Why Cuts Can Hurt Your Business and How to Turn it Around

Why is Downsizing So Popular?

It seems every day we hear about another corporation laying off employees.  Great firms thrive by selling more and introducing new products.  So why do so many companies embrace downsizing?

Out of sales revenue a company must pay to create the product, cover expenses, and settle taxes.  So a dollar of sales will yield less than a dollar of profit.

By contrast, a dollar saved drops straight to the bottom line and will yield exactly a dollar of profit.  So cutting costs $X produces a much greater impact on the bottom line than increasing sales $X.  Further, one can cut expenses immediately where sales are unpredictable and happen over time.  Viewed this way, one might sympathize with management and agree that downsizing is an easier and more certain method to grow profit than trying to boost sales.

In fact, firing a few dozen highly compensated employees and enacting sweeping budget cuts will almost certainly cause a spike in profit.   But that’s not the only impact.

From sales revenue, the company pays overhead and variable costs leaving the remainder as profit.  For additional sales, only variable costs - those that pay for creating and selling product - will increase.  Overhead has been paid so we can strip out this expense.  The company doesn't need to lease twice as much office space, for instance, to move twice as much product.

This allows us to calculate incremental profit on every dollar of new sales revenue.  

In our example below, profit increases three-fold by deducting overhead. Why is this significant?  Because every dollar of new revenue adds three times more profit.  So if the company grows sales simply at the rate of inflation it will yield 10% more profit.  That’s respectable growth for simply keeping pace with the cost of living index.

Other Disadvantages of Downsizing

When a company cuts, it targets the most highly-compensated personnel. These people are also the most senior.  As a result, they hold valuable institutional knowledge that the company dearly paid for over years of training and indoctrination.  When these people are forced out, the company loses this intellectual capital.

Further, layoffs tarnish a company's image, fostering resentment among former employees and prompting anxiety among remaining personnel.  The company loses its standing in the community as a just corporate citizen.  To make up lost ground, it invariably must resort later to costly PR campaigns and philanthropic efforts.

The True Bottom Line

Increasing revenue through innovation and solid strategy while retaining its key employees serves a company best in the long run.  Enacting sweeping cuts  to pacify Wall Street is reactive short-term thinking.  It's best to operate a lean enterprise customarily than trim the fat solely to meet Wall Street's expectations.

The Mathness Behind the Method: drilling down into the numbers

Our hypothetical company sold $1 Billion for the quarter.  Overhead was $200 Million.  On this first billion the cost to produce goods was $600 Million and variable expenses were $100 Million.  This yielded a profit margin on the first billion of 10%.  At this point, overhead is covered.  Only the cost of goods and variable expenses will increase with additional sales.

Out of each additional dollar of sales, the company pays 60¢ to create the product and 10¢ to sell it.  A total expense of 70¢ leaves 30¢ profit for every dollar of additional sales.  This is 30% margin on new revenue compared to the 10% on the first billion.

The original financials show $100 Million gross profit on $1 Billion.  A five percent increase of the original revenue is $50 Million.  At 30% margin, this yields $15 Million additional profit.  So the company will generate $1.05 Billion total sales revenue and earn $115 Million profit, a 10.95% combined profit margin.  This new overall margin is an increase over the original 10% margin of 9.5%.  So 5% new revenue growth will improve company profit by 9.5%.

Next time I'll share an easy way to pacify an irate customer.  And shortly I'll introduce an ingenious sales call method to bypass the dreaded gatekeeper so you get put right through to the decision maker.  It's all coming up in the next few days so stay tuned.  Until then,

profitable business All!

Improve Your Image While Preserving Cash

How often does a client ask to borrow money?  Maybe they requested to pay over time, or asked you for terms, or wanted to pay a small deposit with the balance in 30 days, or bugged you in any way to receive your goods and services before they paid in full.

A Credit Screen

Last week I wrote about how you pay interest forever on bad debts.  This week I want to offer a simple way to limit client borrowing while virtually preventing bad debts.  As a side benefit, you'll project a more professional and corporate image, letting your clients know you're serious about your business.  This technique identifies deadbeat clients without robbing them of their dignity.  In fact, rolling out this neat trick stops deadbeat clients in their tracks .

What is this trick?  A credit app.  Referring to your credit department projects credibility and stability while preserving your cash flow.  It lets your customers know you take credit seriously.

But this process powerfully deters deadbeats. 

Suppose a client has asked you - or one of your sales reps - to extend credit.  Instead of hemming and hawing, smile sweetly and reply "Of course.  I'd be happy to send you a credit app.  It usually takes two weeks to get a response back from our credit department once you return it.  When we get that back we'll know the terms they approve.  Until then, we're happy to continue doing business on a cash basis."

Identify Deadbeat Clients

What happens now?  If the customer has bad history with other suppliers, they'll drop their request immediately and never bring it up again.  They don't want you discovering they're a deadbeat.

If they're on good credit terms with other suppliers, they'll likely ask you for the form.  Then you'll have two weeks to run a credit check and I recommend you do it.  Then you can make a decision.

This turns around an uncomfortable moment into an image-building measure.  Most clients will view this little bit of bureaucracy favorably.  It alludes to a larger and more stable organization than they thought which gives you power.  Of course, they don't need to know you are the head of the credit department.

Do you accept credit cards at your business?  How do you handle it when a client hands you a card and asks to charge a trivial amount?  Do you have a minimum purchase, a surcharge, or do you eat the fees?  The first two methods piss off the customer and the last pisses you off.  Next week I'll share a way to use credit card purchases to improve customer service while adding profit to your bottom line.  And in a future post I'll share how to flip around the Cash Conversion Cycle to make you more money.  It's another ingenious tip from your Business Doctor.  Until then,

pfA!

Do you have bad debt?  Can you see how this technique could help?  Let me know your thoughts by leaving a comment.

How to Keep Credit from Killing You

In the last article we discussed how businesses finance operations by borrowing, and why offering terms can have unforeseen consequences.  In this article we’ll look at an extremely high hidden cost and how to combat it.

Impact of Delinquencies

I apologize.  I'm about to scare you.  It's very likely that after reading this post, you'll never look at debt the same way again.  You'll start operating a cash business going forward.  And you won't personally lend money as freely.  But that's not bad.  The way we typically account for debt shields us from the full impact.

When you grant credit to a customer, you either borrow from your savings or a third party to cover it.  And until they repay you, you lose the use of that money.  If you use your savings, you'll lose the interest you would normally earn.  If you borrow, you pay interest to a bank.  Most of us don't consider the impact of a default because we expect to be repaid.
What happens if they stiff you?

Can't you simply write off a bad debt?  

When you "write off" bad debt, you don't get the money back.  You're only removing profit retroactively. You won't view it on your financial reports and you won't pay tax on the income you never received.  But you still borrowed to lend your client money.  And your cash flow covers the interest on your debt until repaid.  If you're stiffed, that's forever.  

