A survey of 2,500 Human Resources and Training Executives…
Or, getting HR to hit mark on talent management

BOSTON, May 6, 2006 — Coaching a performance problem, communicating performance standards and other tactical initiatives are the most common components of leadership development programs, according to a study by Novations Group, a global consulting organization based in Boston.

What is the analysis of the survey data?  And, most importantly, what is so unusual about the result?

First, the survey question and the results from 2,500 HR respondents.

Which of the following management situations or initiatives are addressed by your organization’s leadership development program (please select all that apply)?

Coaching a performance problem	71.9%
Communicating performance standards	69.1%
Coaching a development opportunity	68.7%
Conducting a performance appraisal	66.8%
Handling conflict situations	65.9%
Communicating vision and strategy	59.4%
Selecting the right employee	58.1%
Diversity & Inclusion	55.3%
Gaining commitment to goals	49.3%
Managing priorities	48.8%
Change management	45.2%
Acting on feedback	44.7%
Teaching a skill & delegating responsibility	39.6%
Influencing internal resources	34.6%
Managing a virtual team	27.6%

And why is this a curious result?

This is interesting empirical data.  The survey asked about leadership development programs – not management development programs.  Why is a leadership development program focused on management activities and  responsibilities?

There are a couple of candidate explanations for the survey results.

But first, from an empirical perspective – as understood by constituents – what is expected of leaders from follows?  Consider leadership in terms of non-authoritarian leadership.  That is, what are the attributes of people (leaders) that constituencies will willingly follow.  The key is the term “willingly follow“.

This takes us beyond the sphere of hierarchical organizations into the realm of democratic political systems where constituency groups are not compelled to follow a leader.  There is application to both organizational and political behavior.

Th Kouzes-Posner Empirical Research on Leadership

This is from James M. Kouzes and Barry Z. Posner

We began our research on what constituents expect of leaders more than twenty-five years ago by surveying thousands of business and government executives. We asked the following open-ended question: “What values, personal traits, or characteristics do you look for and admire in a leader?  In response to that question, respondents identified several hundred different values, traits, and characteristics. Subsequent content analysis by several independent judges, followed by further empirical analyses, reduced these items to a list of twenty characteristics (each grouped with several synonyms for clarification and completeness).

From this list of twenty characteristics, we developed a survey questionnaire called “Characteristics of Admired Leaders.” We’ve administered this questionnaire to over seventy-five thousand people around the globe, and we update the findings continuously. We distribute a one-page checklist and ask respondents to select the seven qualities that they “most look for and admire in a leader, someone whose direction they would willingly follow.” We tell them that the key word in this question is willingly. What do they expect from a leader they would follow, not because they have to, but because they want to?

The results have been striking in their regularity over the years, and they do not significantly vary by demographical, organizational, or cultural differences

The Opportunity

What happens when you take 25 years of empirical research by by Kouzes and Posner of over 75,000 individuals  on leadership – from a constituency point of view – and bump this up against what is being taught by HR and training executives – or at least the 2,500 surveyed by Novations? Are they aligned?

Not to put too fine a point on this but lets be clear.  Are company and organizational talent management system creating a group of people (as leaders) that employees or organizational members will admire and willingly follow?  Or, are these talent management programs focused on something else?  And if so, what and why are these leadership development programs teaching what they teach?  What is driving the curriculum being taught?

If the answer is no – that is, if HR talent management programs are teaching what is irrelevant to what is empirically discovered to be successful leadership qualities, skills and competencies then, well, we have quite an interesting situation that bears further investigation.

The Kouzes Posner Research -
The five behavioral practices of exemplary leadership

Based on the 25 years of research, Kouzes and Posner came up with these 5 behavioral practices of exemplary leadership.

1. Clarify values and set the example – model the way.

In order to clarify values and set the example leaders first have to have principles and beliefs.  In a certain sense, this is an exercise in self-inspection.  To the extent that people do in fact “act” (have a behavior)  they do have some set of values, beliefs, and principles – whether consciously articulated or not.  The task is to make these explicit.

After  these values have been discovered  one must have the capability to articulate them. In short, communication skills.

Beyond the articulation of principles and beliefs leaders need to establish and maintain credibility.  One establishes credibility by acting on those values.  That is, action gives a voice and credibility to these values, principles, and beliefs,  in a way that simply articulating these values in speech or writing can not.

No one will believe an individual as a leader until they demonstrate a commitment to your values.  That is, model the way.  Actions  – behavior and judgment – have to be consistent with the values that the leader has articulated in speech of writing.

2. Inspire a shared vision of the future possibilities and enlist others in that vision

The Kouzes-Posner research shows that leaders must be able to envisage , project, and articulate a future for the organization.  Equally important constituency groups  must be able to see themselves in this future.  The leaders vision of the future must be inspirational in order to achieve buy-in and commitment from the constituency.

To be inspirational the vision must be able to show the greater opportunities that await and how this vision is unique and differentiates your organization from all the rest.  High performance behavior within an organization can be achieved by instilling passion and pride in achieving the vision.  In order to achieve this, what leaders envisage for the future must resonate with the constituency base.

3. Challenge the process by searching for opportunities to innovate, grow, and improve by experimenting and taking risks

Challenging the process sometimes means challenging the way things are done – especially when the way things are done has placed an organization in a state of stagnation or decline.  “Repeating the past” does not play well in a dynamic external environment.

The Kouzes-Posner research found that successful leaders create a climate for the recognition of good ideas and support for those ideas.  Successful leaders create a climate for experimentation and risk taking without the stigma of failure.

In some cases success breeds failure.  Why?  In a nearly continuous stream of successes one has less of an opportunity to learn from failure – or the organization is not taking enough risks -  or it operates in a a non-competitive environment.  In many cases, people and organizations “are made” by adversity, setbacks, and successful recovery.

Failure can breed success through careful analysis of failure, repositioning, new strategy, better execution – or whatever the results of the analysis show  if individuals and organization have the tenacity and commitment to carry through on careful analysis of product, service, or organizational failure.

Organizational leaders can create a climate of experimentation within a workforce where there is fear of risk and failure by reframing.  For example, reframe  uncertainty as adventure; fear into resolve; and risk into reward.

Successful leaders champion change – change not for the sake of change in the service of innovation.  No organization can stand still for long and continue to be competitive.  Customers will grow weary of products and services that can not adapt to the changing external environment or competitive challenges.

Finding new and better ways of doing things, developing new products, services, or systems should be a continuous and ongoing process in any organization.  Challenging the process is not only an internal endeavor.  Challenging the process  also involves looking outside the realm of familiar experience at the ways other organizations operate – borrow and refine what works – discard what does not work.

Bottom line – always and continuously challenge the current process to look for new opportunities.

4. Enable others to act by fostering collaboration, building trust and strengthening everyone capacity to deliver on their promises.

One could summarize this a few different ways: “empower people to act” and “mobilize people”.

The Kouzes-Posner research found that successful leaders learn to trust people, relinquish control, and enable others to act.  There are a couple of old expressions that come to mind – “every brain in the game”  and “no one of us is smarter than all of us”.

To realize the power of groups of people leaders need to facilitate relationship and collaboration among individuals.  They need to instill a sense of cohesiveness and self-determination along with shared creation, shared responsibility and personal accountability to the collaborative team.  Leaders need to facilitate competency development across the team and also ensure there is a diversity of complementary skills and perspectives.

These combined allow people to not only develop and demonstrate the belief that they can make a difference for the better but that they can in fact realize the vision though empowerment, relationships, collaboration, and competency development.

5. Celebrate values and victories recognizing contributions of other celebrating values and victories

People that make the commitment and put in long hours need recognition to sustain the effort.  Successful leaders expect the best and provide personalize recognition in return.  Public recognition of personal achievement builds a community through celebration.  Successful leaders perpetually look for people doing things right an reward it.  A community of achievement is sustained by telling stories of personal, group, and organizational accomplishment.

Leadership Training and Talent Management

Hitting the mark

So lets look at the survey results of 2,500 HR and Talent Management Executives.

When asked the question:

Which of the following management situations or initiatives are addressed by your organization’s leadership development program (please select all that apply)?

This is an analysis of the responses as above.  Color coded in red are the items relevant to the results of 25 years of accumulated research across 75,000 individuals as reported by James M. Kouzes and Barry Z. Posner

Now one can see what is curious about the responses.

The top 5 skills and competences taught in leadership development programs – as reported by 2,500 HR respondents – have noting to do with the skills and competencies that Kouzes and Posner discovered as leadership attributes.

Only 59.4% of respondents say they teach “Communicating Vision and Strategy” as part of leadership development.
“Gaining commitment to goals” – 49.3% – less than 1/2 across 2,500 respondents surveyed.
“Change Management” (challenging the process and institutionalizing this) – sadly 45.2%
“Influencing”  (motivating) – 34.6%

The misalignment

So why the mismatch between what is being taught in leadership development programs and the result of the Kouzer-Posner research?

Here are some thoughts

1. The survey question clearly states “leadership development program”.  The survey results show that leadership training programs are really teaching management skills and competencies.  Why?  If leadership programs are driven by needs as observed in actual organizations then management in those organization is not fulfilling their roles. Why?  One possibility is that individual contributors have been promoted to management roles without being prepared with the skills and competencies needed for that role.  The result?  Leaders are focusing on what should be handled at the management level. That is, based on organizational need, leaders have to take on more of a management role than a leadership role to fill the vacuum in the layer below them
2. As a result of the above, leadership programs in those organizations are diminished.  How?  Training for leaders is heavily weighted toward dealing with tactical operational problems not focusing on strategy and vision – that is, the skills, competencies, and competencies as discovered by the Kouzes and Posner research.

This did not escape the notice of Novations:

BOSTON, May 6, 2006 — Coaching a performance problem, communicating performance standards and other tactical initiatives are the most common components of leadership development programs, according to a study by Novations Group, a global consulting organization based in Boston.

A good deal less frequent are key strategic skills such as communicating vision or delegating responsibility, reported Novations, which surveyed more than 2,500 senior HR and training executives throughout the U.S. and Canada.

In fact, the top five leadership development initiatives are entirely operational in focus.

What is disappointing is the relatively low emphasis given to the strategic dimension. At the very core of developing new leaders is getting people to look beyond the tactical stuff and to engage on the bigger issues.”

And on individual contributors being promoted to management without the necessary skills to effectively manage and act as a local leaders

In order for individuals to advance from individual contributor to manager they need to be taught the full suite of skills needed to act as a local leader, not as just an expert. And too often people are promoted to a management position and don’t let go of their old job.”

All this plays into the idea of “clogging the leadership pipeline”.  Making the mistake of promoting individual contributors without the necessary management skills pushes the role of management to leaders which have to execute the skills (tactical and operational) due to  the absence of management skills by the errant promotion of individual contributors.

So, if “leaders” have to be trained to take over management duties then that diminishes the relative amount of time they can spend on focused leadership activities discovered by Kouzes and Posner.

Conclusion – one possible remedy

One solution to this organizational situation is reclassification.  That is, every employee is placed in a job role based on the skills, competencies, time commitments, and behaviors that they actually demonstrate by observation on the job against rigorous job analysis and descriptions.

An organizational decision to do widespread reclassification can take its toll.  But sometimes, significant transformation of an organization can be an effective way to restore a corporation or organization to competitevness in a dynamic competitive marketplace.

Read the actual experience of Forced Ranking here.

Novations is a global talent management consultancy.  So, based on their research of the 2,500 HR talent management executives it looks like they have some good leads to follow up on and a good story to tell if they leverage the Kouzes-Posner and similar research.

