, your culture brand is real. Every prospective employee will go home or back to their friends and colleagues saying: "You won't believe the company I interviewed with today."

Most people want to work in this kind of environment. Spend time talking to prospects about the innovative programs you have for developing leaders at every level in the company. Tell them about the physical as well as the intangible elements of the work environment. Explain to them the higher purpose you all share as employees of the company. When they hear you talking about it, the entrepreneur in them will awaken. Their eyes will light up. And their attitudes will begin to change. Then, when they join your company they will be ready to act like an owner.

A new report demonstrates just how competitive the job market has become. The U.S. Bureau of Labor Statistics recently reported there were 5.4 job seekers for every employment opening in April of 2009. To compete today, you must develop a hiring process that quickly determines the level of competency and skill in prospective employees and then focuses on cultural fit. Your hiring process should select people who can learn, execute and even challenge your operating model. You should focus on hiring entrepreneurs.

Assess Cultural Fit - Part 3 in the Entrepreneurial Hiring Process

In this step, focus on ensuring a cultural fit. Each time you hire a new employee, you're not only hiring someone to fill a job category, billet, or some other arcane position description, you are making a decision to bring another franchisee into your organization. You're not just hiring an employee, you're hiring a business person. You're hiring someone who can understand how the company is going to build business value, how the company makes money, and how the success of the company is tied to his personal success. Your hiring someone who can embrace your principles and values. This is your culture. The people you hire must embrace your culture.

Use the following test when adding a person to your team. If you can answer yes to these questions during the hiring process, you are thinking in terms of attracting people with the right attitude.

Does the candidate have the ability and desire to:

• Learn how you build business value?
• Execute your operating model?
• Teach your operating model?

A candidate's willingness to spend the time and effort to learn how your company builds value sets the stage for his ability to make sound business decisions once hired. If each employee understands what the company does and how the company does it, everyday actions are translated directly into top-line revenue gains or bottom-line profits. Employees will understand how they can affect Key Management Indicators. When executing your operating model as a part of their daily activities, they understand the direct relationship of their actions to the success of the company. They know the decisions they make every day can materially affect the profitability of the company. Finally, when an employee develops the ability to teach the operating model to new employees, your way of doing business is reinforced. One generation of employees sees to it that the next generation of employees understands the operating model and thus begins the never-ending cycle of learning, executing, and teaching your way of doing things.

Ask yourself two questions. Does the candidate have the ability and desire to:

• Challenge how you build business value?
• Improve how you build business value?

Your competitive position is destined to change. There is certainly no sign that competition is lessening, or that your products and services will succeed without changing. This necessitates constant change and improvement in your company's operating model. Just ask General Motors or Bank of America about the need to adapt and change. Customers continue to ask "What have you done for me lately?"

Spend most of your time asking candidates probing, leading questions that will help you assess their ability to fit into your culture and help you build value. Consider using small teams when interviewing candidates. People relate differently in group sessions than they do one-on-one. Ask them questions about their experiences working closely with customers. Determine if they are motivated by helping customers. Ask them to tell you stories about their experiences working in their actions? Their answers to these questions indicate how well they will fit in teams. Ask them about innovative ways they have improved their current company's ability to perform. Focus on their goals and aspirations. Are they interested in learning how your business runs? Do they take accountability for their actions? Their answers to these questions indicate how well they will fit in.

Qualify the Candidate - Part 2 in the Entrepreneurial Hiring Process

Most of us are familiar with this step. You invite the candidate to your office and interrogate them on their skills, background, credentials, and expertise. Unfortunately, this step gets overdone. Employers spend too much time screening for specific skills leaving little time for assessing cultural fit and educating the candidate.

Quickly identify talented candidates; candidates that possess the skills you need and an aptitude for the job you want to fill. But focus on aptitude. Check the candidate's references to determine if the information on his resume is accurate. Request transcripts and other documentation to validate credentials. This background work can be done outside the interview. Don't waste this precious one-on-one time rehashing the resume. Use your interview time to assess aptitude. Ask yourself: Does the candidate have an inherent understanding of the job you envision him filling?

If you screen for specific leadership or management qualities, focus on behavioral-based questions. Encourage the candidate to share anecdotes of how they've solved problems in the past. Instead of asking, "Are you a good leader?", ask the candidate to describe an instance when he led his staff toward a specific goal. Ask the candidate to describe what accomplishment she is most proud of. You will learn a great deal when the candidate frames the answers as an individual accomplishment or a team accomplishment driven by good leadership.

Use written tests to help screen for skills match. The assessment tests can be intimidating to the candidate, so make sure you are not looking for perfect scores, you are looking for their scores to match their presentation and your dialogue. Develop tests to determine the level of skills in technical areas such as specific programming languages, operating systems or networking components. Use these tests in a technical environment, but they can also be used in financial or operational areas that demand a specific competency. For example, if your organization pushes profit and loss (P&L) or economic value added (EVA) responsibility down to the division level, test to determine if the candidate can understand and identify entries on an income statement and a balance sheet and how his daily activities impact those entries.

