Random Thoughts – Randocity!

How not to run a business (Part 2) — General Don’ts 2

Posted in best practices, business, Employment, free enterprise by commorancy on May 3, 2012

As a second article follow-on to the first part of the series How not to run a business (Pt. 1), I will keep the momentum going. So, without further adieu…

Don’t keep non-producers on the payroll longer than 3 months

Three months is enough time to understand if the person you’ve recently hired can do the job for you. If they are not producing within 3 months, they are either in over their head, they simply don’t understand the job or they don’t really want to do the work. Whatever the problem, performance plans to improve probably won’t help. If you’re a small business, you can’t really afford having non-producers on the payroll for long periods of time. However, for longer term employees, that leads into …

Think twice before letting people go without warning

While I know that it’s common to reduce your payroll burden by letting people go, think twice before you do this. More specifically, don’t do it unless you fully understand the consequences of that change to your business. Letting certain people go can cause short-term damage if that person is entrenched in certain aspects of your business. Basically, make sure that your knowledge base is well spread out. This means, making sure that if you have a software engineer who is the only person who understands a crucial bit of code, that this person does a proper hand-off to another person before they depart. I know that it’s common to let people go without warning to them or to anyone else, but this is the worst way to handle letting people go for many reasons. First, you may lose a brain-trust you didn’t know you had or that your company needed. Second, you’re opening your company up to wrongful termination lawsuits. Both of these can be short term damaging to your business. Third, surprise firings don’t always go over well. You don’t know who is capable of temperamental outbursts and who may show up at your doorstep with a firearm ready to take retaliatory measures. Workplace violence is on the rise, be careful whom you let go and how. In the long term, your business will likely recover, but in the short term your customers may feel the pain. It’s entirely up to you to determine if that pain is worth the hassle of walking people to do the door without warning.

The best plan for non-producers is to give them one chance to step up and begin producing. Explain in very explicit terms what you expect to see in the next 30, 60 and 90 days. Set goals and expect improvements. Make it completely clear that this is their only chance to rectify their performance issues or they will be asked to leave. Basically, give the person fair warning in writing, document it, have them sign it, give them a copy and place the original in their personnel file. So, if they choose not to improve their performance issues, you have a documented copy of what you expect and that they failed to meet those expectations. This also means that when you do walk them to the door, this is not a surprise to them. It also gives you the opportunity to hedge your bets and hire someone to be trained by this person. If they refuse to train anyone, explain that it is part of their performance improvement plan and their job. If they choose not to train someone, then explain that they have failed their performance improvement plan and they need to pack their belongings and leave the premises. You can’t make someone do the work, but you can encourage them. If they choose not to work even after you have asked them to, it’s time for them to leave.

Don’t buy email marketing lists and don’t send spam

The quickest way to tank your business on the Internet and give it a bad reputation is by buying lists of people whom you have never met. If your business is important to you, find people who are interested in your services in other ways than by sending spam email. One of the best ways is by using services like D&B to locate companies that might have need of your services. Then, have your sales people cold call them. Note, that while cold calling isn’t always warmly received by many, it is more favorably tolerated than sending email spam. Cold calling is only between you and the called party. Spam, on the other hand, ends up not only between you and the other party, but all parties in between that delivered the email. The recipient may forward the email to other parties which then involve even more people. This is how reputations get ruined. The bottom line is, don’t send email spam and, more specifically, do not buy email lists.

On the other hand, attending trade shows is a great way to initiate interest in your product or service, is a way to collect email addresses and is the primary way to build your email list. Other ways to build your list is by blogging and simply by selling your product on the web.

Don’t acquire companies without fully understanding what they bring to the table

In the start-up phase when there’s lots of capital floating around, it is tempting to bring in what appears to be a good marriage of technologies into your company through acquisition. There are lots of reasons why you should think and rethink any acquiring plan. While you may bring in technologies you don’t otherwise have, it does a lot of other things at the same time. The merging of two companies is a pretty severe culture shock for the company being acquired. Their business methodologies, sales strategies, employment practices, dress code and lots of other subtle culture issues may clash with your current culture. Bringing in a new company can bring with it things your company may not be ready to handle.