As we touched on in the last column of this series, the highest rate on all your open credit lines is the rate at which you pay interest. Why?  Because you assume that when your client pays you, you'll then pay down your highest rate loan.  If they don't, you continue to carry the debt.  Putting this together we can see that you pay interest on delinquencies forever at your highest rate.

“Okay,” I hear you grumble.  “I know that sometimes I finance my customer's purchases.  And I didn’t consider I was paying interest on delinquencies indefinitely.  And I didn't see until now that I was borrowing at my highest interest rate.  But my customers usually pay within a month or so, and only a few default.  Are a few bad clients costing me so much?”

The answer is a resounding yes!  Over time the amount can cripple your cash flow.  Let's look at an example.

Was Einstein Smart?

The famous physicist Albert Einstein claimed compound interest was the most powerful force in the universe^*.  It’s truly horrifying for a borrower to see compounding turn a small loan into a veritable fortune over time.  Compounding adds interest onto the interest onto the interest… all the way back to the transaction date.
 

Say you borrow $1000 to extend terms to your client and they default.  I'll show the math below, but if you use a business line of credit with an average interest rate you'll lose $180 of net profit your first year.  After five years, $400.  After ten years, $940.  After twenty the profit you lose grows to nearly $5000, five times the amount of the original credit!  And the balance grows even larger and more quickly as the rate increases.

All this expense for extending a single customer who never paid you.  Imagine if you had a lot of bad debts.

One way or another, you're paying ballooning interest on each bad debt every year.  If you use debt, you're carrying more than you need to.  If you're debt-free, you've lost the compound interest on that money.  By granting credit you either decrease assets or increase liabilities.  The net result is the same: a substantial and ever-increasing drain on profit.  All because you extended credit, maybe years ago.  

You can how see even a few delinquencies can become prohibitively costly after several years.  If you are careless in extending credit, you can end up in a huge hole.

Want more proof?  Use the equation below to calculate the amount of money a family business could lose after generations of being stiffed only a small amount at the beginning of its history.  A terrific primer on compound interest is The Skinny On Credit Cards.

The Mathness Behind the Method

Expressed algebraically, the formula for compound interest is C(1 + r)^t where C is the original Cost, r is the interest rate, and t is the number of times the interest compounds.  As the number of years shown by the exponent t, and the interest rate r increases, the result grows very large.

In our example, we used a rate of 18%.  The interest is 18% of the balance of the debt.  So using the formula above the balance of $1000 debt after 5 years is: 1000 * (1.18)⁵ = $2287. In year six you pay interest on $2287.  At 18% cost of capital, that's $411.66.   After ten years, the balance quintuples to $5234 and 18% interest is $942.12.  After twenty years the balance increases to a whopping $27,339, and the interest is $4921.

The Bottom Line

Especially in the beginning of a business you must be miserly about extending credit.  Even better, don't do it at all.   There are times you need to offer credit; for instance, when it's expected or you're trying to compete.  But make credit the exception, not the rule.

Next time I'll discuss a way to prevent bad debt while keeping your customers happy.  In one of the next columns I’ll examine another hidden cost that can be extremely expensive and how to avoid it.  And later we’ll discuss how to flip around this equation so that you start making money on financing cost, not losing it.  It’s all next week so keep your eyes glued.  Until then,

profitable business All!

3 Hidden Costs Destroying You

In the last article we wrapped up our series on developing and using performance measures (aka metrics) to create a world class sales force.  Properly applied, metrics enable you to identify future top performers and nurture and improve your top talent. Even a novice manager can achieve superb results by measuring results and tweaking processes.

Today we turn our attention to cash management.  The reason most often cited for business failure is under-capitalization.  The root cause is often financial ignorance leading to mismanagement of cash.

In the next series I'll explore three areas where you’re bleeding cash without even realizing it.  Unless you set up the right policies financial ignorance can damage and even destroy you.

In each of the next articles I’ll explore one of these hidden cash drains and how you can combat it. Knowing this might just save your company.

Companies must borrow money to finance their operations.  They pay interest on that money.  How you borrow those funds and how to avoid borrowing those funds when you don’t need to are critical components in effective cash management.

Would you believe you might easily be throwing away half your profit or even all of it in some cases? In an earlier post I discussed how I showed that one local merchant almost made a disastrous mistake.  In this series I’d like educate you and help you guard against making these mistakes.

First let’s define some terms:

Net Terms
This is the number of days you allow your customers to pay.  It’s typically expressed as Net X where X is the number of days you allow the customer to pay you back.  The most common is net 30 although net 10 and net 15 are common.

Cash Conversion Cycle
You pay a carrying charge on what you sell.  This is your CCC times your highest credit line.  To calculate the number of days, subtract the date a client receipt is available to you from the date money is removed from your bank account.  This can be deceptively longer than one believes.

Cash vs. Accrual
Whether you operate a cash or accrual business determines your CCC.  A cash business pays its supplier at the same time or after the customer pays for goods.  If your customers pay you for every sale and you then arrange to pay for these goods, you operate a cash business and your CCC is zero or negative.  An accrual business pays for goods before receiving payments and its CCC is a positive number.

Hidden Cost #1: Extending Credit

If you buy merchandise to sell later, you extend credit, possibly without even realizing it.  That means you operate an accrual business.  An accrual business finances its operations by borrowing.  A cash business doesn’t.

Most small business owners don’t realize it but even service businesses operate on accrual.  Sole proprietors often finance their operations with a personal credit card.  And accrual businesses pay interest.  Holding inventory, allowing your customers to pay on time, invoicing for services rendered, paying your creditors before receiving merchandise, buying goods to include in assembly...  All of these practices increase your Cash Conversion Cycle and make it longer for you to get paid.

These hidden expenses eat up profits and drive you crazy.  To understand the underlying reasons requires a shift in perspective.  Once you do, you can tweak your policies to fix it.

With a little work, you can set up your policies so your profit increases, not decreases.

The Risks of Extending Credit

Often it seems harmless to extend credit.  But you accept these risks each time:

• The payer can pay late
• The payer might default
• Your potential profit is eroded by financing costs

Also, borrowing affects your own finances.  You can overextend or alter your own credit profile which might impact your ability to borrow or dramatically increase your costs in doing so.

In the next article we’ll explore how much extending credit is actually costing you and we’ll discuss a way to combat this expense.  Then I’ll share why two other hidden costs are killing you.  In future columns, we’ll explore additional ways to combat these hidden costs.  It’s all coming up starting next week, so keep your eyes peeled.  Until then,

profitable business All!

Use METRICS to Supercharge Your Sales

Earlier this month we created a series of metrics and used them to evaluate sales performance. Last week we discussed how metrics define one's productivity.  We also showed how we can view a task more clearly by breaking it up into component sub-tasks.  Each of these sub-tasks is a link representing a particular skill in the sales skill chain.

It's apparent how improving a single skill X% will increase productivity X%.   But by dissecting the sales task chain and improving several individual sub-tasks a savvy manager can dramatically improve their rep's performances.  We know from last week that overall productivity is the product of the all sub-tasks in the sales process chain. So improving many component links within this chain will have a multiplicative effect on productivity. A smart manager will strive to subdivide the sales chain into as many links as s/he can.