References and Related Postings

How to NOT derail your corporate or organizational career

Managing Your Career – When IQ and Expertise are not enough:Or, why you need Emotional Intelligence to get ahead

From Loading Dock to CEO in 6 painful steps. Or, Navigating the Leadership Pipeline

Developing your Leadership Pipeline – Harvard Business Review December 2008

The Secret to GE’s Success: A Former insider Reveals the Leadership lessons of the World’s Most Competitive Company (Hardcover) by William R. Rothschild

The Leadership Pipeline: how to build a Leadership-Powered Company by Drotter, Noel, Charan

The Leadership Challenge, 4th Edition by James M. Kouzes and Barry Z. Posner

Forced Ranking – Behind the Scenes

Jack Welch – On Differentiation: Or, making winners out of everyone

On Differentiation by Jack Welch

If there is one of my values that pushes buttons, it is differentiation.

Some people love the idea; they swear by it, run their companies with it,and will tell you it is at the very root of their success. Other people hate it. They call it mean, harsh, impractical, demotivating, political,unfair—or all of the above.

Obviously, I am a huge fan of differentiation. I have seen it transform companies from mediocre to outstanding, and it is as morally sound as a management system can be. It works.

Companies win when their managers make a clear and meaningful distinction between top- and bottom-performing businesses and people, when they cultivate the strong and cull the weak.

Companies suffer when every business and person is treated equally and bets are sprinkled all around like rain on the ocean.

UNDERNEATH IT ALL

A company only has so much money. Winning leaders invest where the payback is the highest. When all is said and done, differentiation is just resource allocation, which is what good leaders do and, in fact, is one of the chief jobs they are paid to do. A company has only so much money and managerial time. Winning leaders invest where the payback is the highest. They cut their losses everywhere else.

If that sounds Darwinian, let me add that I am convinced that along with being the most efficient and most effective way to run your company,differentiation also happens to be the fairest and the kindest. Ultimately, it makes winners out of everyone.

DIFFERENTIATION DEFINED

One of the main misunderstandings about differentiation is that it is only about people. That’s to miss half of it. Differentiation is a way to manage people and businesses.

Basically, differentiation holds that a company has two parts, software and hardware. Software is simple—it’s your people. Hardware depends. If you are a large company, your hardware is the different businesses in your portfolio. If you are smaller, your hardware is your product lines.

Let’s look first at differentiation in terms of hardware. It’s pretty straightforward and a lot less incendiary.

Every company has strong businesses or product lines and weak ones and some in between. Differentiation requires managers to know which is which and invest accordingly.

To do that, of course, you have to have a clear-cut definition of“strong.” At GE, “strong” meant a business was No. 1 or No. 2 in its market. If it wasn’t, the managers had to fix it, sell it,or as a last resort, close it. Other companies have different frameworks for investment decisions. They put their money and time only into businesses or product lines that promise double-digit sales growth, for instance. Or they invest only in businesses or product lines with a 15 percent (or better)discounted rate of return (DCRR).

Now, I generally don’t like investment criteria that are financial i nnature, like DCRR, because the numbers can be jiggered so easily by changing the residual value, or any other number of assumptions, in an investment proposal. But my point is the same: differentiation among your businesses or product lines requires a transparent framework that everyone in the company undestands. People may not like it, but they know it and they manage with it.

In fact, differentiation among businesses and product lines is a powerfu lmanagement discipline in general. At GE, the No. 1 or No. 2 framework stopped the decades-long practice of sprinkling money everywhere. Most GE managers in the old days probably knew that spreading money all around didn’t make sense, but it’s so easy to do. There’s always that pressure—managers jockeying and politicking for their share of the pie.  To avoid warfare, you give everyone a little slice and hope for the best.

Running your company without differentiation among your businesses or product lines may have been possible when the world was less competitive. But with globalization and digitization, forget it. Managers at every level have to make hard choices and live by them.

THE PEOPLE PART

Now let’s talk about the more controversial topic, differentiation among people. It’s a process that requires managers to assess their employees and separate them into three categories in terms of performance: top 20 percent, middle 70, and bottom 10. Then— and this is key—it requires managers to act on that distinction. I emphasize the word“act” because all managers naturally differentiate—in their heads. But very few make it real.

Top 20%

When people differentiation is real, the top 20 percent of employees are showered with bonuses, stock options, praise, love, training, and a variety of rewards to their pocketbooks and souls. There can be no mistaking the stars at a company that differentiates. They are the best and are treated that way.

Middle 70%

The middle 70 percent are managed differently.  This group of people is enormously valuable to any company; you simply cannot function without their skills, energy, and commitment. After all, they are the majority of your employees. And that’s the major challenge, and risk, in 20-70-10—keeping the middle 70 engaged and motivated.

That’s why so much of managing the middle 70 is about training,positive feedback, and thoughtful goal setting. If individuals in this group have particular promise, they should be moved around among businesses and functions to increase their experience and knowledge and to test their leadership skills.

To be clear, managing the middle 70 is not about keeping people out of the bottom 10. It is not about saving poor performers. That would be a bad investment decision. Rather, differentiation is about managers looking at the middle 70, identifying people with potential to move up, and cultivating them.But everyone in the middle 70 needs to be motivated and made to feel as if  they truly belong. You do not want to lose the vast majority of your middle 70—you want to improve them.

Bottom 10%

As for the bottom 10 percent in differentiation, there is no sugar coating this—they have to go. That’s more easily said than done; It’s awful to fire people—I even hate that word. But if you have a candid organization with clear performance expectations and a performance evaluation process—a big if, obviously, but that should be everyone’s goal—then people in the bottom 10 percent generally know who they are. When you tell them, they usually leave before you ask them to.

No one wants to be in an organization where they aren’t wanted. One of the best things about differentiation is that people in the bottom 10 percent of organizations very often go on to successful careers at companies and in pursuits where they truly belong and where they can excel.

I learned it on the playground

That’s how differentiation works in a nutshell. People sometimes ask where I came up with the idea. My answer is, I didn’t invent differentiation! I learned it on the playground when I was a kid.

When we were making a baseball team, the best players always got picked first, the fair players were put in the easy positions, usually second base or right field, and the least athletic ones had to watch from the sidelines. Everyone knew where he stood. The top kids wanted desperately to stay there, and got the reward of respect and the thrill of winning. The kids in the middle worked their tails off to get better, and sometimes they did, bringing up the quality of play for everyone. And the kids who couldn’t make the cut usually found other pursuits, sports and otherwise, that they enjoyed and excelled at.

Not everyone can be a great ballplayer, and not every great ballplayer can be a great doctor, computer programmer, carpenter, musician, or poet. Each one of us is good at something, and I just believe we are happiest and the most fulfilled when we’re doing that.

REASONS TO HATE DIFFERENTIATION—AND NOT

So here are the criticisms of people differentiation. Some have truth in them, but more often than not, they don’t! Here’s what I mean:

1. Differentiation is unfair because it’s always corrupted by company politics—20-70-10 is just a way of separating the people who kiss the boss’s rear from those who don’t.

It is true, without question, that at some companies, differentiation is corrupted by cronyism and favoritism. The top 20 percent are the boss’s head-nodders and buddies, and the bottom 10 percent are the outspoken types who ask difficult questions and challenge the status quo. The middle 70 are just ducking and getting by. That happens and it stinks, and it is a function of a leadership team lacking in brains or integrity or both.

The only good thing I can say about a merit-free system like this is that eventually it destroys itself. It collapses from its own weight or has to change. The results just won’t be good enough to sustain the enterprise.

Luckily, cases of “differentiation abuse” can generally be prevented by a candid, clear-cut performance system, with defined expectations and goals and time lines, and a program of consistent appraisals. In fact, differentiation can be implemented only after such a system is in place, a process that we will discuss more specifically in the chapter on people management.

2. Differentiation is mean and bullying. It’s like the playground in the worst possible way—weak kids are made into fools, outcasts, and objects of ridicule.

I’ve heard this one a hundred times, and it really drives me crazy because one of the major advantages of differentiation is that it is good and fair—to everyone!

When differentiation is working, people know where they stand. You know if you have a strong shot at a big promotion or if you need to be looking for other opportunities, inside or outside the company. Maybe some information is hard to swallow at first, and yes, “bad” news often hurts, but soon enough, like all knowledge, it’s power—in fact, it’s liberating. When you know where you stand, you can control your own destiny, and what is more fair than that?

Corollary: I’m just too nice to implement 20-70-10.

Usually, people with this complaint about differentiation assert that differentiation, as a managerial system, does not value people who add intangible things to a business, like a “feeling of family” or“humanity” or “a sense of history.”And we all know of organizations that continue to employ under performers for a long time mainly because they are really nice individuals.

I fully understand not wanting to manage out somebody nice.

But the fact is protecting under performers always backfires. First of all,by not carrying their weight, they make the pie smaller for everyone. That can cause resentment. It’s also not what you could call fair, and an unfair culture never helps a company win; it undermines trust and candor too much.

The worst thing, though, is how protecting people who don’t perform hurts the people themselves. For years, they are carried along with everyone looking the other way. At appraisals, they are vaguely told they are“great” or “doing just fine.” They are thanked for their contributions.

Then a downturn occurs, and layoffs are necessary. The “nice”under performers are almost always the first to go, and always the most surprised, because no one has ever told them the truth about their results, or lack thereof.

The awful thing is that this often happens when the underperformers are in their late forties or fifties; they’ve been carried along for most of their careers. Then suddenly, at an age when startingover can be very tough, they are out of a job with no preparation or planningand a kick in the stomach they may never get over. They feel betrayed, and theyshould.

As harsh as it may seem at first, differentiation prevents that tragedy because it is based on performance measures that really count. That’s whyI believe you are never “too nice” to implement 20-70-10, only too cowardly.

3. Differentiation pits people against one another and undermines teamwork.

Try telling that to Joe Torre!

The New York Yankees function perfectly well as a team (much to the dismay of Red Sox fans like myself, I might add) with a highly transparent system of differentiation in place. Stars are lavishly rewarded; under performers are shown the clubhouse exit. And if that’s not enough to make a system of differentiation perfectly clear, the players’ salaries are very public! You can have no doubt that differentiation is going on when some team member smake $18 million a year, and others wearing the same uniform make the MajorLeague minimum of $300,000.

And yet everyone pulls together for the team to win. Alex Rodriguez love sthe thrill of hitting a grand slam home run, but I’m sure it feels a lot better to him when the Yankees win. In July 2004, Derek Jeter made the catch o fthe year, diving into the stands and coming up with a black eye and a cut face,a photo of which graced every newspaper in New York. A  lot of the pain had to be relieved when the Yankees won, coming from behind in the thirteenth inning,in one of the great baseball games of all time.

In business, there probably would be pandemonium if companies started publishing everyone’s salary, and I’m not advocating that here. And yet, people always seem to know what their coworkers are making, don’t they? That’s why they get mad when everyone on a team gets rewarded the same way when only a few people have done the work. They feel cheated and wonder why management can’t see the obvious—that not every team member is created equal.

Differentiation rewards those members of the team who deserve it. By the way, that annoys only the under performers. To everyone else, it seems fair. And a fair environment promotes teamwork. Better yet, it motivates people to givetheir all, and that’s what you want.

4. Differentiation is possible only in the United States.

I wish I could implement it, but because of our cultural values, the people in mycountry simply won’t accept it.

I have heard this critique of differentiation since its earliest days at GE,when one of our managers explained that 20-70-10 couldn’t be implemented in Japan because in that culture politeness was valued far more than candor. Since then, I have heard the national-culture excuse from people in hundreds of companies in dozens of nations. Recently, managers in Denmark told us that their country values egalitarianism too much for differentiation to be widely accepted. We’ve heard that case made in France too. A manager at a meeting in Amsterdam told us last year that there was too much “Calvinismin Dutch bones” for the system to work in the Netherlands. I guess the manager believed all rewards come only in Heaven, if you’re chosen to get there! And in China we heard that differentiation is a long time coming because in most state-owned enterprises—still more than 50 percent of the economy despite market reforms—many of the best jobs and rewards go to the most loyal members of the party whether they are the most talented or not.