Administer these tests early in the hiring process with the explanation that they will not be the major determinant in your hiring decision, but just another factor in a series of qualifiers.

This approach will allow you to spend valuable time assessing aptitude and cultural fit after you quickly and accurately assess technical competency.

5 Mistakes to Avoid ... If you Want to Build Superpremium Value

1.You are owned by your customers. Many midrange businesses depend on a single customer or a small (less than five) group of customers for the majority of their revenue. A lack of diversity in one's customer base hurts at valuation time. What if one of those customers fires you? Where would you be then? Along the same lines, some companies fail to manage their legacy products and never succeed at migrating their customers to new or next-generation products. The challenge is to balance diversity and focus with the objective to minimize your overexposure to one market.

2. You are still thinking small. Recently, a company was considering the purchase of a second business that would double its size. The founder of the target company wanted to retire, and it was extremely important to him to find a home for his staff. The work of the two companies was compatible, and the target company's owner was ready to take the deal. The deal represented a big risk for the buyer, though, not just financially but also in terms of his thought process. Excellence and comfort are usually enemies, and the owner of the acquiring company had to expand his thinking to accommodate a new enterprise that was double the size of his former one. Making this leap is not easy, and post deal integration doesn't always get done. Take a look at AOL and Time Warner, Chrysler and Mercedes, or going back further in time, General Motors and Ross Perot's Electronic Data Systems. After an acquisition, it shouldn't be just one plus one equals two. It ought to be one plus one equals three-or more. A study done by the audit and tax consulting firm KPMG in 2001 indicated that in 83 percent of the deals they examined, the post acquisition value of the acquiring company didn't rise at all, and value degradation sometimes occurred when two companies were put together. Mercer Consulting published another report in 2001 indicating that 50 percent of merger and acquisition deals actually reduced the combined value. On the other hand, a Manufacturers Alliance study in 1999 suggests that CEOs consider only 11 percent of the deals they've done to be failures. Business owners must have the courage to step up and make a strategic acquisition when appropriate, and they also need the skills to integrate the two companies after the deal has closed.

3. You're undercapitalized or overcapitalized. For the most part, overcapitalization took place during the dotcom era. For example, a fiber company in Dallas had $50 million in venture money but never earned higher than $8 or $10 million in revenues and never made money. You should have seen its plush offices, though. This was in the era when companies routinely spent millions of dollars on image advertising during the Super Bowl and $500 a day on fresh fruit for their staffs. When the fiber company went out of business, it vacated some awfully nice offices. If you're a sports fan, you may remember PSINet. It was the hottest Internet service provider during the dot-com era and even purchased the naming rights for the NFL stadium in Baltimore. Despite growing like crazy and being very well capitalized, the company was never profitable. It was a popular stock with analysts because of its rapid revenue growth and aggressive expansion plans, but by 2000, after spending money like drunken sailors, PSINet began to struggle. The company lost more than $5 billion in 2000 despite having almost doubled its annual revenues to $995 million. By the middle of 2001 it had built a debt of $3.5 billion and called it quits. The opposite side of the coin is undercapitalization. It's "business school 101" to know that an undercapitalized company is doomed to fail. But it happens all the time. Midmarket companies can find all sorts of ways to capitalize growth. They can leverage traditional banking relationships and turn to asset-based lenders. They can also create new channels and get their partners to capitalize their growth. One fast-growing consulting firm paid its employees a month in arrears. This took great pressure off its cash flow and allowed the company to expand into new markets.

4. You have no ability to scale. It's ironic-few people plan to fail, but even fewer plan to succeed. Companies have great ideas for success but they never ask, "What if this goes well? What infrastructure will we need? What about collateral for the sales force? What kind of credit line will we need?" Companies need to be able to scale processes, people, technology, the product or service they offer, and methods of delivery. They may have beautiful numbers in their proforma financial statements, but what happens when those numbers don't turn out to be accurate? In the 1950s, Leonard Wibberley wrote a novel called The Mouse That Roared, which later became a Peter Sellers movie. The premise is that a small country in Europe, the Grand Duchy of Fenwick, invaded the United States expecting to lose the war and receive generous foreign aid to rebuild. Unfortunately for Grand Fenwick, it won. Now what? How do you keep success from turning into catastrophe?

5. You fail to reinvent. Tom Peters once said that we all have to "eat change for breakfast." The only constant in the business world is continuous change, and yet many companies try to live in the old world and play by the rules that might have been in effect a decade or more ago. This just doesn't work. Have you ever tried to impose a hierarchical corporate structure on employees who are part of the demographic group referred to as "millennials" or "generation Y"? It's not going to work. A generation ago, employee attitudes might have been "We're going to win one for the Gipper," and "We'll stay up all night, if that's what it takes to secure the victory." Today's workers say, "Forget that. I just want to win one for myself." Any company trying to survive under the old model is destined for disappointment and heartache. Another example of this sort of failure is when a non-techsavvy CEO says, "We don't need to be on Facebook or YouTube or MySpace. I don't even know anybody who goes on those places, aside from my kids." You know who goes on those places? Your customers do. Failing to keep abreast of changes that affect your business can set your company on the road to disaster.