I’ve Measured my Reps’ Sub-Tasks; Now What?

So you're armed with your METRICS, a list of ratios for each task for each rep.  Now where do you go from here?

Train Individually

Each of your sales employee has a different set of micro-skill ratios.  You can see how improvement in each one contributes to their overall sales volume which increases your rep's commissions.

Show your reps how training and improving micro-skills in this manner will directly impact their compensation.  If you explain and share your rep’s metrics with them, they’ll be excited to discover how transparent and easy it is to improve their productivity.  You’ll be able to help them plan a roadmap to success, thereby helping them increase their earning power.  Great salespeople derive their esteem from their ability to sell so helping them achieve high performance will empower them and give them tremendous job satisfaction, a common problem of managers.

Train each rep's weakest micro-skills.  Since each ratio improved grows productivity, choose the sub-tasks with the greatest room for improvement.  The sub-tasks with the lowest ratios are the easiest to grow.

Put responsibility for your rep's progress in their own hands.  Empower them to evaluate and improve their own METRICS.  After awhile they’ll be ready during your coaching sessions to discuss their weakest areas and their plans to improve them. You’ll be surprised how invested in the process they become.

Get Expert Help

Although the concept may be simple, developing appropriate metrics for a company is an involved and specialized discipline.  Done poorly, you can do more harm than good.  To achieve the best results, you need an expert in your corner.  Feel free to contact us to customize a high-performance sales development solution for your company.  We can also show you how to use METRICs to create a highly accurate sales forecast.

This concludes our series on Ingenious Sales Management.  You can now promote a high-performance environment and culture; develop individual metrics for each rep; analyze performance and structure training to improve performance; and develop compensation that incents high performance.

Next week we'll turn our attention to financial management. Okay, I see you yawning but trust me. Reading this material might save your business. We'll discuss three common cash drains - you could be throwing away half your profit without realizing it - and easy fixes. Look for it next week. Until then,

profitable business All!

Exclusivity for Better Seminar Turnout

Have you ever arrived ready to give a talk only to show up to a handful of attendees?  You rehearsed your speech until it was bulletproof, prepared for a packed house, and the big day arrived only to address a few attendees.

Seasoned presenters routinely triple the number of people they invite to an event.  And then they pray the offer isn’t so appealing that more than the anticipated one-third of RSVPs will show.

But don’t you wonder what happens to the other two-thirds who chose to be absent?  And wouldn’t you rather be able to increase your attendee ratio rather than invite three times the number you want? 

I’d like to share with you a simple little method to increase your attendance percentages.

Let’s look at a few truisms when you call someone to invite them to an event:

• They’re already busy when you call so they’re preoccupied and distracted.  You must provoke their interest immediately
• Their initial impulse is to refuse so they can return to what they were doing. 
• Many people are naturally uncomfortable refusing a request; when faced with a decision, they will accept instead of refuse.  These people will be less truthful to a stranger
• Afterwards they’ll hang up and forget about all you

The receiver’s desire to be courteous will jockey for position with their desire to get off the phone.  Two things in succession must happen to get them to accept: you must pique their curiosity to persuade them to focus on what you’re saying.  And then you must add value in their mind to persuade them to accept.

The more confident you appear on the phone the greater chance they’ll hear your message.  But you need to do more than just remind them afterwards.  You must help them recall the value they’ll receive by attending.

Your contact’s enthusiasm for your event will burn out unless their need to obtain what you’re offering is red-hot and stays that way.  Inertia is the organizer's downfall.

If you send a series of emails and a card (in a future article about Drip Marketing) you have a better chance of reminding them of the value they’ll receive by attending.

But is there a way to stoke the fire, keeping them enthused to ensure they attend your shindig?  Yes.  By finding out precisely what of the event they value and mentioning it each time you send a reminder card, email, phone call, or whatever.

What is the most universally coveted possession?  Exclusivity.  Being a valued member of the in-crowd.  And the best way to convey that is by inviting them to learn exclusive information.

The Inner Circle

We’re not talking just any kind of information.  The most prized is unusual secret information that one gets from being part of an inner circle.  It’s a deeply seated human need to belong.  You can tap into this need.

When you broach the subject to your prospect, mention you’re considering inviting them to join ‘the group.’  Use words to stimulate their need to belong.  If you have secured the acceptance of an admired attendee, use their star power to induce them to attend.  Act confident and aloof as if you have the power and their attendance will not make or break the event.  Then ask them whom they’d recommend and ask if you can use their name.

People Want What They Can’t Have

The “takeaway” is a powerful inducement.  Once you mention the event, suggest they might not qualify or be at the right level to benefit from the information presented.  Be subtle when using this technique; you want to attract them, not come off like a sleazy promoter.

The most important thing is to have fun.  Make sure you enjoy talking on the phone with your invitees.  Make sure you’re smiling when you’re talking with them on the phone.  You can bet they’ll hear it in your voice.  At the event, ensure you speak with them and continue to build rapport. 

Next week I’ll discuss how you can distill your sales process into their component elements.  Look for it.  Until then,

profitable business All!

How to Combat Employee Turnover

One unfortunate aspect of management is turnover.  Many of your hires simply won’t work out.  A new worker may develop personality clashes with coworkers, turn out to be incompatible in temperament or values, or may not fit in with the rest of the staff.  Or they may not develop the required skill set rapidly enough.

You want to counsel out any employee who is a poor fit culturally to achieve a smooth running organization. Even the geniuses must go if they aren't team players. Like Netflix asserts: No brilliant jerks! But what do you do if an otherwise acculturated employee doesn’t ramp up quickly enough? Do you show them the door or continue to try and train them?

Cherish Your Acculturated Employees

I’ve written in a previous article that you want to do everything you can to retain your employees who are a cultural fit. Even those who cannot perform their job at present, you want to find a way to keep. But how do you accomplish this and still achieve the organization's objectives?  You want your people to be competent, even expert, at their jobs.  So how can you handle under-performers and lessen turnover?

Be open to change their role within the organization.  Maybe they can perform most of their duties but there are specific areas in which they are deficient.  If so, explore changing the job description and can hand off the weak areas to other individuals.  Return something else to their plate to compensate.

Good personnel managers ensure they overlap people’s skills to ensure several people are available to complete mission critical tasks.  Creative managers adjust responsibilities to assign the best person to each job.

As long as you can accomplish your objectives does it matter who does each task?  If you are willing to move people around to best suit their individual needs and the needs of the company, you will develop stronger, happier subordinates.

Also, you will be giving your staff the ability to stretch their comfort zone within the company.  If you get a reputation for stretching workers’ professional development, you may find your people taking initiative and accepting responsibility outside their own niches.