Basically, I think the excuses we hear about differentiation’s cultural obstacles are just that—excuses. At GE, we couldn’t have a company where differentiation existed only in our U.S. for differentiation and performance appraisal did in Ohio. Once we made the case we linked it to a candid system, it worked as well in Japan as it operations. First of all, we just believed too much in differentiation’s effectiveness. But we also knew that having differentiation only in the United States would have been unfair and confusing,especially for the businesses with both U.S. and global divisions, and for the people who moved around the world for us. We decided early on that we would push through differentiation everywhere we did business, dealing with whatever cultural issues that confronted us.

5. Differentiation is fine for the top 20 percent and the bottom 10 because they know where they are going. But it is enormously demotivating to the middle70 percent, who end up living in an awful kind of limbo.

Again, an element of truth in this complaint. The middle 70 percent is the hardest category to manage in differentiation. The biggest problem comes with the individuals in the top tier of the 70 percent because they know they aren’t a whole lot different from the top-20 performers, and often a whole lot better than the bottom tier of their own “guard.”And yes, that can be enervating, and sometimes talented middle-70 people leave because of it.

The silver lining to this difficult situation is that the existence of a middle 70 forces companies to manage themselves better. It forces leaders to scrutinize people more closely than they would ordinarily and to provide more consistent, candid feedback. It pushes companies to build training centers that really make a difference. For instance, before differentiation, our Crotonville, New York, training center was often used in the 1970s as a warehouse where businesses could afford to send their under performers. It wa slike a way station on the road to early retirement.

The rigor of 20-70-10 helped us change that. We turned Crotonville into a place where the top 20 and the best of the middle 70 talked about ideas,debated our approach to business, and got to know and understand one another a lot better. And since senior management spent several hours with each class, it also gave us a rough idea as to just how rigorously differentiation was being practiced in the field.

Another piece of silver lining is that while being in the middle 70 percent can be demotivating to some people, it actually revs the engines of many others. For the people in the top 20, for instance, the very existence of  amiddle 70 gives them yet another reason to pull out all the stops every day.They have to keep getting better to keep their high standing—what a rush that can be! After all, most people want to improve and grow every day.

For a lot of people in the middle 70, getting better is energizing too.Getting into the top 20 gives them a tangible goal, and having that goal make sthem work harder, think more creatively, share more ideas, and, overall, fight the good fight every day. It makes work more of a challenge and a lot more fun.

DIFFERENTIATION

I don’t know if it’s good or bad, but the world generally favors people who are energetic and extroverted. That’s also something you learn young, and it’s reinforced in school, at church, at camp, in clubs, and usually at home too.  By the time you get to work, if you are still shy and introverted and somewhat low in energy, there are professions and jobs where those characteristics are advantageous. If you know yourself, you will find them. This criticism of differentiation, which I hear now and then, is not really about differentiation, but about society’s values.

I might add that in business, energetic and extroverted people generally do better, but results speak for themselves, loud and clear. Differentiation hears them.

If you want the best people on your team, you need to face up to differentiation. I don’t know of any people management system that does it better—with more transparency, fairness, and speed. It isn’t perfect.

But differentiation, like candor, clarifies business and makes it run better in every way.

Wrapping your mind around SWR – the perfect match

Last night I was listening to a couple of guys try to wrap their minds around SWR.  Very interesting.

New hams are seemingly after “the perfect match”.  An antenna tuner will make your radio happy but it provides no improvement to the natural resonance of the antenna nor the line losses of the transmission line.

And really, is a 2:1 or 3:1 match really that bad?  At a 3:1 match (depending on line loss) with a 100W transmitter you may only lose 20 watts in reflected power.  What is the difference between 100 Watts and 80 Watts at the receiving station?

On a modern radio, 1 S-Unit is 6DB.  A doubling of power is 3 DB.  So, to move an S-Meter at a receiving station 1 S-Unit one would need to quadruple the power.  So, given this, your 3:1 SWR taking your 100 W down to 80 W is not going to make any detectable difference – as long as your tuner keeps your solid-state rig happy by fooling it into thinking SWR is 1:1

Tim “the Toolman” Taylor

As Tim “the tool man” taylor would say “more power”.  There is another option to meretriciously reducing losses – and that is “more power”.  Nothing like adding a linear to deal with losses.  Doesn’t that achieve the same end goal of getting the power out?

Those that want to “wrap their minds” around SWR -we have the “perfect match” in the resources section.

Resources

http://frrl.files.wordpress.com/2009/10/understandingswrbyexample.pdf

http://frrl.files.wordpress.com/2009/10/lowswrfortherightreasons.pdf

http://www.astrosurf.com/luxorion/qsl-transmission-line2.htm

http://www.astrosurf.com/luxorion/qsl-swr.htm

CANDOR – THE BIGGEST DIRTY LITTLE SECRET IN BUSINESS

Jack Welch,  former CEO of General Electric

I have always been a huge proponent of candor. In fact, I talked it up to GE audiences for more than twenty years. But since retiring from GE, I have come to realize that I underestimated its rarity. In fact, I would call lack of candor the biggest dirty little secret in business.

What a huge problem it is. Lack of candor basically blocks smart ideas, fast action, and good people contributing all the stuff they’ve got. It’s a killer.

When you’ve got candor—and you’ll never completely get it,mind you—everything just operates faster and better.

Now, when I say “lack of candor” here, I’m not talking about malevolent dishonesty. I am talking about how too many people—too often—instinctively don’t express themselves with frankness.

They don’t communicate straightforwardly or put forth ideas looking to stimulate real debate. They just don’t open up. Instead they withhold comments or criticism.

They keep their mouths shut in order to make people feel better or to avoid conflict, and they sugarcoat bad news in order to maintain appearances. They keep things to themselves, hoarding information.

That’s all lack of candor, and it’s absolutely damaging.

And yet, lack of candor permeates almost every aspect of business.

In my travels over the past few years, I have heard stories from people at hundreds of different companies who describe the complete lack of candor they experience day to day, in every type of meeting, from budget and product reviews to strategy sessions. People talk about the bureaucracy, layers,politicking, and false politeness that lack of candor spawns. They ask how they can get their companies to be places where people put their views on the table,talk about the world realistically, and debate ideas from every angle.

Most often, I hear that lack of candor is missing from performance appraisals.

In fact, I hear about that so often that I always end up asking audiences for a show of hands to the question “How many of you have received an honest, straight-between-the-eyes feedback session in the last year, where you came out knowing exactly what you have to do to improve and where you stand in the organization?”

On a good day, I get 20 percent of the hands up. Most of the time, it iscloser to 10 percent.

Interestingly, when I turn the question around and ask the audience how often they’ve given an honest, candid appraisal to their people, thenumbers don’t improve much.

Forget outside competition when your own worst enemy is the way youcommunicate with one another internally!

THE CANDOR EFFECT

Let’s look at how candor leads to winning.  There are three main ways.

First and foremost, candor gets more people in the conversation, and when you get more people in the conversation, to state the obvious, you get idea rich. By that, I mean many more ideas get surfaced, discussed, pulled apart,and improved. Instead of everyone shutting down, everyone opens up and learns.Any organization—or unit or team—that brings more people and their minds into the conversation has an immediate advantage.

Second, candor generates speed. When ideas are in everyone’s face,they can be debated rapidly, expanded and enhanced, and acted upon. That approach—surface, debate, improve, decide— isn’t just an advantage, it’s a necessity in a global marketplace. You can be sure that any upstart five-person enterprise down the street or in Shanghai or in Bangalore can move faster than you to begin with. Candor is one way to keep up.

Third, candor cuts costs—lots—although you’ll never be able to put a precise number on it. Just think of how it eliminates meaningless meetings and b.s. reports that confirm what everyone already knows. Think ofhow candor replaces fancy PowerPoint slides and mind-numbing presentations and boring off-site conclaves with real conversations, whether they’re about company strategy, a new product introduction, or someone’s performance.

Put all of its benefits and efficiencies together and you realize you justcan’t afford not to have candor.

SO WHY NOT?

Given the advantages of candor, you have to wonder, why don’t we have more of it?

Well, the problem starts young.

The facts are, we are socialized from childhood to soften bad news or to make nice about awkward subjects. That is true in every culture and in every country and in every social class. It doesn’t make any difference if you are in Iceland or Portugal, you don’t insult your mother’s cooking or call your best friend fat or tell an elderly aunt that you hated her wedding gift. You just don’t. What happened at a suburban cocktail party we attended recently is classic. Over white wine and sushi rolls, one woman standing in a cluster of five others started lamenting the horrible stress being endured by the local elementary school’s music teacher. Other guests chimed in, all agreeing that fourth-graders were enough to send you to the insane asylum. Fortunately, just before the music teacher was canonized,another guest entered the conversation, saying, “Are you guys crazy? That teacher gets fifteen weeks off a year!” She pointed to the doctor standing in the circle, who had been nodding away in agreement.“Robert,” she said, “you make life-and-death decisions everyday. Surely you don’t buy this sad story, do you?”

We are socialized from awkward subjects. Talk about killing polite chitchat. The new guest sent everyone scattering, mostly toward the bar.

CANDOR JUST UNNERVES PEOPLE

That was a light hearted example, of course, but when you try to understand candor, you are really trying to understand human nature. For hundreds of years, psychologists and social scientists have studied why people don’t say what they mean, and philosophers have been reflecting on the same subject for literally thousands of years.

A good friend of mine,Nancy Bauer,is a professor of philosophy at Tufts University. When I ask her about candor, she tells me that most philosophers have come to the same conclusions on this topic as most of us laypeople do with age and experience.

Eventually, you come to realize that people don’t speak their minds because it’s simply easier not to. When you tell it like it is, you can so easily create a mess—anger, pain, confusion,sadness, resentment. To make matters worse, you then feel compelled to clean up that mess, which can be awful and awkward and time-consuming. So you justify your lack of candor on the grounds that it prevents sadness or pain in another person, that not saying anything or telling a little white lie is the kind,decent thing to do. But in fact, Nancy says, classic philosophers like Immanuel Kant give powerful arguments for the view that not being candid is actually about self-interest—making your own life easier.

Nancy tells me that Kant had another point, too. He said that people are often strongly tempted not to be candid because they don’t look at the big picture. They worry that when they speak their minds and the news isn’t good, they stand a strong chance of alienating other people. But what they don’t see is that lack of candor is the ultimate form of alienation.“There was a huge irony in this for Kant,” Nancy says. “He believed that when people avoid candor in order to curry favor with other people, they actually destroy trust, and in that way, they ultimately erodesociety.”

I tell Nancy the same could be said about eroding business.

FROM THEN TO NOW

The make-or-break importance of candor in U.S. business is relatively new, actually. Up until the early 1980s, big companies like GE and thousands of others operated largely without it, as did most companies regardless of size.These companies were a product of the military-industrial complex that grew up after World War II. They had virtually no global competition, and, in fact,companies within industries were so similar to one another that they could often seem more collegial than competitive.

Take the steel industry. Every three years or so, union workers acrossseveral companies would demand higher pay and benefits. The steel companies would meet those demands, passing their increased costs on to the automotive industry, which would pass their increased costs on to the consumer.

It was a nice party until the Japanese arrived at the door with their average-quality, low-cost imported cars that within a few years became high-quality, low-cost cars, many of them made in nonunion U.S. factories.

But until the foreign threat spread, most American companies had very little to do with the kind of frank debate and fast action that characterizes a candid organization. They had little use for it. And so countless layers of bureaucracy and old-fashioned social codes of behavior led to a kind often forced politeness and formality throughout most organizations. There were very few overt confrontations about strategy or values; decisions were made mostly behind closed doors. And when it came to appraisals, those too were conducted with a kind of courteous remoteness. Good performers were praised,but because companies were so financially strong, poor performers could beware housed in a far-flung department or division until retirement.

Without candor, everyone saved face, and business lumbered along. The status quo was accepted. Fake behavior was just a day at the office. And people with initiative, gumption, and guts were labeled troublesome—or worse.