Additionally, it well increases the workload for people who may already be overworked. For example, pulling in a whole crew of new staff requires human resources to hire these people in. It requires adding them to payroll and to benefits. It requires IT staff to procure assets like computers, phones, desks, logins, ID cards, etc. The new company will have accounting books that need to be folded into the parent company’s books. There’s all of the duplicated staff that are probably not necessary (finance, IT, operations, marketing… both personnel and management) that will either have to be let go or given alternative positions.

On top of the logistics of simply folding in one company to another, which requires a substantial amount of time and effort from staff, the products themselves also have to be rolled into your current core business that have yet to be determined useful. For example, if your company is primarily a Business to Business seller and you acquire a Business to Consumer company, you need to understand if that marriage works for your present business model. The questions you need to ask yourself… “Am I planning to sell B2C now?” “Can this acquired company’s technology be used in the B2B space?” “Will this new company provide the revenue needed to justify the purchase?” These are all important questions that materially impact whether you should or should not do the deal. Don’t jump into buying a business solely because it appears to be a ‘hot new technology’. The technology itself does not indicate that that product or service is long-term sellable, viable or, more importantly, sellable to your B2B customers and prospects. Yes, having a vision does help here, but remember that Business to Consumer products generally don’t generate near the amount of revenue that Business to Business products do. Also recognize, as in this example, that selling Business to Business is an entirely different beast than selling Business to Consumer. So, this also means learning curves and retraining for those folks tasked to manage both sales models.

Basically, this single section could fill an entire book. There are lots of considerations when contemplating the acquisition of other businesses. Unless you are completely certain that you are gaining something that your company desperately needs, it may be simpler and cheaper to hire people to construct a similar technology without the additional hassles of folding two companies together. In other words, it may take longer and be more costly to fold together both the companies and the technologies than it would have cost to hire engineers and construct a similar technology yourself. Weigh the costs, think about the outcome and determine if acquisition is truly the right choice.

Don’t give away something you can sell

I’ve seen this so many times now that I’ve lost count. Good will is an important aspect of the sales process. It makes the customer feel like the are getting a good deal. I understand this aspect of the sales process. So, discounts, incentives and giveaways are all good methodologies to managing a prospect’s ‘feel good’ aspect of the deal you are proposing. However, remember that you are in business to make money. You’re not in business to give good will gestures, that is unless your company happens to be a charity or non-profit. Assuming that you are a for-profit entity and not managing a charity, you should never give away things you can sell. This is true of not only goods, but services as well. I know it’s easy to think that your professional services team’s or other team’s time is not worth much, but don’t give professional services away for free. Controlling your sales staff, however, is another matter. Don’t allow your sales team to make deals without understanding the deal and someone in management signing off on the deal. Never allow sales persons to make deals without a managerial approval process. When sales people can make deals without approvals, they will make bad deals for your company that you will have to support for years to come.

Worse, giveaways encourage future giveaways. Basically, once you’ve given something to a customer for free, they will expect it for free at subsequent renewals. Don’t set that precedent. Always charge for every line item. Discount it by a small percent, but never discount anything by 100%. Once you agree to any freebie, you are saddled with that freebie for the rest of that customer’s contract with you no matter how much you find out it is really costing you. Believe me, freebies can easily become some of the most costly parts of a business.

Don’t believe everything you hear from prospects or clients

Prospects are good at finagling the best deal possible. One of the most common tactics is to suggest that your direct competitor gave away a service for free that you are selling. They are then expecting you to give them this service for free. So, here’s the common problem with this scenario. First, you are placing 100% trust into what they are saying should you decide to comply. Don’t do this. Check and double check any statements made by prospects when they ask for freebies. Second, when you cannot find that their statement is true, be prepared to take a hard line with them and discount it by only a small percent. Do not give it away for free. If they decline the deal, you may be better off. Don’t do a deal with freebies simply because you need the deal. In the long run, that contract will become unsupportable. Further, any freebie you do agree to will become a permanent never ending freebie. You cannot undo a freebie once done. Take your business seriously and charge for everything. Again, remember that to make money is why you are in business. If you give away any freebies, five years later you will still be giving that freebie to that customer. Don’t believe everything you hear.