Next week we’ll discuss how to use METRICS to train your people.  And I’ll delve into another Ingenious Sales Technique called “Follow the Leader.”  It’s a terrific way to pack convention halls and ensure your seminars and presentations are standing room only.  Later I’ll talk about how to turn costly fees for things like credit card transactions into a profit center.  Look for it starting next week.  Until then,

profitable business All!

Identify and Train SuperStar Salespeople

Determining which of your salespeople are top performers is simple, right?  Add up their sales and the highest consistent earners are your stars.

But how do you gauge the productivity of new reps?  How do you account for the inevitable ramp up with hires who are still learning the ropes?  At best they're marginally productive during their probationary period.   How long do you allow them to struggle before pulling the plug?

And what about a struggling salesperson making minimal progress that you believe is going to break through any minute?  How can you be certain you're right, that you aren't just throwing away good money after bad?  And how do you assess and assist long time employees who have started to slip?  Is their drop in volume the beginning of a trend?  Or are they just going through a slump?  How do you help them?

What are Metrics?

The answer lies in formulating and applying metrics.  These are performance measurement statistics that identify skill levels for various tasks for each salesperson.  Highlighting areas of strength and weakness, I  have seen very few companies use metrics to their fullest potential.

That's a waste because properly applied metrics make the job of a sales manager much easier.  If sales management has a silver bullet, it’s knowing how to create and apply metrics.  Correctly applied, metrics provide:

✔    An objective scorecard of performance
✔    Areas of individual strength and weakness
✔    Transparency of the sales process

Metrics can also provide a mechanism for deadly accurate sales forecasting, something we’ll discuss in a future column.

Here is how you can use metrics in your company to supercharge productivity:

•    Develop individual, not team performance measurements
•    Share your reps' stats to empower them to own their progress
•    Provide individual training for weak areas and disregard all others

Assess Manager Performance using Metrics

In larger organizations, upper management can compare departmental and regional metrics to determine specialties and deficiencies of the managers.  A properly applied program of metrics can be a huge reporting and training benefit to a sales organization.

Consult Expert Help in Devising Metrics

To learn more, consult Alexander's Making the Number. Although the concept of metrics may seem simple, developing appropriate metrics for your company is an involved and specialized discipline. To achieve the best results, you need an expert in your corner. Feel free to contact us to help you develop high performance-based measurements for your company.

In the next article in this series, we'll derive a set of metrics for a hypothetical company.  Then we’ll use these to illustrate how you can improve the skill level of each of your reps to vault your department’s sales productivity.  Until then,

profitable business All! 

The Ingenious Executive- Create a Turnkey Operation

Have you been promoted lately? Most likely, your workload has increased. Employers often ask their workers to take on additional responsibility, especially during a recession where funds for extra labor is scarce. So how do you handle the additional work? With Ingenious Time Management you can hand off your overflow and preserve your relationships, all while increasing the skill level of your junior staff.

Let’s say your duties have expanded and you’ve just accepted a greater workload.  You have relationships with a select group of contacts– customers, vendors, or partners.  These relationships still need to be managed.  And you don’t want to burn any bridges.  Maybe some of them are even friends.

You know some coworkers in the same boat who just accepted the new work without transferring any of the old.  But you can see they’re now overloaded and headed for burnout.  You don’t want that to happen to you.  Because you're an Ingenious Executive you know you can grow the company. So you must find  a way to lighten the load somehow.

Last week we discussed how to encourage a customer to fire himself by gradually decreasing the value you provide.

How to Train the Organization

Ask your supervisor to allow you to delegate certain of your old contacts to junior personnel.  Suggest in this way you’ll be giving these junior workers valuable on-the-job training them while freeing up your schedule so you can excel in your new duties.  Agree to oversee the process.  Positioned this way, most bosses will see the benefit and agree to your proposal.

Start by informing your contacts of your new responsibilities and invite them to celebrate your new role with the company.  Mention that one benefit of the promotion is additional staff that can help you fulfill your new responsibilities.  Reiterate that you have always strived to provide the very best service.  Stress to your contacts that they can rely on your delegate to handle the daily routine calls but that you'll still be overseeing the account.  Afterward route through every call from these people to your staff.

In the same way you fire customers, you then delegate your old contacts.  Gradually make it less convenient for your old contacts to deal directly with you.  At the same time, ensure your delegate provides greater convenience when dealing with them.  Similar to removing value an outgoing customer receives, you gradually decrease the convenience in dealing directly with you while providing a comfortable alternative.

The key is to do this gradually, in stages.  You want your contact to feel they ultimately make the decision to deal with your subordinate, not have it thrust on them.

Initially have your delegate act solely like a receptionist, answering and transferring the call to you.  Then in the following calls instruct your staff members to engage lightly and pleasantly on the phone, perhaps letting them know how much they’re looking forward to working with them before passing the call on to you.

They for each call, delegate will increase the level of interaction with the contact while prolonging the time it takes to reach you.  Now they won't transfer the call; they'll take a message. Again gradually increase the time it takes for you to get back to them.  At the same time, during each call your delegate will offer to handle the matter in your stead.

As they prove their competence, your old contacts will start to rely more upon them.  Soon after they’ll stop approaching you and deal directly with the delegate.  Then you can manage the relationship from a high level while your delegate handles the daily interaction.

[Note: Don't make them wait long enough to irritate them, just to make them aware that you are getting busier.  And in any emergent situations, respond promptly.  Use your judgment.]

Why This Delegation Technique Succeeds

People fall into ruts.  Your contacts want to continue to deal with the same person out of habit, and to avoid retreading already covered ground.  So some contacts may take a long time to accept the delegation.  That’s fine; eventually they will.  Handled properly, at some point the contact will accept the help of your delegate. 

In this way you get your contacts to fire themselves while still maintaining the integrity of the association.  Each contact you delegate frees up a little more of your time to handle your new duties, make more sales, add more partnerships, add more staff, and build the organization.  You can scale an organization very rapidly this way.

Have you found a better way to scale?  What do you think of this method?  Leave a comment and let me know.

Later this week I’ll share Ingenious Sales Training, a way for you to institute a free training program that will improve each rep in your sales department.  And in a later article I’ll reveal how you can eliminate the headache of those annoying variable expenses like merchant card fees.  It starts next week, so stay tuned!  Until then,

profitable business All! 

Ingenious Sales Management:7 Ways to Promote a High-Performing Culture

Often, salespeople are viewed like standard employees.  They’re asked to answer the phone when it rings, handle paperwork, and do a myriad of tasks unrelated to selling.  The rationale by the rest of the staff for having the salespeople handle these duties is: “they’re already in the office; why not assign them to do it?” 

Your salespeople have only a few hours in the day to get in front of customers.  As their manager, it's your job to help them maximize their selling time.  This means implementing processes that allow them to focus only on sales-related duties.

By instituting only a few guidelines, you’ll be on your way to creating a high-performance culture and readying your organization for an inevitable spike in revenue.