You would predict, perhaps, that given all its competitive advantages,candor would have made a grand entrance with the Japanese. But Japan didn’t make it happen, nor did Ireland, Mexico, India, or China, to name a few of the big hitters in the global marketplace today. Instead, most companies have fought global competition through more conventional means:layoffs, drastic cost reductions, and in the best cases, with innovation.

Candor, while inching its way in, still remains a very small part of the arsenal.

IT CAN BE DONE

Now for the really bad news. Even though candor is vital to winning, it is hard and time-consuming to instill in any group, no matter what size.

Hard because you are fighting human nature and entrenched organizational behaviors, and time-consuming, as in years and years. At GE, it took us close to a decade to use candor as a matter of course, and it was by no means universal after twenty.

Still it can be done. There is nothing scientific about the process. To get candor, you reward it, praise it, and talk about it. You make public heroes outof people who demonstrate it. Most of all, you yourself demonstrate it in anexuberant and even exaggerated way—even when you’re not the boss.

Imagine yourself for a second at a meeting where the subject is growth and how to get it at an old-line division. Everyone is sitting around the table,civilly talking about how hard it is to win in this particular market or industry. They discuss the tough competition. They surface the same old reasons why they can’t grow and why they are actually doing well in this environment. In fact, by the time the meeting ends, they’ve managed topat themselves on the back for the “success” they’ve enjoyed“under the circumstances.”

Inside your head, you’re about ready to burst, as you tel lour-self, “Here we go again.I know Bob and Mary across the room feel the same way I do—the complacency around here is killing us.”

Outside, all three of you are playing the game. You’re nodding.

Now imagine an environment where you take responsibility for candor. You, Bob, or Mary would ask questions like:

“Isn’t there a new product or service idea in this business somewhere that we just haven’t thought of yet?”

“Can we jump-start this business with an acquisition?”

“This business is taking up so many resources. Why don’t we get the hell out of it?”

What a different meeting!  What a lot more fun, and how much better for everyone.

Another situation that happens all the time is a high-growth business with a self-satisfied crowd managing it. You know the scene at the long-range planning meeting. The managers show up with double-digit growth—say 15 percent—and pound out slide after slide showing how well they are doing.  Top management nods their approval, but you’re sitting there knowing there’s a lot more juice in that business. To compound matters,the people presenting the slides are peers of yours, and there’s that age-old code hanging in the air: if you don’t challenge mine, Iwon’t challenge yours.

Frankly, the only way I know of to get out of this bind—and introduce candor—is to poke around in a nonthreatening way:

“Jeez, you’re good. What a terrific job. This is the best business we’ve got. Why not put more resources into it and go for more?”

“With the great team you’ve put in place, there must be ten acquisitions out there for you. Have you looked globally?”

Those questions, and others like them, have the power to change the meeting from a self-congratulatory parade to a stimulating working session.

TRUTH AND CONSEQUENCES

Now, you may be thinking, I can’t raise those questions because I don’t want to look like a jerk. I want to be a team player.

It is true that candid comments definitely freak people out at first. In fact, the more polite or bureaucratic or formal your organization, the more your candor will scare and upset people, and, yes, it could kill you.

That’s a risk,and only you can decide if you’re willing to take it.

Needless to say, you’ll have an easier time of installing candor in your organization if you are closer to the top. But don’t blame your boss or the CEO if your company lacks candor—open dialogue can start anywhere.  I was speaking my mind when I had four employees at Noryl, the smallest, newest unit of a hierarchical company that had a very dim view of straight talk.

It is true that candid comments definitely freak people out at first.

My bosses cautioned me about my candor. Now my GE career is over, and I’m telling you that it was my candor that helped make it work.  I was too young and politically clueless to notice at the time, but I was covered because our business was growing by leaps and bounds.

If we had the guts to be candid, it didn’t feel that way at the time—we didn’t know enough to know what candor was. It just felt natural to us to speak openly, argue and debate, and get things to happen fast.If we were anything, it was crazily competitive.

Every time I got promoted, the first cycle of reviews—be it budgets or appraisals—was often awkward and unpleasant. Most of the new team I was managing wasn’t used to wide-open discussions about everything and anything. For example, we’d be talking about a direct report at a personnel review, and in conversation, we would agree that the guy was really awful. His written appraisal, however, made him look like a prince. When I challenged the phoniness, I’d hear, “Yeah, yeah, but why would we ever put that in writing?”

I’d explain why, making the case for candor.

By the next review,we’d already be seeing candor’s positive impact with a better team in place, and with each successive cycle, more and more people made candor’s case with me.

Still, it wasn’t like I was singing with the whole chorus.

From the day I joined GE to the day I was named CEO, twenty years later, my bosses cautioned me about my candor. I was labeled abrasive and consistently warned that my candor would soon get in the way of my career.

Now my GE career is over, and I’m telling you that it was candor that helped make it work. So many more people got into the game, so many voices, so much energy. We gave it to one another straight, and each of us was better for it.

It’s really very simple—candor works because candor unclutters.

Yes, yes, everyone agrees that candor is against human nature. So is waking up at five in the morning for the 6:10 train every day. So is eating lunch at your desk so you won’t miss an important meeting at one. But for the sake of your team or your organization, you do a lot of things that aren’t easy. The good thing about candor is that it’s an unnatural act that is more than worth it.

It is impossible to imagine a world where everyone goes around saying what they really think all the time. And you probably wouldn’t want it anyway—too much information! But even if we get halfway there, lack of candor won’t be the biggest dirty little secret in business anymore.

It will be its biggest change for the better.

Managing Your Career – When IQ and Expertise are not enough

Or, why you need Emotional Intelligence to get ahead

The natural career progression

There is a natural progression in one’s career.

Generally, one starts out as a Individual Contributor, moves to Manager, and then to Leader.

From Self to Team to Organization

The transition along the continuum from Individual Contributor to Leader is a move of the focus of self to team to organization.

As an Individual Contributor one works on individual tasks and projects – it’s basically a solo effort; the focus is on self.  A key differentiator between an Individual Contributor and a Manager is the ability to delegate .  A successful Individual Contribution is measured by personal achievement and successful completion of individual tasks assigned by someone else.  A successful manager is measured by the success of the team.  Leaders are measured on the success of their organizations.

From Today to Fiscal Year to the next 5 years.

The transition along the continuum from Individual Contributor to Leader is a movement of focus of longer and longer time-frames and from tactical to strategic.

An Individual Contributor works on tasks in a time-frame of today, tomorrow, and the next day – tactical.  Managers focus on time-frames of this quarter, next quarter, and this fiscal year – tactical.  Leaders focus on direction setting for next year, three years from now, and perhaps five years from now – strategic.

Are the traditional transitions similar to this enough to get you to the CxO positions in major corporations?

IQ and Expertise is not enough

In 1995, a researcher Daniel Goleman wrote this:

I have had to wait till now before the scientific harvest was full enough to write this book.  These insights are so late in coming largely because the place of feeling in mental life has been surprisingly slighted by research over the years, leaving the emotions a largely unexplored continent for scientific psychology…

… What factors are at play, for example, when people of high IQ flounder and those with modest IQ do surprisingly well?

I would argue that the difference quite often lies in the abilities called here emotional intelligence…

Goleman and others did a ton of empirical research to find out what differentiates star performers from average or mediocre performers in a variety of organizations.

In recent years, we have analyzed data from close to 500 competence models from global companies (including the likes of IBM, Lucent, PepsiCo, British Airways, and Credit Suisse First Boston), as well as from healthcare organizations, academic institutions, government agencies, and even a religious order.

To determine which personal capabilities drove outstanding performance within these organizations, we grouped capabilities into three categories: purely technical skills such as accounting or business planning; cognitive abilities such as analytic reasoning; and traits showing emotional intelligence, such as self-awareness and relationship skill.

To create some of the competency models, psychologists typically asked senior managers at the companies to identify the competencies that distinguished the organization’s most outstanding leaders, seeking consensus from an “expert panel.”

Others used a more rigorous method in which analysts asked senior managers to use objective criteria, such as a division’s profitability, to distinguish the star performers at senior levels within their organizations from the average ones. Those individuals were then extensively interviewed and tested, and their competencies were methodically compared to identify those that distinguished star performers.

Whichever method was used, this process resulted in lists of ingredients for highly effective leaders. The lists usually ranged in length from a handful to up to fifteen or so competencies, such as initiative, collaboration, and empathy.

Analyzing all the data from hundreds of competence models yielded dramatic results. To be sure, intellect was to some extent a driver of outstanding performance; cognitive skills such as bigpicture thinking and long-term vision were particularly important.

But calculating the ratio of technical skills and purely cognitive abilities (some of which are surrogates for aspects of intelligence quotient, or IQ) to emotional intelligence in the ingredients that distinguished outstanding leaders revealed that EI-based competencies played an increasingly important role at higher levels of organizations, where differences in technical skills are of negligible importance.

In other words, the higher the rank of those considered star performers, the more EI competencies emerged as the reason for their effectiveness.

When the comparison matched star performers against average ones in senior leadership positions, about 85 percent of the difference in their profiles was attributable to emotional intelligence factors rather than to purely cognitive abilities like technical expertise.

Emotional Intelligence is 85% of the difference for star performers

The key takeaway from Goleman’s work is this:

“When the comparison matched star performers against average ones in senior leadership positions, about 85 percent of the difference in their profiles was attributable to emotional intelligence factors rather than to purely cognitive abilities like technical expertise.”

Goleman’s empirical research has raised the awareness in the corporate world of ones “personal psychological attributes” (Emotional Intelligence) and how they affect (or predicts) performance to the point that EI is included in leadership training programs and is made an element for the basis of career advancement decisions.  Goleman holds that EI can be taught.  I am not sure I fully agree with that.

Managers and Executives that derailed their careers

There are many studies of why people derail in their careers – Check out our posting – How not to derail you corporate of organizational career

Along the dimensions of Emotional Intelligence, based on research cited by Golman, these are the reasons why people derail their careers:

Self-Control. Those who derailed handled pressure poorly and were prone to angry outbursts.  The successful stayed composed under stress, remaining calm and confident – and dependable  – in the heat of crisis.

Conscientiousness. The derailed group reacted to failure and criticism defensively – denying, covering up, or passing on the blame.  The successful took responsibility by admitting their mistakes and failures, taking action to fix the problems, and moving on without ruminating about their lapse.

Trustworthiness.  The failures typically were over ambitious, too ready to get ahead at the expense of other people.  The successes had high integrity, with a strong concern for the needs of their subordinates and colleagues, and for the demands of the task at hand, giving these higher priority then impressing their own boss at any cost.

Social Skills. The failures lacked empathy an sensitivity, and so were often abrasive, arrogant, or given to intimidation of subordinates.  While some where charming on occasion, the charm was purely manipulative.  The successes were empathic and sensitive showing tact and consideration in their dealings with everyone, superiors and subordinates alike.

Building bonds and leveraging diversity. The insensitivity and manipulative manner of the failed group meant that they failed to build a strong network of cooperative, mutually beneficial relationships.  The successes were more appreciative of diversity, able to get along with people of all kinds.

Conclusion

So how do people move from Individual Contributor to Manager to Leader in Corporate America?  Well, it’s a number of transitional stages.  You can read our posting on the The Leadership Pipeline to get a generic model and framework that is prevalent in many companies.

But, don’t underestimate how much your Emotional Intelligence will count in promotion and career advancement decisions.  Research shows that the higher you get in an organization the more Emotional Intelligence will matter more than technical and cognitive abilities.