Don’t do giveaways, trips and other incentives for the sales team alone

At least, don’t do it without including the rest of the company in the incentives. It’s quite common in many companies for the sales team to be offered trips, giveaways and incentives to close deals (or whomever gets the most deals). So here’s the problem. You’re already paying your sales team commission on deals they’ve closed (and hopefully after the checks have cleared). This is already an incentive. If they close a $1 million deal (or $1 million in deals) and they get 10%, they’ve gotten a $100k check out of that. That’s a lot of money for a sales person in addition to whatever salary you are paying them. Why are you trying to incent them further by flying them to Barbados or by giving them an iPad? It’s their job to keep up the sales. Giving them trips and giveaways sends the wrong message to the rest of your company’s departments who aren’t involved in these incentive programs. It’s also a very exclusionary practice so that most other parts of the company don’t get these incentives. Yet, these other departments work equally hard at their jobs. If you’re planning on offering these types of incentives, involve the entire company, not just your sales team (which, as mentioned, already have incentives in the form of commission).

Don’t plan releases of products or services on company pre-designated holiday weekends

So while this one may not apply to every single business out there, it is a general rule that applies to most businesses. Let’s talk about which businesses to which this doesn’t apply. If you are a consumer product, like an iPad or the latest cell phone, releasing on a holiday weekend is probably a good idea. Unless, however, your product falls into this category (which most businesses do not), do not release your products and services on national holiday weekends. Do it either the weekend before or the weekend after. Why? Nationally respected holiday weekends has nearly everyone out on that holiday. If your service is business to business, for example, no one will be around to review the changes you’re making. So, if your release breaks something crucial to your customers, they won’t know about it until after the holiday. Specifically, it will be too late for them to fix any problems that may have arisen over the weekend. For example, if your release doesn’t work correctly and sends out a bunch of email unintentionally to a list of your customers’ people, this may end up with a lot of angry people on your hands. Your customers won’t find this out until days after the incident occurred.

Out of common courtesy for your customer’s holidays (let alone asking your staff to hang around on a holiday weekend to release), delay releases to weekends that are not holiday weekends. Asking people to give up a holiday weekend (whether customers or employees) is most definitely not good for morale. Additionally, if you do ask employees to give up their holiday weekend, then expect to make up for that weekend through comp time on another weekend later.

By expecting people to give up a holiday weekend without any payback, you are setting your company up for huge morale issues, staff will come to disrespect you and your decisions and the company will become known for these unnecessary practices in the industry. It also means that employees will see that your company doesn’t respect their home family lives. What you do with your employees does get around the industry and can easily make it a challenge when it comes time to hire new qualified staff. Basically, word of mouth gets around quickly and people simply will not look at your company when looking for employment. Small things like these make a huge difference to your staff, especially to prospective employees and recruiters. These are also the types of actions that prevent your company from being placed on lists like Forbes top 100 places to work. Your company must respect the home and family lives of your employees. Forcing people to work company designated holiday weekends is like handing the employees a cookie and then unceremoniously yanking it back moments before they can grab it and quipping, “just kidding”. Don’t do this. Respect your employees more than this.

Don’t use the company to pay your personal bills

Being the CEO, CFO or any other C-level exec doesn’t entitle you to use the company as your own personal bank account. While there is nothing but your own personal moral compass stopping you (and adamant finance employees) from using the company in this way, eventually this information will leak out to the rest of the company. Some things just can’t be kept a secret, especially the longer your business runs and the more personnel changes that happen. So, unless you want your employees to know that you’re paying $6k a month for your house or $3k a month in car payments or $2k a month in child care costs, pay your home expenses from your own personal checking account. Don’t use the accounts payable people to pay your personal bills for you. Note, to those entrepreneurs who don’t understand computers, technology or the internet, yes, there are banks now that have automatic bill pay that you can set up online.

Part 1Chapter Index | Part 3

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