Here are 7 steps to promote an environment that nurtures and creates top performers:

1. Focus on results, not activities
   When you bring in a new hire, you must supervise them to ensure they are performing at the right activity level to meet quota.  But once they’ve proven themselves, shift your focus to results, not activity.  Your best salespeople can spend a few hours on the golf course and bring in a huge win.  If a rep consistently surpasses quota, do you care how many calls he made or how much he's in the office?  Drill down to activity only when one of your reps miss his productivity goal.  Then work with him to improve deficient areas.
2. Monitor unobtrusively
   In the next post, we'll develop metrics based on your sales process.  Employ a cloud based web solution like Salesforce.com or another Customer Relationship Manager.  It will enable you to unobtrusively monitor transactions and generate metrics.  This way your reps can worry less about writing reports and maximize their time in front of prospects.
3. Individual continual improvement by drill training
   Use the results of your reports to determine weak areas and share these with your rep.  Next week I'll share how to derive each rep's performance measures. And later I’ll explain how you can use drill training to train deficiencies. Your reps will prefer this type of training because they can see how it directly impacts their pay.
4. Pay ratcheted commission on total volume
   Setup your commission percentages to escalate as they increase sales.  Let’s assume a rep’s quota is 500K per quarter.  And you pay 5% commission on sales at that level.  At 750K, increase it to 6% commission.  If you pay higher commissions on the entire volume, not just the incremental difference, you will powerfully motivate your reps to shoot for each next level.  An extra 1% of increased commission on the entire volume will drive your reps to shoot for the next level.  And the next, and the next.  They’ll be motivated to hit successive levels.
5. Delegate non-selling tasks
   Maximize selling time.  Remove anything that doesn’t contribute directly to the sales process.  Transfer administrative chores to an hourly employee.  Don’t interfere with face time in front of prospective clients.  The increased earnings your laser-focused reps bring in will more than offset the labor cost.  Minimize sales meetings: use technology to collaborate and keep meetings short and positive.  Announce new wins and offer motivating training.  Make non-urgent announcements using email or departmental bulletin board.
6. Embrace virtualization
   Your salespeople need to be out of the office, not polishing their chair with their rumps.  Create performance-based, not time-based policies.  Support their choice as to how they bring in business and make their schedule flexible unless it’s impractical to do so.  If you’re worried about giving them too much latitude, apportioning increased freedom as their sales increase is a great motivator.  Inbound call center reps can handle calls from home with a remote connection.
7. Trumpet victories
   Salespeople are ego-driven.  Announce major wins at the end of sales meetings.  Appoint “Salesperson of the Month” type awards based on productivity.  Your reps will appreciate the accolades  even though they seem cheesy.  Organize a President’s Club.  If you can afford it, present coveted awards for overachievers: a vacation trip to a great place they’ll talk about all next year.  This will set the tone for future incoming employees.

A tip: First-class travel and accommodations at a domestic resort is much more coveted than an economy trip to an exotic isle.

It's your job as sales manager to shield your people. A portion of that is deciding how you think your sales department should be run and persuading management to let you do it. Most senior managers who haven't been in sales don't know the first thing about how to run a sales department. It's your job to explain it to them. If you succeed in instituting the above items, you'll find your workplace productivity soaring and you’ll be breaking records in no time.  You’ll also notice your job will become much easier because your reps will not be around the office stirring up trouble.

In Thursday's article, we’ll discuss a great method to create a self-running organization while lightening your schedule to give you more free time.  And next week I’ll share Ingenious Sales Training to further improve the overall productivity of your office.  If you embrace the principles of these four sales management articles, you should be earning respect from your peers and supervisor soon.  It’s all coming up in the next week so stay tuned.  Until then,

profitable business All!

Customer Service for Dummies

Sometimes you just need to let a customer go. If a client is abusive to staff, or demanding but you're unable to satisfy or reason with them, you may have to show them the door.

But this article goes deeper. It can be valuable to periodically evaluate your customer base and jettison the ones that are no longer a fit. Many companies routinely rid themselves of their "D" class unprofitable customers. It is a valuable strategic practice that will not harm customer relationships provided you do it correctly.

In the last column I shared a compensation plan that creates top sales performers. Now I want to explain a way to provide Ingenious Customer Service.

Excluding outright abuse from an out-of-control client, decide whether to terminate only after you've had a chance to reflect and cool down. Tell the client you need to check on something and will tell them later how (not if) you will solve their problem. Don't stall them, just find a reason to get back to them. Then make the decision when you're rational.

The Wrong Way to Fire Customers

Unfortunately companies often terminate clients at the wrong time, stating inflexible policies as ultimatums or offering tactless suggestions during a fevered disagreement, and this can sully a good reputation. Handled improperly, disagreements can also cause former customers to feel betrayed and act vindictively. Read about the Rule of 200 to learn the ramifications of a heated exchange. This is where excellent companies differ, proactively heading off this behavior before it begins.

The Right Way to Fire Customers

When you've chosen to discharge clients, the best practice is to allow them to fire themselves. How do you do this? By progressively removing value from the business relationship.

In an earlier column I shared a technique to handle a customer complaint. You'll remember I suggested you can avoid ill will by putting the decision in the customer's hands. In this same way, put the decision to terminate the business relationship in their hands.

A business relationship is like a playground teeter-totter.  As the supplier, you sit on one side and the customer sits on the other. You load your side with goods and services and the client loads his side with money. In this way the teeter balances.

If the totter becomes angled and you notice that you are dragging the ground, how do you right the teeter? Either by lightening your load (removing services) or increasing the customer's (increasing payment.)

In the same way, gradually make the business relationship less valuable for them and more valuable for you.  For instance, when you raise prices with the Grandfather Discount, exclude them from the offer.

Of course you will continue to provide the customary excellent service you give everyone, but gradually remove enough value from them while increasing the value to you so that ultimately the teeter-totter will right itself.  Or the customer will get off the teeter. Simply put, he'll terminate himself.

Will he leave immediately?  Maybe not - and this method won't leave you with the satisfying feeling of instant closure. But even when a customer is incredibly difficult to deal with, the decision to terminate should be made rationally, not emotionally.

Will he leave upset?  No.  Not if you put the choice to quit in his hands and he exercises it. You can even recommend an alternate vendor if you wish. And if he does choose to get upset, he won't have anything concrete with which to slander you.

Case Study: the Dance Studio

As a teenager I took dance lessons at the local studio. We middle class college students loved it because it was inexpensive and near the University. As a result of word of mouth of the students, the business grew rapidly. However, the owners soon discovered the college students were on a fixed budget and chose to attend the less expensive group classes. Hence, they were "D" class clients compared to the "A" and "B" class clients who could shell out for expensive private lessons.

The owners chose to cultivate a more affluent demographic by moving the studio to a wealthier part of town. The new owners found themselves in a dilemma: the D-lister's word of mouth had built their reputation and they didn't want to risk damaging it. So they implemented policies that caused us to jettison ourselves.