Resources

Emotional Intelligence by Daniel Goleman
Working with Emotional Intelligence by Daniel Goleman

Emotional Intelligence – The Competencies:

PERSONAL COMPETENCE

SELF-AWARENESS

1. Emotional Awareness– People with this competence:
Know which emotions they are feeling and why
Realize the links between their feelings and what they think and say
Recognize how their feelings affect their performance
Have a guiding awareness of their values and goals
2. Accurate Self-Assessment — People with this competence:
   Are aware of their strengths and weaknesses
   Reflective, learning from experience
   Open to candid feedback, new perspectives, continuous learning, and self-development
   Able to show a sense of humor and perspective about themselves
   BLIND SPOTS: Blind Ambition-need to win or be right at any cost
   Unrealistic Goals- sets overly ambitious, unattainable goals for group
   Relentless Striving- compulsively hardworking at expense of all else, vulnerable to burnout
   Drives Others-pushes others too hard, takes over instead of delegating
   Power Hungry- seeks power for own reason rather than for company
   Insatiable need for recognition- addicted to glory-takes credit for other’s work and blames them for mistakes
   Preoccupation with Appearance-needs to look good at all costs-craves material trappings
   Need to seem perfect-enraged by or rejects criticism, can’t admit mistakes
3. Self Confidence –People with this competence:
   Present themselves with self-assurance; have “presence”
   Can voice views that are unpopular and go out on a limb for what is right
   Are decisive, able to make sound decisions despite uncertainties and pressures

SELF-REGULATION

1. Self-control –People with this competency:
   Manage their impulsive feelings and distressing emotions well
   Stay composed, positive and unflappable even in trying moments
   Think clearly and stay focused under pressure
2. Trustworthiness and conscientiousness –People with this competency:
   Trustworthiness--Act ethically and are above reproach
   Build trust through their reliability and authenticity
   Admit their own mistakes and confront unethical actions in others
   Take tough, principled stands even if they are unpopular
   Conscientiousness –Meet commitments and keep promises
   Hold themselves accountable for meeting their objectives
   Are organized and careful in their work
3. Innovation and Adaptability –People with this competency:
   Innovation – Seek out fresh ideas from a wide variety of sources
   Entertain original solutions to problems
   Generate new ideas
   take fresh perspectives and risks in their thinking
   Adaptability – Smoothly handle multiple demands, shifting priorities, and rapid change
   Adapt thier responses and tactics to fit fluid circumstances
   Are flexible in how they see events

MOTIVATION

1. Achievement Drive –People with this competency:
   Are results-oriented, with a high drive to meet their objectives and standards
   Set challenging goals and take calculated risks
   Pursue information to reduce uncertainty and find ways to do things better
   Learn how to improve their performance
2. Commitment –People with this competency:
   Readily make sacrifices to meet a larger organizational goal
   Find a sense of purpose in the larger mission
   Use the group’s core values in making decisions and clarifying choices
   Actively seek out opportunities to fulfill the group’s mission
3. Initiative and Optimism –People with this competency:
   Initiative: Are ready to seize opportunities
   Pursue goals beyond what’s required or expected of them
   Cut through red tape and bend the rules when necessary to get the job done
   Mobilize others through unusual, enterprising efforts
   Optimism: Persist in seeking goals despite obstacles and setbacks
   Operate from hope of success rather than fear of failure
   See setbacks as due to manageable circumstance rather than personal flaw

SOCIAL COMPETENCE

EMPATHY

1. Understanding Others –People with this competency:
   Are attentive to emotional cues and listen well
   Show sensitivity and understand others’ perspectives
   Help out based on understanding other people’s needs and feelings
2. Developing Others –People with this competency:
   Acknowledge and reward people’s strengths and accomplishments
   Offer useful feedback and identify people’s needs for further growth
   Mentor, give timely coaching, and offer assignments that challenge and foster a person’s skills
3. Service Orientation –People with this competency:
   Understand customers/clients needs and math them to services of products
   Seek ways to increase customers’ satisfaction and loyalty
   Gladly offer appropriate assistance
   Grasp a customer’s perspective, acting as a trusted advisor
4. Leveraging Diversity –People with this competency:
   Respect and relate well to people from varied backgrounds
   Understand diverse worldviews and are sensitive to group differences
   See diversity as opportunity, creating an environment where diverse people can thrive
   Challenge bias and intolerance
5. Political Awareness –People with this competency:
   Accurately read key power relationships
   Detect crucial social networks
   Understand the forces that shape views and actions of clients, customers, or competitors
   Accurately read organizational and external realities

SOCIAL SKILLS

1. Influence –People with this competency:
   Are skilled at winning people over
   Fine-tune presentations to appeal to the listener
   Use complex strategies like indirect influence to build consensus and support
   Orchestrate dramatic events to effectively make a point
2. Communication –People with this competence
   Are effective in give-and-take, registering emotional cues in attuning their message
   Deal with difficult issues straightforwardly
   Listen well, seek mutual understanding, and welcome sharing of information fully
   Foster open communication and stay receptive to bad news as well as good
3. Conflict Management –People with this competency:
   Handle difficult people and tense situations with diplomacy and tact
   Spot potential conflict, bring disagreements into the open and help to de-escalate
   Encourage debate and open discussion
   Orchestrate win-win solutions
4. Leadership –People with this competency:
   Articulate and arouse enthusiasm for a shared vision and mission
   Step forward to lead as needed, regardless of poeition
   Guide the performance of others while holding them accountable
   Lead by example
5. Change Catalyst –People with this competency:
   Recognize the need to change and remove barriers
   Challenge the status quo to acknowledge the need for change
   Champion the change and enlist others in its pursuit
   Model the change expected of others
6. Building Bonds –People with this competency:
   Cultivate and maintain extensize informal networks
   Seek out relationships that are mutually beneficial
   Build rapport and keep others in the loop
   Make and maintain personal friendships among work associates
7. Collaboration and Cooperation –People with this competency:
   Balance a focus on task with attention to relationships
   Collaborate, sharing plans, information and resources
   Promote a friendly, coooperative climate
   Spot and nurture opportunities for collaboration
8. Team Capabilities –People with this competency:
   Model team qualities like respect, helpfulness, and cooperation
   Draw all members into active and enthusiastic participation
   Build team identity, esprit de corps, and commitment
   Protect the group and its reputation, share credit

Entrepreneurial Recalibration: How to find happiness in Corporate America
Or, Advice to Prospective Entrepreneurs

“…Out of such dreary statistics comes a new class of self-starter, the accidental entrepreneur–someone who never considered owning a business until there was no other option. These entrepreneurs are making tough choices for themselves and their families, living in reduced circumstances, doing without the corporate comforts and resources they once took for granted, sometimes succeeding, very often failing, invariably struggling. But at least they’re not waiting for the phone to ring.”

-Fortune Magazine

I wonder if it’s bad advice and a bad judgment to recommend to someone to start their own business.  There are a couple of scenarios.

Scenario one, you are long-term unemployed and you make the judgment to start your own business.  Scenario two, you leave your current  job due to your “Entrepreneurial Spirit” which can’t be satisfied at your current company and start your own business.  What could the future hold?

It’s easier to start your own business than find an employer

In the first case you are caught with few options.  But is starting you own business a good decision?  That depends on who you are (“mind-set”) and where you are (“what was your last position in the corporation”).  If we use  Gerber’s terms…  In your mind-set are you a technician, a manager, or an entrepreneur?  In your current or last job, do you hold a position of technician, manager, or entrepreneur?  Do you think you have the mind-set of an Entrepreneur stuck in the position of a technician?

The failure rate of small business start-up’s is staggering.  Dun & Bradstreet has nearly a century of experience in reporting on the health of businesses.  The story is the same over and over.  About 1/2 of the start-ups fail within the first 18 months and only 1 in 5 lives as long as 10 years.  Dun and Bradstreet categorize 92% of business failures as bad management.  Is that the real story?

Bad Management is not the reason for small business failure

Despite what Dun & Bradstreet says about business failure (Bad Management)  – it’s not the real reason – its the symptom – not the cause.

Here is someone that “gets it”

Why so high a death rate?  Perhaps, the chief  reason is the ease of entry.  In fact, it is often easier for people to go into business for themselves than to find an employer.  No law stops them from choosing themselves as boss.  And they may choose almost any line of business they like best.  They  may have twenty years of experience in that line or none at all.  They may do a text book job of researching their market or plunge in with no information at all.  They may be millionaires or penniless.  Yet, regardless of their qualifications, freedom of opportunity guarantees the right to launch their own business.

But as economists often point out, freedom of opportunity means not only freedom to succeed, but also the freedom to fail.

Failure to see this reality often causes untold stress, trauma, and tragedy.

Should we somehow screen the would-be small businesspersons before the market place does its own screening?  No.  The right to make the wrong choices lies at the heart of our economic system.  Without this right, initiative and incentive would soon dry up and our free enterprise system would then cease to be free.

What are the reasons that so many fledgling businesses die?  What do experts like Dun and Bradstreet identify as the cause of business failure?  Bad Management…   They have found that businesses fail for the very same reason year after year…

Impressive as these statistics may be, pointing the accusing finger at bad management, they merely camouflage the real reason so many businesses die young.

Ease of entry is the chief cause, and bad management is merely an affect.

And is failure really failure?  Many heroes of business failed at least once.  Henry Ford failed twice.  Maybe trying and failing is a better business education than going to a business school that has little concern with small business and entrepreneurship.

Prof. Micholas Siropolis

Ease of Entry

Now that is an excellent insight.

It’s ease of entry that is the cause of small business failure – no one will stop you – unless you stop yourself.

Calibration

In philosophy, its a problem of epistemology.  How do you know that you know, and how do you know that you don’t know?  If you think you know about business then how do you validate that assessment?

Should we somehow screen the would-be small businesspersons before the market place does its own screening?  No.  The right to make the wrong choices lies at the heart of our economic system.  Without this right, initiative and incentive would soon dry up and our free enterprise system would then cease to be free.

If your read our article from the Harvard Business Review on the evolution of a small business you will note that a characteristic of a successful mature business is the presence of formal systems.  A hallmark of less mature businesses is ad hoc decision making and few repeatable processes.

The diagram below is one framework that represents a mature process.  An adaption of the framework below is in use at a number of Fortune 500 companies.  Consultants will be happy to help companies tailor and implement this with all the detail process steps and templates at a hefty price.

That’s not for me

Upon looking at this as a small business owner or as a person contemplating a start-up, you might say, “This is not for me.  I don’t need this”.  Well, yes you do.  And to the extent that you don’t understand the 37 boxes above, you will diminish your chances of business success.

At one time or another, as your business evolves through the stages of existence, survival, success, take-off, maturity (and decline) you will hit all of those boxes in one evolutionary phase or another.  It is best to see the whole process at the beginning – most do not.

Redux

So lets ask the question again.  Is it easier to find a new job or start a business?

Who are you?  Take a look at the diagram and find out where your current (or last, if unemployed) job position is located.  To the left is strategic; to the right is tactical.  To the left is innovation, creation, positioning, thinking and planning; to the right is doing.  To the far left is the corporate strategic plan to which everything should be aligned and traceable.

If you are one of Gerbers “Technicians” (a “doer”) then you may be to the right, and perhaps so far to the right (tactical) you may be off the chart.

If you are one of Gerber’s “Entrepreneurs (a “Innovator”) then you may be on the left, and perhaps so far left (strategic) you also may be off the chart.  If you are off the chart to the left you are a CEO, CFO, COO or otherwise primarily concerned with strategic planning and direction setting for the business at a whole.

Idea creation, product innovation, and development moves from left to right.

So you want to start your own business?  Then you need to understand what’s on the left.  If this is not “your cup of tea” – then you would be better off resolving your unemployment by finding a new employer in your current job position or role.

Entrepreneurial Recalibration

Some people leave their job to start a business out of that “Entrepreneurial desire” that can’t be met by an employer.  If your current job can be found near the center or to the left of the chart then maybe you have a good chance of growing a successful business.

But here is another option.  If you are employed and have the “entrepreneurial desire” then make a conscious effort to move to the left.  If you are tactical become strategic.  If you are in a Fortune 500 company then there is always a “left ” which may be available to you plus all the resources you need.