An Entrepreneurial Hiring Process

Your hiring process should quickly qualify the candidate, make a cultural fit assessment and then educate the prospect on what it will take to be successful in your firm.

Most hiring processes are biased towards identifying a skill match. Companies spend a great deal of time grilling employment candidates on specific issues such as years of experience, their credentials, and their technical ability in areas like sales, management, technology, or operations. When they find someone with a solid set of skills, they hire them. But what about attitude? What about cultural fit?

Top companies realize that cultural fit is just as important as the specific technical or professional skills you may have initially set out to find. They take extraordinary measures to attract and identify the rare individuals who will strengthen their teams. Extensive screening, although time consuming, is worth the trouble.

When I was with Rapid Systems Solutions, we hired over 300 people in a very short period of time.  Looking back at our successes and failures during this time, one point stands out. Whenever we let someone go, it was rarely because they couldn't do the job. It was always a cultural mismatch, an attitude and behavior problem. In hindsight, this only makes sense. Since we had good engineers hiring other engineers, we were successful in identifying prospective employees with solid technical skills. That was never a problem. Even when someone's skills weren't up to par, if they were a good cultural fit and had a good attitude, we could help them improve their skills and become fully productive. However, weak skills and a cultural mismatch were always futile.

Focusing on a skill match during the hiring process is misguided. Instead of looking for someone who has experience managing the northeast sales territory, hire someone who has an inherent understanding of managing a sales force and knows how to solve customer problems and accepts accountability for every business decision she makes. Focus on finding business people with specific technical skills and not just the perfect skills match.

In Patrick Lencioni's great book, "Five Temptations of a CEO", he suggests that an overarching responsibility of a CEO or any leadership team is to take charge of building your team. Your hiring process is a critical step.

Analyze your hiring process. It should accomplish three things. It should:

• 1. Qualify the Candidate
• 2. Assess Cultural Fit
• 3. Educate the Candidate.

I'll discuss each of these objectives over the next week or so.

The Perfect is the Enemy of the Good - Find the Right Balance

Voltaire's"The Perfect is the Enemy of the Good" fits perfectly into the operational life of many midmarket executives. Guy Kawasaki's blog post 'A Dozen Don'ts for Entrepreneurs' also reminds us that perfection is an allusion. Ed Calabrese, a friend and colleague, had a saying when we were building software apps (back in the old days). Ed would say "shoot the engineer and ship the product".

So the balancing act we engage when we have to release a product or publish a report or post a blog or wrap up a presentation is "what is the right balance"? When do we know we are done?

Folklore has it that an intern working for Henry Kissinger gave him a report and asked the Secretary of State to review the document. A week later, Kissinger gave it back and said "you can do better". Another week passed and the intern gave the report back to Kissinger with a comment indicating the report was much better. Kissinger gave the report back a week later with the comment that ‘I still think you can do better'. So the intern put his very best work into the report and a week later gave it to Kissinger saying "this is the best I can do". Kissinger said "thanks, I'll read it now".

Somewhere between Guy Kawasaki's "Don't worry, be crappy" and Ed Calabrese's "shoot the engineer and ship the product" and Henry Kissinger's painfully long review cycle is the answer.

I'm leaning towards Guy and Ed.

The Business Book Club and Leadership

Twice in the last eight years I have attempted to start business book clubs among the leadership teams I was working with. The first time, while CEO at Canal Bridge Consulting, we actually succeeded. It was not a spectacular success, but we kept it going for a couple years, participation was consistently good and everyone was just a bit better informed for participating. The second time was while I was managing director of a Boeing business unit. That club never got off the ground. Zero interest. In fact, one manager suggested we have a ‘sitcom club'!

Tim Sanders recent blog "The total confidence reading plan" got me thinking about this topic again. Sanders argues that "readers are leaders" and that carving out time to read books relevant to your profession on a regular basis will expand your mind and give you the foundation to make better business decisions. Who can argue with that!

So why did the Canal Bridge book club work and the Boeing book club never get off the ground? It has taken me about five years to arrive at the conclusion but here is the net-net. Canal Bridge was a bunch of management consultants and we all craved knowledge on the business topic of today. Our core competency was business process and strategy.

At the Boeing company, engineering and program management are right up there with life and liberty. As the leader of Boeing's Maryland Operations, I was trying to push leadership and management books to a crowd much more interested in engineering and topics around estimating, scheduling and program management. You know, that square peg and round hole discussion.

I still think book clubs are great ideas for the workplace and can work if the topics are relevant. Better advice is to stick with the Tim Sanders line; "readers are leaders". Just pick the topics relevant to your team!