They handled it the right way. They didn't ask us to leave. But over time they made the services so inconvenient that we no longer found attending worth the trouble. The owners began decreasing the frequency of the group lessons we attended, from three times a week originally to twice a week, then weekly, and finally every other week. The owners justified the reductions by claiming that the regular classes had filled the available time slots and it was all they were able to provide.

The class winnowed itself down and eventually we all left. But there was no animosity because we had made the choice. And had we been miffed, what could we say? That the studio had become so popular that we felt shut out? We had nothing concrete with which any of us might damage their reputation. The studio flourished after we left with a new clientele, and the owners enjoyed an unblemished name.

Next week I'll share a way to use a variation of this technique to hand off customers and vendors to junior staff, furthering your ability to delegate and create a turn-key organization. You can even pass off close, long term relationships without risking losing clients. Done properly, this method will free up a lot of your time and allow your organization to grow rapidly. And later we'll continue discussing Ingenious Sales Management, developing a training program that nurtures top performers who stay with you for life. It's coming up next week. Until then,

profitable business All! 

High-Performance Compensation to Create Superstar Salespeople

In the last columns I shared a few Ingenious Sales Techniques to reach extremely difficult contacts, to breeze past the gatekeeper straight to the decision maker, and to coax the receptionist or administrative person to help you.

I want to turn our attention now to a different direction: sales management, the bane of many business leaders. This is the first of a series of articles on managing top sales talent. In this column we will discuss how to design a sales compensation plan for your company that powerfully motivates salespeople and supercharges results.

How to Motivate (or Create) Top Performers

After decades of designing and reviewing various sales compensation plans, I've discovered a few principles that hold true for salespeople universally. Here they are:

1. Commissioned salespeople will perform to maximize their pay. This sounds simple but salespeople are creative problem solvers. These people can be quite inventive and sneaky. Ensure you are incenting the correct behaviors or your reps will game the system.

2. Provide a living wage base salary that allows them to survive, and pay a handsome performance bonus. During the probation period, add a "non-recoverable" draw to their salary as necessary.

3. Incrementally revise their compensation plan so as the rep grows her sales volume, her commission percentage rises while her base lowers. Ultimately you want to wean all your people off of salary. Being 100% commission increases their confidence, empowers them, and makes them feel self-sufficient. It has several other benefits for the employer too.

Consult an expert to determine baseline levels for wage and commission percentages for your industry.  The best plans can not only help you pay reps appropriately. Properly designed plans can also help you interview and retain better reps and identify top talent.

How valuable would it be to identify future superstars? You can do it with a customized compensation schedule.

In the next column I'll discuss how to create an effective working environment for your sales reps. And in a later post I'll share how to create a metric-oriented process that helps you manage your people effortlessly. You'll learn how to engage your reps constructively and help them identify their problem areas. Then you'll help them get better without resistance. You'll also be able to use this Ingenious Sales Metrics technique to create an incredibly accurate Ingenious Sales Forecast.

Regardless if you're a new sales manager or an old pro, you'll want to learn this! Stay tuned. Until then,

profitable business All!

The Most Incredible Marketing Letter to Supercharge Sales

In the last column I shared with you an Ingenious Sales Technique to reach an extremely difficult contact, those captains of industry who are senior executives of giant corporations. This column I want to describe a way to take your sales letter and make it the most powerful tool you can by adding a couple things to it.

Make it Short and Sweet

Personally, I favor a short sales letter. I do my best to hook them with the benefit at the beginning, then add a statement why they'll find my offering valuable expressed in terms relevant to them (time or cost saved, income gained, convenience achieved, et al.) Lastly, I add a guarantee or some type of language offering them peace of mind when they deal with me.

Marketers base direct mail on the premise that their readers have the attention span of a gnat, and you can assume a busy executive is no exception. You can be a superb writer. But unless you use an exceptional marketing message to pique the recipient's interest, your letter will occupy their attention for the time it takes to drop it into the trash. I want to grab my prospect's attention as soon as they open the envelope. So I put the marketing message as near the top as I can. That way there's a better chance I'll hook them and they'll read the rest of the letter.

There are a few things you can do to pique your prospect's curiosity and extend that time period.

By doing so, you'll have a greater chance of gaining the attention of your prospect. Better still, you'll gain the attention of the assistant which we shall see is often better.

Coax the Secretary

In Selling To VITO (Very Important Top Officer), the author asserts it's a good idea to cultivate a relationship with the assistant. This technique goes even further: it enlists the assistant to help.

By enlists, I mean you will encourage them to set an appointment with his or her boss. Using this concept will increase your chance of getting on their boss's calendar greatly.

You've written your polished custom-tailored sales letter and you're ready to send it along. First step: find out the first name of the assistant. The name of the assistant is much easier to get than the name of the executive in most cases.

Second step: add a handwritten P.S. at the end of the letter. You want this to stand out so use an appropriate ink depending on the letterhead. I use a red felt tip pen.

The Most Powerful Postscript

The postscript should read: "I shall call you at 2pm on Wed, Sep 23rd. If this time is inconvenient, please have Linda call me at 555-2121 to reschedule." Linda is the assistant's name and the time and date are a few days after you expect the boss to receive the letter.

Call at 2pm sharp (or whenever you indicate) and be amazed at how often the assistant puts you right through to the boss. I've had CEOs answer the phone themselves when I did this. One notoriously difficult to reach CEO of a large financial services institution told me upon answering the phone that I normally wouldn't reach him. He said I provoked his curiosity and that he had to know who had used such a novel approach. He didn't buy from me but he then offered me a position training his sales department.

Why does this technique work? First of all, Linda probably opens her boss's mail. Seeing one's own name is flattering; if you see your name on correspondence, wouldn't you be more likely to forward it? Given the assumptive tone, Linda may presume you've already discussed the matter with her boss. Whatever reason, this technique will open many more doors for you.

Don't be surprised if you get a call from Linda rescheduling your phone call. Also, I've had a VP I tried to reach call me out of the blue before the due date. All kinds of things can happen with this technique.

Use it in conjunction with the previous Ingenious Sales Technique to create a devastatingly effective method to reach a decision maker over the telephone.

Do you feel this combination would work for your business? Write a comment letting me know your thoughts.

In a later column I'll introduce additional concepts that you can incorporate along with these techniques into a mailing campaign. This will multiply the effectiveness of your acceptance. And later I'll share with you a bulletproof method of sales management. If you're a new or struggling sales manager, you'll want to read this. Stay tuned. Until then,

profitable business All!

Politically Connect and Intrigue Impossible-to-reach Prospects

Last week we explored how to get past the receptionist to reach your prospect. But how do you reach decision makers who are almost impossible to get ahold of?

You know who I'm talking about: these are the captains of industry whose office is a fortress, their schedule a closely guarded secret by their minions, and they're almost always out of town. Senior executives of Fortune 100 companies usually fall into this category. How do you reach the likes of Ballmer, Otellini, Buffet, Price?

Build up Buzz

There's a technique I learned years ago that I'll share here. This way of generating buzz is solid gold by itself.  Grouping it with last week's technique and another concept that I'll share next week will enable you to deliver a powerhouse effect. This will increase your ability to reach those truly impossible to reach people... you'll find it a useful tool even if your role isn't direct sales.