Need a market analysis?  Your company already has people that will provide that for you.  On your own – you would have to do that for yourself.  Need a sales force?  Your company already has that. On your own- you have to sell the product/service yourself or hire someone.  Need seed capital?  Your company can provide you with that if you can put together a compelling business case and financials.  On your own – you will need to raise seed capital yourself.  Need subject matter experts in just about any area?  Your company has that in its organization.  Don’t forget the new peer group you will find – the synergy of collaboration beats an independent entrepreneur any day.  Fortune 500 companies are already entrepreneurial factories.  You just need to get there.

I am not trying to discourage anyone from leaving an existing job to pursue an “Entrepreneurial Dream”.  But you might just test the alternatives to see what you might have right under your nose at your own company.

Conclusion

Here is the “take away”.  Business failure is not a result of bad management – its a result of ease of entry.  The barriers to entry in starting a business on your own are non-existent.  That is the reason for the high rate of business failure – “the market” will render the real and final decision on competency and ability.  You may fool yourself, but you can’t fool the market and business environment.

This can also be applied to organizations such as 501 C(3) charities or other well-meaning organizations.  The reason they under  perform is that there may be inadequate or non-existent criteria for leadership or management positions.  That is, there is no vetting process – there are no barriers to entry.

Research shows that less than 4% of new business start-ups have a formal written business plan.  How many organizations do you know that don’t have a strategic plan?  I would hazard a guess that the 4% of those businesses that have no written business plan the failure rate exceeds the 92% failure rate overall average.  For those organizations that don’t have a strategic plan, failure or under performance is most likely the highest among organizations in the same sector or category.

What’s the problem in general?  No barriers to entry.  When you let “anyone” in then high failure rate is predictable.  The problem is probably most pernicious in charity organizations.  How do you tun down a person who wants to volunteer their time when you know they are not qualified for the position?

How do you know your hired the wrong people for your organization?  Under performance against similar organizations.

Resources -

Advice for Prospective Entrepreneurs
by Paul J. Magelli, Sr.

For individuals who want to be entrepreneurs, the most important element to learn is “industry analysis and competitive intelligence.” The very term sometimes terrifies the prospective entrepreneur—particularly if s/he has not had post-secondary courses in new business development.

While reviewing business plans, visiting new enterprises, or in speaking to organizations on the subject of becoming a successful entrepreneur, I am repeatedly reminded that prospective entrepreneurs have never heard of these concepts. Sure, they talk about marketing and competition, but their comprehension of the concepts is limited.

However, with the advent of the Internet and the availability of electronic databases, the quality and the depth of information is nothing short of incredible. Therefore, with minimal effort or training, it is possible to access information critical to the development of a creditable business plan. In my experience, the weakest part of most business plans is the marketing plan.

Those who do not agree with this assertion are those who maintain, “The firm failed because it had weak financials.” Weak financials are typically derived from inadequate market data. Poor market data is a result of feeble competitive intelligence, failing to accurately determine the firm’s real market share, not establishing a clear market niche, and improper product pricing–given all of the companion elements. Entrepreneurs, who are able to calculate and calibrate market share and price, can accurately project revenue.

Students continually ask, “What is the Golden Rule of Entrepreneurship?” This, for me, is the toughest, if not impossible, of all questions. There are occasions when I would ignore the question. Predictably, there is a host of answers. My consistent response is that there must be a demonstrable need for the product and/or service in the marketplace. And Jack Stack would add (and insist), “Does it have sizzle?” From this follows: Is the product and/or service distinctive? Is it potentially an industry-wide solution? Can it be sustained over time? What is the half-life of the initial product and/or service? Persistence and success in the marketplace must meet these criteria. If the product and/or service are unable to do so, then, it is very unlikely that the new firm is going to be a long-term success—at least in the minds of potential investors.

The second most important criterion (although many argue that this is the most important) is whether or not the company has the kind of leadership that can attract the resources – intellectual, financial, physical – it needs to produce a product or service that fulfills real marketplace demand.

Of all the entrepreneurial characteristics I most frequently hear about is “passion,” but passion can be a two-edged sword. I believe that you can have too much passion and become blinded or disillusioned when problems emerge. I have observed entrepreneurs, who, come hell or high water, moved forward with an idea just because it was a lifelong dream.

While unbridled enthusiasm is essential, I prefer entrepreneurs who demonstrate integrity, resilience, a strong assessment of the market, and the ability to motivate and collaborate within and outside of the firm. An important prerequisite skill is that the entrepreneur has the ability to wisely and dispassionately analyze ideas or technology – the ability to be harsh if necessary. The entrepreneur must have strong communication skills given the range of individuals that s/he interacts with, including the ability to accept both positive commentary as well as criticism.

Another important leadership characteristic is the ability to be comfortable with risk. I do not mean foolish, uncalculated risk taking but rather the ability to deal with ambiguity and anxiety in an unflappable manner. It is also important to adapt quickly under the pressure of a fickle and rapidly changing marketplace, and in the midst of others imbued with a sense of urgency.

To be successful, the entrepreneur must be adaptable, flexible and resilient. Entrepreneurs have a tendency to fall in love with their idea and are unwilling to read signals from the marketplace that urge them to adjust and modify. Another tenet is whether or not the firm is willing to make mid-course corrections and modifications – whether in product, personnel, price or location, among others. I have observed that the firm becomes so entrenched or enamored with the launch team, of agreements that have been struck with customers or employees, of product line and the like, that it as a minimum becomes entrenched and, as an extreme, paralyzed. Once this has occurred, the firm is unable to effect essential changes in its modus operandi. The most sensitive area of these, in my experience, has been with personnel.

From my perspective, if there are personnel issues, then, a fair amount of dispassionate analysis and action is appropriate, particularly as it relates to the firm’s leadership team. Too frequently, the founder is over-managing and is unable to delegate responsibility and authority and unwilling to consider turning the reins to new leadership who is able to move the firm to its next level of growth.

Entrepreneurs, to use a term, are like gnats. They are relatively hard to keep track of – they consistently flit about. And when the flitting begins, their attention is diverted, their energy is diffused, and effectiveness is diminished. This, to me, accounts for an observation that they tire of the venture and want to move on to the next idea, the next venture. In my experience, one of two situations typically existed. The former – the entrepreneur is anxious to move on to the next venture but has not planned for management transition and the other – it is time for the founder to move on but no one in the firm or among the investors wants to deliver the message.

The latter is especially true in the case of technology start-ups. Good technologists do not necessarily make good CEOs. However, the intellectual property that underpins the new firm is the property of the technologist and s/he will not hand the IP over to someone else’s leadership. One of the golden rules, then, emerges – determine precisely when it is essential to sever the relationship and to move on, so that second stage leadership can be brought to the firm.

Another rule is for the entrepreneur not to fall in love with his/her own idea. I have never met a technologist or an entrepreneur who did not think that his/her technology or ideas was the end-all of end-alls. I believe the assessor must be harsh about it. It is almost a certainty that one will run the risk of offending someone because they are embryonically connected to the technology or to the idea. However, the wise adviser will be dispassionate and will advise them to fall out of love with whatever it is they are proposing or doing because the marketplace will not absorb it.

With all of these demands, the entrepreneur having opted for this lifestyle, nonetheless, must maintain a sense of balance and style – balance to provide time for private reflection and contemplation and time for personal needs like friends, family and fantasy. I disagree with those who insist it must be either/or. It is possible to partake, manage and experience all of life’s opportunities.

The entrepreneur who can contemplate, consider, embrace and adapt most assuredly will optimize the possibilities of success and achieve a soul-feeding life experience, especially, if s/he does so while ensuring the financial, moral and intellectual integrity of the firm.

Does this appear to be overwhelming, hardly achievable or realistic? I don’t think so. It’s the very least that we should expect of those who conduct America’s business.

Paul J. Magelli, Sr., is the director of the Office for Strategic Business Initiatives, MBA Program University of Illinois at Urbana-Champaign and has held the post since 1996. He has held several positions as a Dean, including, Assistant Dean of Students, University of Illinois at Urbana-Champaign, 1958-1965, Assistant Dean, College of Liberal Arts & Sciences, University of Illinois at Urbana-Champaign, 1966-1968, Associate Dean, College of Liberal Arts & Sciences, University of Illinois at Urbana-Champaign and Associate Director, Midwest Universities Consortium for International Activities (MUCIA), 1966-1969, and Fairmount College of Liberal Arts & Sciences, Wichita State University, Wichita, KS 1969-1983.

Other

From Tuck School of Business at Dartmouth
Learning From Corporate Mistakes: The Rise and Fall of Iridium

An article from Fortune magazine
Mel Karmazin fights to rescue Sirius (cached PDF version)

A couple (among thousands) of articles recounting  the story of Webvan and why it failed

Success and Failure of Pure-Play Organizations: Webvan versus Peapod, a Comparative Analysis

A Tangled Webvan

Key Reasons Why Small Businesses Fail by Titus – IIB Business Support Americas
Planning Against Business Failure – U of Tennessee
Small Business Success – A review of the Literature – Athens State College

From FORTUNE Magazine 1993 -
THE DAY THE MONEY RAN OUT Consumed with his business, Michael Gerber awoke one morning to a financial crisis — and five years of nightmarish struggle. By CHARLES BURCK September 6, 1993 (FORTUNE Magazine) – Read it

Small Business Administration – Office of Advocacy Reports
http://www.sba.gov/advo/research/chron.html

Startup Business Characteristics and Dynamics

Accidental Entrepreneurs:
YouTube pays David $14K for a months fun at the Redneck Resort

Revenue sharing

So you thought that all the content that people put up on YouTube was a waste of time?  Not so.  Google now has a Partner program and revenue sharing model with content providers.

If you have good content, lots of subscribers, and lots of hits, you can apply to be part of the Google / YouTube Partner Program.

I must have been asleep on this event – I just found out about it.

And, I was amazed at just how much money people are making on this.

The top channels on YouTube are making six figures a year in revenue sharing with Google based on click throughs to ads that appear on channel video pages.

Accidental…

Well, all I can say, is that all the work that early adopter YouTube content providers made to develop popular creative content for YouTube (at no compensation to them) finally has paid off – unexpectedly.

At the high end, I  would expect that folks like Lisa Nova and her creative and professionally done videos would be in the partner list – and they are – and she is.  Good for her!

…and, perhaps, unlikely

But, in my mind (and what do I know) there are some unlikely and unexpected Partners making a lot of money.

On the “other side” of Lisa Nova is Davids Farm.  Which is Davids real world Farm in Canada.  How much money has David invested in his video production equipment?  He says he has done it all with four $250 Sony cameras.

How the Partnership program works

You can watch this video for some insights into how the YouTube Partnership program works

Win – Win – Win – The Revenue Ecosystem

Its a win-win-win for everyone.  Google compensating these folks for high traffic videos creates an incentive for these folks to create more videos.  The more videos the more viewers.  The more viewers the more ad click-throughts.  The more click-throughs the more ad revenue for Google.  Don’t forget the source of the revenue – the more click-throughs the more product exposure.  The more product exposure the more product or service sales.   The more product and service sales the more marketing dollars to buy ads from Google – and Google shares that revenue with the content providers.   And so the symbiotic circle of life in the Capitalistic Ecosystem.

Does anyone lose?

Davids Farm – The Redneck Resort

Davids calls his farm a “Redneck Resort”.  You can watch his videos for yourself and make your own decision.

Good or bad; high class, low class,  mid class, or no class – it doesn’t matter.  These folks deliver the viewer ad click-throughs to google ads that appear on their video pages – and in return, they get compensated.

Here is David at the “Redneck Resort” showing  off his $14,000 check from Google for the month of July.

$14,000 in a month, at the Redneck Resort, just having fun.  Who needs a Business Plan – David is yet another Accidental Entrepreneur.

Resources

http://www.youtube.com/user/Davidsfarm

EVERNOTE – Save your ideas, things you see, and things you like:
Comprehending the Business Model of FREE

The Challenge: Remember anything – make is searchable and available from just about any network connected device.