The concept goes like this: you send a professionally written sales letter to your intended prospect.  Then send similar but different letters to several other people within the organization. To learn how to write a sales letter, check out How to Write Sales Letters That Sell or The Robert Collier Letter Book.

Now here's the key: In each letter you send, make sure you mention that you're also sending letters to others in the organization and name them. This will impress upon the recipient that you do your homework and that you are committed to achieving your goal. Send one to the person's boss and one each to several peers within the organization. You want to get them all talking to each other about you.

Let's say, for instance, you're trying to reach the CIO of XYZ Company. You'd send her a letter and also letters to her CEO and several other department heads. Maybe you'd select the Chief Marketing Officer, Chief Operating Officer, and Chief Financial Officer.

Tell them each that you're mailing the others, and relay that your goal is to obtain a presentation, visit, demonstration, or whatever your objective.

Make Politics Work for You

This approach works because of the politics of an organization: your prospect can't simply ignore your letter because he or she knows you've mailed their boss as well. One of her peers may bring up the subject out of curiosity or even competition. Since you've informed your prospect you've made their peers aware, s/he'll know that your name might come up and they'll have to be ready.

One or more of them might mention they received a letter and conversation will ensue.   Questions will arise: why didn't this dept head get one while that one did? What is the purpose of all these letters?

At the very least, your name and company will be discussed at the highest levels. And at the best, you may earn an advocate from one of the other dept heads where you might have previously been ignored.

I encourage you to try this. It vaults your response rate and has gotten me into many meetings with hard-to-reach people. Often you'll receive a warm welcome as the executive will appreciate the novel approach. And occasionally the peers you mailed will sit in as well since they feel involved. It greases the skids nicely.

Incidentally, if you know of the source from which I'm taking this technique, please write and let me know so I can credit the author and make the book available in our recommended resources section. I remember he lives in Minneapolis and he was an aspiring performer. He developed the concept to reach music executives to get auditions.

Next week I'll add a second component to this concept that brings synergy to this approach. I'd estimate using this technique alone will increase your acceptance rate three to five times.  When you combine them, you can expect even better returns. Together they provided me a tremendous synergy that allowed me to contact and close more business. Stay tuned. Until then,

profitable business All!

How to Keep Key Employees - an Ingenious Turn-key Organization pt iv

This is the last of a four-part series of articles on Developing a Self-Running Organization.  In the last post we discussed how to develop the leadership skills of your mid-managers.  By involving them in strategic planning, you can prepare your company to run in your absence even during a crisis.

Turn Line Workers into Managers

Okay, you're regularly involving your senior execs in planning and confident they're participants in your company succession plan. But how do you provide for succession of your line workers?  These may be senior people without any formal managerial responsibility but they know the ins and the outs of the organization.  Tenured employees who might be topped out in pay and marginally challenged, they are highly at risk for leaving.  They may have special skills that would be difficult, if not impossible, to replace. If they see themselves in a dead end position the threat of departure can be great.

You realize you could fix this if you could offer them upward mobility.  Unfortunately because of the structure of the organization or their particular role, while you recognize their value, they're unpromotable.  So what can you do to prevent losing these key employees?

There is a way to provide your line employees leadership responsibility in a manner that achieves a number of benefits to the organization:

• increased productivity
• cheap labor 
• clone irreplaceable employees 
• an extended interview of new employees to determine cultural and skills fit within the organization

Can you guess what it is?  It's offering internships!

Work with the local University

By working with the career center of your local college, you can offer internships to students in undergraduate and graduate programs.  Done properly, you can achieve all these benefits and more.

Assign a new intern to a senior line employee you think may need a new challenge.  Your seasoned vet gets an additional role and becomes a manager by virtue of their supervisory role over the intern.

The company benefits from the productivity of an additional employee at a fraction of the cost of a regular worker and this intern gets to learn your business during this time.   Your labor output increases and you can assess how well a potential employee would fit your organization and perform their assigned job.

Most interns won't prove a fit, but that's fine.  Most employees don't either and end up leaving.  But by utilizing interns in your employee screening program, you won't have the expenses of a new employee.

Executed properly, an intern program can relieve you of many costly burdens.  Think of the typical expense and upheaval when an employee- even a brand new one - departs:  initial training costs, training salary, benefits, incidental issues.  Often you worry about the impact on sympathetic coworkers.  Rarely, you may have legal issues based on discrimination or other matters.

With interns, you won't have all these expenses and you don't have to worry about the affect on coworkers.  Interns are typically temporary so if they don't work out you just don't invite them back.  And done properly, you invest only time.  Regardless of the outcome, your senior employee will still have reaped the valuable experience of managing and training the intern.

Extend a Job Offer to a Promising Intern

When one of your interns proves a good candidate, you can offer them a position upon graduation.  Since they'll already know the job, they'll hit the ground running and require less supervision.  Their retention probability will be much higher than if you had hired someone without a trial period.  After all, you already know they're a cultural fit.  They'll probably get to know their direct supervisor. Since a poor relationship with the boss is the top reason an employee leaves you'll have a better chance of holding onto them.

Bonus: since your new hire interned under a seasoned employee with a valuable and possibly critical skill set, you'll have taken a giant step forward to shoring up that gap.  If you had the foresight to instruct your grizzled vet to train the intern to do their job, you have another employee on their way to adding that skill to their toolkit.

There's a lot more to structuring a successful internship program - how to supervise, how to manage the project, what to stress to all parties, how to ensure your line workers are enthusiastic and competent to manage interns, how to measure results, etc. etc.   It's way too much for this short article.  If you are interested, the author is available for consulting on how to best implement this strategic advantage.  The benefit far outweighs the cost.  For additional help, feel free to contact the author.

This is the final article of this series.  You now have the tools necessary to set up your company to become self-running.  You can add any number of staff for free by using interns; your line employees will view the upward mobility and you'll lock in retention of your key employees; your senior and line managers are practicing strategic planning and delegation which lowers the costs of the company; and you and every other leader can be content the organization will run smoothly in your absence.

And isn't that what every business leader wants?  To set up a business that throws off cash without demanding a lot of time?  Now you can take that trip around the world, right?  Write in the comments and tell me what you think.  Have you used interns?  What was your experience?

Next I'll share another Ingenious Sales Technique.  Have you ever tried to reach a top executive at a company but you were simply unable to reach them?  I used this technique to reach Warren Buffet's administrator at Berkshire-Hathaway Corporation.  It's a fantastic skill from a book that I tweaked.  Stay glued.  I'll share it in the next column.  Until then,

profitable business All!

Simple Marketing, pt VI: Test Marketing

Earlier this week we explored how to formalize training within your organization to empower your key employees to become strong leaders inducing them to stay with your company as long as you wish. After you implement last week's Ingenious TechniqueTM, you may find that your attrition decreases significantly.