There are applications that come and go.  You download an interesting application, try it out a few times, and then, there it sits, idle on your computer, unused, just taking up space.

These unused applications will stay on your computer until you refresh the operating system.  They won’t be back.  You didn’t use it and you won’t install it again with the new operating system.

Many apps have not make it past these refresh points on my computers or Apple iPod Touch – except a few.

And one in particular that you should know about

EVERNOTE

Welcome to your notable world. Use Evernote to save your ideas, things you see, and things you like. Then find them all on any computer or device you use. For free.

The compelling feature of Evernote is that there is an Evernote application for just about any operating system and any networked device AND every thing you saved is on the network.  What this means is that Evernote can synchronize all your notes (ideas, things you see, things you like) in a central repository – over there on the Evernote servers – for free.

Now, you can’t beat “free” – can you ?

EVERNOTE in action

Why am I writing about this when you can see it.

http://www.evernote.com/about/video/

And for Apple iPhone and Apple iTouch

http://www.youtube.com/watch?v=1V44XB1gvFg

Conclusion

I have been using Evernote for nearly a year.  My evernote notebooks are filled with short notes I have written on my iPod Touch when mobile;  full web pages or clips of web pages that I found interesting while surfing the web; pictures I found interesting; and a lot more.

So, give Evernote a try and “Remember Everything”

The Business Model of “free”

For you Entrepreneurs out there – How do you make money from a giving something away for free?

From the New York Times Business Section

By DAMON DARLIN
Published: August 29, 2009
New York Times

GIVING away a product has always been a great marketing concept. Even an unsavy consumer can see a benefit in snatching free products. Free has also become a mantra for business gurus who advocate giving Web start-ups a shot at fast growth by bringing the price of most of their wares to zero.

But as a revenue generator, free can come up short. Sure, it attracts customers, but the challenge is to find someone to pay for it. Although thousands of businesses offer free services online — two of the biggest are the Flickr photo service from Yahoo and YouTube from Google — few can claim to be profitable. (Analysts say Flickr and YouTube are not.)

While free is an enticing proposition, it is very hard to make it work.

Indeed, in just the last few weeks, eBay has been looking to shed Skype, the free Internet phone call service. And Sampa, a personal Web site creation service started by former Microsoft executives, folded.

Advertising was always the easy answer for making free pay. But that rarely covered expenses even before a glut of advertising space and a severe recession cut the revenue stream.

The fallback position is charging a few customers for premium service, in the hope that revenue from dedicated users will cover everyone else. A number of sites, like Flickr, do this.

Fred Wilson, the New York venture capitalist, codified this model and popularized a term for it: freemium. And he continues to receive an enthusiastic reception to the idea on his blog, A VC.

But the question remains. Just how does it work? Phil Libin, the chief executive of Evernote, a start-up in Mountain View, Calif., was kind enough to give me a tour of his privately held company’s financials to reveal the mystery.

The company gives away a Web application that saves data you accumulate. You can use it to keep a wide range of information: meeting notes and voice memos, for example, or even photographs of wines consumed or recipes found in magazines. The information is stored on the company’s computers so all the data can be synchronized on every computer the customer uses — and on smartphones as well.

Snap a picture of a business card with a smartphone like a Palm Pre or an iPhone and it shows up on the phone’s Evernote app — as well as on the Dell back at the office. It is searchable, right down to words in photographs. So if you type in “Samsung,” for example, every business card from that company pops up.

“It is a universal memory drawer,” says Mr. Libin, who has run and sold two other start-ups.

Evernote, of course, is free. That’s important because the company, which does no advertising, needs to acquire customers as cheaply as possible. “Our product is our marketing,” Mr. Libin says.

In 18 months, 1.4 million people have tried the service. An additional 4,500 try it each day.

“Free is not a loss leader,” he says. “If we can get a small percentage of users to pay we start to make money.”
How many times has a venture capitalist heard that? But Mr. Libin showed that the magic is not only that it takes just a small percentage of customers to turn red ink into black, but also that the longer they remain customers, the more profitable they become.

About 75 percent of the customers walk away within the first four months. That’s not worrisome, because the revenue from Evernote’s 500,000 active users is growing faster than the growth in the customer base.

How? Customers discover that they need more than the basic storage space or want some extra features, like the ability to scan PDF documents for a particular word. Evernote charges them $5 a month or $45 a year for these and other benefits.

Mr. Libin studied the behavior of the earliest adopters and found that the longer customers used the service, the more likely they were to start paying for it. About 0.5 percent convert to paying customers in the first month. But after about a year, 4 percent have converted. (He says he thinks the figure will top out at about 22 percent.)

It makes sense. The shoebox of data is more valuable to the customer as it becomes larger. In addition, compelling uses — like photographing those business cards — quickly eat up the monthly allotment of memory, inducing a person to start paying. The longer the customer stays, the more valuable he becomes.

The company gets about 3 cents of revenue for each active user in the first month of use, but after a year that same cohort of customers is providing 35 cents each.

EVERNOTE made $79,000 from paying customers in July, Mr. Libin says.

That’s not enough to cover the cost of the engineers who design new features and the additional servers to store all the added data. But the cost of staffing doesn’t rise exponentially as more customers join, and the cost of adding storage declines because computing power keeps getting cheaper. (Electricity costs go up, but that is not a budget killer.)

The variable cost for each active user was about 50 cents a month when the company started, but has been dropping along a curve to 9 cents a month. By January 2011, Mr. Libin projects, the company will break even.

Mr. Libin’s model of freemium won’t work for every company. But it certainly could work for other companies who can retain customer loyalty and make their service more valuable over time while driving down costs.

It has convinced him and his investors that giving away the store is the right plan. “We are committed to being free,” Mr. Libin says.

Emergency Preparedness: 30 ft fiberglass mast and base for $40

Need an emergency 30ft fiberglass mast, base, and stakes for $40?  Read on.

The Antenna Mast Guy

If you travel to hamfests in the Midwest maybe you have seen the “mast guy” or the “pole guy”.  This guy has been traveling around to hamfests (according to him) for the past five years selling this stuff.

He always has good sales.  He has the right product at the right price in the right market with customers lined up to buy.

I am not sure what the original use of these were, or where he got these from – but he always seems to have a trailer load full of them.  He will mix and match whatever you want.

What you can get for $20

Pictured above is the basic kit.  For $20 you get the mounting base, the 4 mast sections at 4ft each, 4 ground stakes, and the flange for guy wires.  The mast sections are made out of fiberglass and slide into each other.

The mounting base has a center section that holds the four arms.  For storage, align the four arms.  For usage, spread the arms out and lock them in place by tightening the center section nut.

The flange mounts to the top and has 4 holes to attach guy wires.

Four stakes come with the kit.

The 30 ft version – $40

The kit pictured was $20 and the mast height is just under 15 ft.

The 30 ft kit with more mast elements, 8 ground stakes, and a flange for 8 guy wires was $40.
If you wanted all this in a carrying bag – that was $70

This guy also has an aluminum version of the fiberglass kit.

Look for this trailer

Accidental Entrepreneurs: the evolution of a small business

Accidental Entrepreneurs ?

“(08-11) 17:45 PDT — A month after he was laid off in October, 38-year-old Marcus Ronaldi realized he was facing the toughest job market he had ever experienced. “I had been out of work before, but this time I wasn’t getting any calls,” said Ronaldi, a high-tech job recruiter.

In November, as he despaired of landing a full-time job, Ronaldi started taking subcontracts from other recruiters with hard-to-fill vacancies in technical or executive fields.

“At first I did it just to keep busy and to help pay the bills, while I continued looking for a job,” said Ronaldi of Daly City.

But as he got more contracts, Ronaldi began to consider himself self-employed, a conviction that jelled a couple of weeks ago when he got a tip about a full-time job.

“I turned the tip over to a friend because I was happy doing the contingent stuff,” he said

Ronaldi is an example of what Bay Area business analyst Carolyn Ockels calls “necessity-preneurs” – people who become self-employed because regular jobs are so tough to find.

“I think a lot of people are trying to fill the income gap with any skill or service they can find,” said Ockels, managing partner of Emergent Research in Lafayette.”

A July report from the Small Business Administration documents the self-employment surge nationwide. The SBA said the number of self-employed people grows about 2 to 3 percent a year when the economy is good. In 2008, the most recent year on record, the number of people working for themselves jumped 8.1 percent.”

Accidental Entrepreneurs / Necessary Entrepreneurs ?

Wow.  People starting their own business.  “Accidental” and “Necessary” in the context of Entrepreneurs does not give the impression that the decision to go into business was an intentional, planned, deliberated, and considered process.  It sounds more like a reaction to unexpected (or at least, undesirable) series of past events. 

Is “taking the plunge” into small business a good idea if you are an “Accidental” Entrepreneur?

Angels

Angles seem to show up in a lot of different places.  There are places where they “fear to tread” and Angel Investors.  In the dot com era there was a company called Divine InterVentures.  You know where there is divinity, angels, and portents of angels something must be up.  Is it a divine “Interventu/re/ion”?

I noticed that the wife of Michael Geber (author of “The E-Myth” collection of books) wrote a comment to one of my articles.  The E-Myth books are another sort of “Portent” of the future, warning you of perhaps a potentially unexpected future.  A future that, if you do not prepare yourself – pay your dues, may result in creating undesirable outcomes.

The Record of History and the E-Myth

History repeats itself.  But in business failure, history should not repeat itself.  What history does show is that people do not learn much from history.  Going back at least 20 years, research has been available on the characteristics and attributes of small business success and failure.

Yet, based on ongoing empirical research done by the SBA, business schools, and independent researchers – research easily accessible through common distribution channels (especially the Internet) – avoidable business failures continue to be made by people who take the plunge and go into business for themselves without adequate preparation.

Michael Gerbers ‘E-Myth” books really do a good job at warning “Technicians” who want to start businesses about the pitfalls.  If you read my previous postings on Gerbers’ books you know that a unique feature of his books is the amount of time he spends on analyzing the psychology and mind-sets  of those folks who start small businesses.  Specifically, the three personas of an individual – “The Technician”, “The Manger”, and “The Entrepreneur” and how an imbalance of these three personas can affect business success or failure.

Michael Gerber talks about the step before the business.  “Who are you?”  And, “who you are”, (and you may not know really who you are), may affect and limit your business success.  Read Gerbers “E-Myth” books to find out “who you are”.

From Gerbers’ E-Myth to Harvard Business Review

Way back in 1983 (26 years ago at the time of this writing) there was an article in the Harvard Business Review that provided a framework for understanding the evolution of small business.  This article provided a framework to understand the transitions that a start up business had to make to become a successful, mature, and profitable.   This article from 26 years ago is still cited today.

It’s light years distance between Gerbers’ books and Harvard Business Review.  But there is a connection.  The connection is the “Who you are”, your psychology, your adaptability, your judgment, and your personal preferences, and how these will affect a small business start-up on its evolutionary journey.

The 1986 article in Harvard Business Review provides two insights

1. A framework for understanding the progressive evolution of small business from start-up.
2. The make it / break it role of the individual business owner and how personal psychology, mind-set, adaptability, and a whole host of other personal attributes will limit (or encourage) business success or failure.

So, I blew the dust off this 26 year old article.  Below is a summary of the framework  and, at the very end, a rather long quote from the article on the role of the individual business owner across the evolutionary journey.

The Five Stages of Small Business Growth

Categorizing the problems and growth patterns of small businesses in a systematic way that is useful to entrepreneurs seems at first glance a hopeless task.  Small businesses vary widely in size and capacity for growth. They are characterized by independence of action, differing organizational structures, and varied management styles.

Yet on closer scrutiny, it becomes apparent that they experience common problems arising at similar stages in their development.

These points of similarity can be organized into a framework that increases our understanding of the nature, characteristics, and problems of businesses ranging from a  dry cleaning establishment with two or three minimum- wage employees to a $20-million-a-year computer software company experiencing a 40% annual rate of growth.

The diagram above may look complex – it isn’t.

In the framework, there are 5 stages of business evolution and 5 characteristics that define each stage.

Of course, this is an evolutionary tale.  And like Darwin, businesses with DNA that are suited to the environment and are competitive are “rewarded” by the sheer pleasure of reaching the next stage of  evolution.  Those small businesses, in their evolutionary journey, that are not suited and not adaptable to the environment, and are not competitive in an industry segment -  are “discarded”.  Only the strong survive.

In the model there are five stages (plus 1) of business evolution

1. Existence
2. Survival
3. Success (leading to a choice of disengagement or growth based on owner “psychology”)
4. Take-off (rapid growth)
5. Resource Maturity
6. Ossification (Decline)

Each stage is characterized along dimensions of

1. Management Style
2. Organization
3. Extent of Formal Systems
4. Major Strategy
5. The relation of the Business and the business owner

At each of the 5 stages of small business evolution there are challenges which must be overcome.  Successful progression along the evolutionary path requires adaption and specific changes to the 5 characteristics cited above.  Failure to adapt and make those changes results in the death of the business.

The interesting question is that happens to the “owner DNA” when a business fails.  Is that the end of the line?  Or does the “DNA” learn from the past and “try again”? 

Here is a summary of the framework.

Evolutionary Stage 1 – Existence

What are the challenges?

1. Becoming a viable business end-to-end.  Getting customers, delivering products, and providing services well enough to become a viable business.
2. Expansion of customer base.  Expanding from a few key customers or pilot to a much broader sales base.
3. Cash.  Having enough money to cover cash demands  in the start-up phase.

Characteristics

1. Management style – The owner performs all the important tasks and provides the energy to run the business.
2. Organization – Simple, only a few employees – perhaps family members – to do administrative tasks.
3. Extent of formal systems – Minimal or none.  Ad hoc decision making.
4. Major Strategy – Simply, to stay alive.
5. Relation of business to owner – the owner is essentially the business.

Failure modes

Never  gaining sufficient customer acceptance or product capability to become viable.

Exit

1. Chose the business when the start-up capital runs out / Bankruptcy
2. Sell the business for its asset value.  Generally, sell at a loss

Comments

Just about everyone overestimates sales and the timing of sales.  The term I have head in place of “sales projection” is “sales hallucination”.  That’s about right.  Once the expenses out-run sales and the cash runs out – that’s it.

Evolutionary Stage 2 – Survival

At this point the business and demonstrated that it is a viable business entity.

What are the challenges

1. Maintain capital assets.  The business must be able to generate enough cash to break even and to cover the repair or replacement of capital assets as they wear out.
2. Cash flow.  The business must be able to  generate enough cash flow to stay in business and finance growth to a size that is sufficiently large given the industry and market niche, to earn an economic return on assets and labor.

Characteristics

1. Management style – Same as Existence stage, the owner performs all the important tasks and energy to run the business.
2. Organization – Minimal number of employees.  They are under direct supervisioin of the owner.
3. Extent of formal systems – Minimal.  Ad hoc decison making.
4. Major Strategy – Survival
5. Relation of business to owner – the owner is essentially the business

Failure Modes

1. The business earns only marginal returns on invested time and capital.
2. Marginal returns cause the business owner to give up or retire.

Exit

1. Remain in Survival stage earning marginal returns on invested time and capital and eventually go out of business when the owner gives up or retires.
2. Sell the marginal business at a slight loss.

Evolutionary Stage 3 – Success

At this point the business is viable and the owner is faced with a decision to to exploit the company’s accomplishments and expand the business or keep the company stable and profitable providing a base for the owners other activities.

Sub-stage – Decision – Success-Disengagement (stay small, earn reasonable profits, and hold on)

The company has obtained true economic health
The company has sufficient size and product-market penetration to ensure average or above-average profits.

A company can stay at this point indefinitely unless competitive changes destroy its market niche or ineffective management destroys the company’s competitive abilities.

Characteristics

1. Management style – The company is large enough to have functional managers.
2. Organization – Hierarchy with professional functional managers and staff.
3. Extent of formal systems – Basic financial, marketing, and production systems are in place. Planning in the form of operational budgets support functional delegation.
4. Major Strategy – Maintain the profit status quo
5. Relation of business to owner – The owner and company managers monitor strategy to, essentially, maintain the status quo.

Substage – Decision – Success Growth

At this stage the owner consolidates the company and marshals resources for growth through the borrowing power of the company.  Managers must be hired with a focus on the company’s future rather than maintaining its current condition and status quo.

Failure modes

1. Success growth may revert to Success-Disengagement.
2. If not the above, then the company falls back to Survival Stage.

Exit

1. Retrench to previous stage
2. Out of business – bankruptcy

Evolutionary Stage 4 – Take-off

Challenges

Growth. How to grow rapidly and finance this rapid growth.

Characteristics

1. Management style – Delegation.  The owner must delegate responsibility to others.  The key managers must be competent to handle a growing and complex business environment.
2. Organization – Decentralization.  The company now is “divisionalized”
3. Extent of formal systems – Maturing.  Strategic and Operational Planning.  This is now performed with key managers.
4. Major Strategy – Grow the business.
5. Relation of business to owner – The owner and the business have become reasonably separate yet the company is still dominated by by both the owners presence and stock control.

During this stage  there must be enough cash to satisfy the demands of growth.

The copmay now has these options

1. Continue to grow the business
2. Sell the business at a profit.

Failure Modes

1. Growing too fast with the result of running out of cash.
2. Owner unable to delegate effectively to make the company work.

Exit

Retrench to a previous stage

Evolutionary Stage 5 – Resource Maturity

Challenges

1. Consolidate and control the financial gains brought about by rapid growth.
2. Retain the advantages of small size (flexibility of response and entrepreneurial spirit)
3. Expansion of the management force

Characteristics

1. Management style – Line and staff.
2. Organization – Hierarchy with professional management and staff in place.
3. Extent of formal systems – Extensive
4. Major Strategy – Optimize return on investment
5. Relation of business to owner – The owner and the business have become reasonably separate.

Exit

1. Retrench to previous stage
2. Sell the business or merge

Evolutionary Stage 6 – Ossification

This is basically, business “old age”.  Lack of innovative decision making and avoidance of risk.

The diagram below depicts the framework evolution stages and failure & exit modes.

Managerial Challenges

Bottom line, the early success of a small business start-up is clearly on the shoulders of the owner.  The sad thing is that many “accidental entrepreneurs” go into a business venture with “eyes tightly shut”.

According to one researcher, people starting businesses seldom (less than 4% have one) have a written business plan. It’s not about having a written business plan to say that you have a written business plan.  It’s about having a written business plan to demonstrates that you have thought though the critical aspects of the business – market opportunity and size;  competitive analysis;  marketing plan, customer segmentation; pricing strategy; cash flow;  break-even analysis;  exit strategy; and all the rest that goes into a plan that, unthought in advance, will diminish the chances of success.

In fact, in writing the plan for a particular business, you might find that the idea to go into business with the product or service portfolio you have in mind may not be justifiable.  That is, the market opportunity might not be there, the competition is too strong, the capital demands or barriers to entry are too high, or any other thing that you might find out in the process of researching and writing the plan.

Better to know this up front than lose your savings, deplete you 401(K), blow the kids college fund, and/or exercise any other personal financial disaster that might extend to your family and (X) friends as investors.

Finally, are you the kind of person that can navigate the small business evolutionary transitions?

Here is what the Harvard Business Review article has to say on the talents and abilities of the small business owner as the business progresses through the various evolutionary stages.  To make it to Maturity, the owner has to be adaptable and flexible through all the evolutionary stages, or risk failure.

In the early stages, the owner’s ability to do the job gives life to the business: Small businesses are built on the owner’s talents: the ability to sell, produce, invent, or whatever. This factor is thus of the highest importance. The owner’s ability to delegate, however, is on the bottom of the scale, since there are few if any employees to delegate to.

As the company grows, other people enter sales, production, or engineering and they first support, and then even supplant, the owner’s skills—thus reducing the importance of this factor. At the same time, the owner must spend less time doing and more time managing. He or she must increase the amount of work done through other people, which means delegating.

The inability of many founders to let go of doing and to begin managing and delegating explains the demise of many businesses in substage IIl-G and Stage IV.

The owner contemplating a growth strategy must understand the change in personal activities such a decision entails and examine the managerial needs depicted in Exhibit 5. Similarly, an entrepreneur contemplating starting a business should recognize the need to do all the selling, manufacturing, or engineering from the beginning, along with managing cash and planning the business’s course—requirements that take much energy and commitment.

The importance of cash changes as the business changes. It is an extremely important resource at the start, becomes easily manageable at the Success Stage, and is a main concern again if the organization begins to grow. As growth slows at the end of Stage IV or in Stage V, cash becomes a manageable factor again. The companies in Stage VI need to recognize the financial needs and risk entailed in a move to Stage IV.

The issues of people, planning, and systems gradually increase in importance as the company progresses from slow initial growth (substage III-G) to rapid growth (Stage IV). These resources must be acquired somewhat in advance of the growth stage so that they are in place when needed. Matching business and personal goals is crucial in the Existence Stage because the owner must recognize and be reconciled to the heavy financial and time-energy demands of the new business. Some find these demands more than they can handle. In the Survival Stage, however, the owner has achieved the necessary reconciliation and survival is paramount; matching of goals is thus irrelevant in Stage II.

A second serious period for goal matching occurs in the Success Stage. Does the owner wish to commit his or her time and risk the accumulated equity of the business in order to grow or instead prefer to savor some of the benefits of success? All too often the owner wants both. but to expand the business rapidly while planning a new house on Maui for long vacations involves considerable risk. To make a realistic decision on which direction to take, the owner needs to consider the personal and business demands of different strategies and to evaluate his or her managerial ability to meet these challenges.

Finally, business resources are the stuff of which success is made; they involve building market share, customer relations, solid vendor sources, and a technological base, and are very important in the early stages. In later stages the loss of a major customer, supplier, or technical source is more easily compensated for. Thus, the relative importance of this factor is shown to be declining.

The changing role of the factors clearly illustrates the need for owner flexibility.  An overwhelming preoccupation with cash is quite important at some stages and less important at others. Delaying tax payments at almost all costs is paramount in Stages I and II but may seriously distort accounting data and use up management time during periods of success and growth.

“Doing” versus “delegating” also requires a flexible management. Holding onto old strategies and old ways ill serves a company that is entering the growth stages and can even be fatal.

Conclusion

Accidental Entrepreneurs?

“Godspeed, John Glenn”

Resources

Angels – http://www.ecoastangels.com/  Criteria – http://www.ecoastangels.com/pages/criteria.html

The Accidental Entrepreneur
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/08/11/BUF81974CT.DTL

From Tuck School of Business at Dartmouth
Learning From Corporate Mistakes: The Rise and Fall of Iridium

An article from Fortune magazine
Mel Karmazin fights to rescue Sirius (cached PDF version)

A couple (among thousands) of articles recounting  the story of Webvan and why it failed

Success and Failure of Pure-Play Organizations: Webvan versus Peapod, a Comparative Analysis

A Tangled Webvan

Key Reasons Why Small Businesses Fail by Titus – IIB Business Support Americas
Planning Against Business Failure – U of Tennessee
Small Business Success – A review of the Literature – Athens State College

From FORTUNE Magazine 1993 -
THE DAY THE MONEY RAN OUT Consumed with his business, Michael Gerber awoke one morning to a financial crisis — and five years of nightmarish struggle. By CHARLES BURCK September 6, 1993 (FORTUNE Magazine) – Read it

Small Business Administration – Office of Advocacy Reports
http://www.sba.gov/advo/research/chron.html

Startup Business Characteristics and Dynamics