This is the last of a six-part series on developing an advertising campaign. In this column we'll test market your ad so you can improve results and ultimately develop an extremely effective advertisement.

In the first four articles of this six-part series, you answered four questions - 1) Who is your ideal client; 2) where do you find more of 'em; 3) what do you tell 'em to lure them to your offering; and 4) what are they worth to the company. In the last post we calculated your most cost-effective advertising medium.

You have developed a basic design for your ad. From Part 3 of this series, you decided what your message should be and from Part 4 you determined what medium to use. This determined what and how you wrote your advertising copy. You engaged a skilled marketing specialist to help you write it. If you were unable to find help, you can review some of the Guerilla Marketing books by Levinson for assistance. If you prefer to work with someone directly, contact me and I'll provide a referral to a reputable marketing specialist.

If it's a written ad you're using a coupon or some form of discount code that you're tracking. If you're running an incoming telephone campaign, you are using a special number that you're tracking as well. You've been determining the effectiveness of the number of people who've responded to your offer, and you've determined how much net profit each run of your ad is generating. Now we'll begin tweaking the ad.

How to Test Market

After running it, change one aspect of it just a little bit. See whether it does better or worse than before. If it pulls better, try tweaking whatever aspect you changed a little more. If it pulls worse, return that variable to the last configuration and tweak some other variable. Change one variable at a time and keep doing this increasing the effectiveness until you're satisfied.

There are many aspects of an advertisement you can change. If it's a print advertisement, for instance, you can change the message, layout, paper type, font, size, color, location, frequency, and a number of other attributes. Try playing with each one until you get a bulletproof ad. Then run it until it no longer pulls effectively.

Congratulations! You now have the most cost-effective advertising campaign your could devise. Write in and tell me: what is your best advertising method and medium?

In the next column I'll share how to add productivity to your organization while saving money, and giving leadership training to your line employees. It's the final of a four-part series on Developing a Turnkey Organization. You will definitely want to catch it. And if you haven't yet checked out the podcast, feel free to download it. More exciting stuff coming up. Stay tuned! Until then,

profitable business All! 

Instituting a Learning Culture - an Ingenious Turn-key Organization pt iii

Act Strategically by Training Tactically

In the last post I wrote about delegation. Teaching your executives this one skill can increase their effectiveness measurably. I also asserted that to be a great leader you should train your employees to replace you. We'll continue talking about what it takes to develop a turnkey organization: a business or department that you run, not a job that runs you.

To achieve your ultimate goal - that of creating a self-running entity that doesn’t require your constant supervision - requires you to implement long-term strategies, not rely solely on short-term tactics.  To define the two: a tactic is giving a man a fish; a strategy is teaching him how to fish. The tactical approach requires you to perform the task yourself each time you need it done. The strategic one allows you to leave and it will continue to happen without your involvement.  Your objective is to set up as many tasks as possible so they will happen without your direct involvement.

Delegation is a tactic. Instructing your managers how to train their people in delegation is a strategy. By leading your people in top-down delegation and instructing them to copy your training methods, you encourage them to think and act strategically. This is the essence of creating a turnkey organization, one that functions in your absence.

What’s the #1 Reason an Employee Leaves?

Many research firms have studied why employees stay or leave a company. In fact, pay isn’t even in the top three reasons and often not even in the top five. The number one reason surprises most leaders. Do you know what it is?

Poor management.  

It's well known among human resource professionals that Employees leave managers, not companies. For further reading on this topic, pick up a copy of The 7 Hidden Reasons Employees Leave by Leigh Branham.

So what’s the implication? Can you keep your best people if you provide good leadership, upward mobility, challenging work, and praise? The data suggests it. Guess what? These are all things you can provide your people without added expense to your organization.
As a recent McKinsey white paper shows, larger companies are also adopting more non-monetary strategies to attract and retain the best employees.

How to Cultivate Employee Loyalty?

At the consulting firm when starting a job, we routinely surveyed the senior management of our clients. One series of questions that always drew similar answers had to do with employees.When we asked why employees departed, almost all managers listed inadequate compensation, poor or inappropriate benefits, and lack of upward mobility. When asked how they were able to retain those employees that remained, these same managers reported: good pay and benefits, good company culture, and challenging work. The managers were always very confident in the accuracy of these answers.

Why Involve Subordinates in Strategic Planning?

Here's a way to forge intense bonds of loyalty in your subordinates even if the company is small, pays below market salary rates, has high turnover, and the job and industry are very difficult.  You can continue building your direct reports’ critical thinking skills by having them practice strategic planning.

Give each subordinate a copy of your business plan and have them read it thoroughly.  Then brainstorm What If? scenarios with your people and have them devise solutions.  Write down all the scenarios and their proposed solutions in your business plan. Institutionalize critical thinking in your organization to develop action plans that your team can instantly implement in a crisis.

There’s a natural gravitas, an air of stuffiness that arises when a company starts to practice strategic planning. Many executives think that only the highest ranking employees should be let in on the future view, that the whole process should be approached ultra-seriously, ultra-secretively, that everyone should walk on eggshells, and all that failure to design the right plan equals corporate death.
Balderdash! Make it fun. Be as outrageous and childlike as you can. Encourage your people to devise their own what if? scenarios and make a game of it. Give cute prizes for creativity. The best way to cement knowledge it to play with it.

By enabling your subordinates to brainstorm and solve scenario problems, you're giving them the absolute best leadership training you could.  They'll be ready to think and act on their feet when they encounter real-world problems. They won't act paralyzed as do so many managers when confronted with a problem they haven't encountered before.

A manager confronted with a crisis is a more effective leader when s/he has a plan.  And either they'll already have solved a similar problem and have a ready action plan which they can apply or modify.  In the rare event they confront an entirely new problem, they'll be so accustomed to brainstorming because of your scenario training that they'll proceed to solve it.  Eventually you won't even need to manage the process!

If your direct reports are themselves managers, encourage them to run strategic planning groups with their people. By doing this you get everybody on the same page and start to develop a turnkey organization.

Compile all the contingent scenarios and their respective solutions into an annex of your business plan to develop a truly comprehensive strategy that can serve as a future action plan - or a great starting point during crisis.  Imagine having the wealth of brainstorming when you most need it, codified into your business plan.

Having your teams brainstorm What If? scenario planning can be a terrifically valuable and enjoyable aspect of a corporate retreat.  Employees become distant when they’re disengaged and out of the loop. By having them participate in future planning, you invite your people to see the longterm objectives of the company and encourage them to help plan its future. They’ll feel they belong to the company and their work will take on renewed meaning.  What is your most prized management technique to develop subordinates?  Comment and let me know.

In the next article, the fourth and last in this series, I’ll share a way to offer upward mobility to anyone within your organization, even your line workers who might be stagnating. This Ingenious TechniqueTM will increase your productivity while saving money.  It will also develop management skills in these workers giving them leadership responsibility. Do you have a guess what it is? Stay tuned next week to find out. Until then,

profitable business All!