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Dokumen - Tips - The Nuts and Bolts of Small Business Management Unadvertised Bonus 7 The Nuts and
Dokumen - Tips - The Nuts and Bolts of Small Business Management Unadvertised Bonus 7 The Nuts and
Stuart A. Lichtman
The Nuts and Bolts of Small Business Management
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Also, the terms Cybernetic Transposition Basic Achievement Three-Step and Cybernetic
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owned by Stuart Lichtman. They may not be used without his written permission.
Table of Contents
Chapter One: Orangutan Management 3
Chapter One
Orangutan Management
I lived in Sweden for about eight years. I like Sweden and the Swedes very much. In the
winter, the snow is illuminated by the moon and stars reflecting over soft whiteness. It’s
beautiful.
The winter is, for me, magical. The houses are rather plain, usually stucco-finished in
earth tones and dull mustard-yellow. But once the doors are opened, you enter a world of
light, color, sound, warmth, and friendship.
In the summer, wildflowers cover its fields and the many small islands in the Archipelago
filling the Baltic Sea over to Finland, are covered with Swedish families tending their
“summer houses,” alternating between do-it-yourself projects and picnics, games, and
other forms of family closeness.
Yes, there is much that I like about Sweden. But, not being a fan of TV anyway, I found
their television to be - well - awful.
Drab announcers, seemingly selected from the lowest 10 percent of the population with
respect to both appearance and delivery, presented equally dull material.
However, while I lived in Sweden, there was a weekly TV show I enjoyed. It was called
“Nojs Machinen” which roughly translates to “The Entertainment Machine.”
One Saturday, while watching Nojs Machinen, I observed an act they had taped in Las
Vegas - a team of orgautans seemingly and with utter precision, making a fool of their
trainer. It was hilarious, wonderful entertainment. The audience went wild and I was
literally rolling on the floor with laughter.
In typical Swedish fashion, once the show was over, the MC interviewed the trainer
(directly reporting from Las Vegas, of course, since Swedes will take any excuse to travel
to warm places during the winter).
Trainer: “It's actually rather easy. When I get a new animal, I just love them and
watch them for a few months. I observe what they like to do. Then I build the act
around that.”
Particularly in the startups that I ran for my venture capital clients, I'd intuitively watch
for what people in the team liked to do and then structure things so that they could do
what they liked in a way that was aligned with my vision for the company.
I then tied the team together using the Shared-Vision Leadership process described later
in this book.....and let them go for it. In some cases, I taught them the Cybernetic
Transposition techniques.
I also realized that this was the way I liked to run companies. It was easy, exciting,
involving, and the results were very satisfying.
In its first 100 years, the company produced ladies' casual shoes, usually for
other brand names. In its more recent years it had clicked off a very steady $1 to
$1.5 million annual profit on $12 to $14 million in sales.
However, that wasn't the worst he did. Thinking he knew something about the
business, Al changed the direction of the company from what it did well and that
it “liked” to do to higher priced fashion shoes. Over the next seven years, this
stable and consistently profitable firm went downhill fast.
By the time its bank offered me a chance to acquire it for almost nothing, the
company was 2 weeks from liquidation, final termination. It was a basket case: $7
million sales down from $14, reported $2 million loss (actually $4 million) down
from $1 to $1.5 million profit, no orders on hand, over 12 percent of its product
was returned due to defects, zero reported net working capital (meaning
effectively, the money on hand to pay bills), and it owed the bank $7.5 million at
22 percent interest.
The first sign of real trouble came the next day when I walked into the company's
offices. The VP of Finance said, “Good, now that you're on board, I can tell you
what's really going on!” My stomach dropped. The worst part was that he really
didn't know how bad things were. They had been playing accounting games for so
long that nobody knew.
In fact, it took our new auditors 6 months to give us the first real financial
statement. But along the way, we got many clues that things were much worse
than had been portrayed. The first was a month or so after I arrived, we were, of
course, cash-strapped. So we tried to collect our bills as fast as possible. (This
later grew into a true artform.)
One bill for $500,000 wasn't paid on time so our people called to inquire.
“Weren't you happy with the shoes?” Oh, they were so happy they wanted to
reorder twice as many. (We had started making the type of product that the
company “liked” and its market expected.) “Have you misplaced the bill?” No. It
had been processed over two weeks previously. “Well, why haven’t we received
our money?”
Oh, they said, “it had been offset against ‘the credit.’”
Credit? What credit? We had no credit on our records. So we asked the customer
to send us a copy. Sure enough it was authentic - but it wasn't in our records.
The next clue arose when we wrote a check on an account listed as having
$238,000. It bounced. Seems like the balance was $1.16. That wasn't in the
records either. And this went on and on. We did have legal recourse but the seller
was in such bad shape that we had no chance of getting any money.
When we finally got a financial statement, it showed a negative $2.5 million in net
working capital. Simply put, that meant that every single day we were at least
$2.5 million short of what was required to pay our bills.
That left only one option that I was willing to accept: work our way out. So we
accelerated our plan to return the company to the kinds of products and markets
that “it liked,” those that had been historically successful. The long and short is
that in nine months, we tripled sales from $7 to $21 million, we generated a sales
backlog (as yet unfilled orders) of $12 million, gross profit was up from a
negative 4 percent to a positive 22 percent, twice industry average, and we were
earning an annualized profit of $2 million (after nearly $2 million in interest
expense) as opposed to the initial real loss of $4 million.
The trick - other than manufacturing $2.5 million out of “thin air” to finance daily
operations? We simply let the company do what it “liked” to do. We returned it to the
products and types of customers that were embedded in the company’s “unconscious.”
In a very real sense, companies, societies and countries have personalities and their own
“unconscious minds.” They also have many self-defeating unconscious habit patterns.
The key to straightening them out is to apply the Cybernetic Transposition Three-Step to
them in an appropriate way and to align them with what they “like” to do in a way that is
consistent with being successful.
As far as manufacturing $2.5 million out of thin air, that’s another story entirely. (Funny
how that figure keeps coming up in my history, isn’t it?)
Having pondered the question for a while, Ed Brower popped into my mind. Ed is a tall,
lanky, roughly handsome “cowboy” from Oklahoma who’d run a company that I'd started
and who'd taught me a good deal. He was “folksy,” running his big hand through his thin,
sandy hair as he said, with a twinkle in his eye, things like, “I've gotten a lot of cows
going north by starting them south.”
Ed had been brought into our artificial intelligence venture by our Texas investors, a
group of industrial finaglers who, in retrospect, remind me a lot of the crew on the
“Dallas” TV show. Ed had a “magnetic” personality that was quite remarkable. Watching
him meet someone new looked like long-lost brothers coming together after a long
absence. He could tune into people's unconscious natures and reflect them back in a way
that usually generated immediate familiarity and trust.
One of the reasons that I and my team liked Ed was the work he had done in turning
around the Newport Beach, California plant of a large electronics firm, Collins Radio
(which is now part of Rockwell International). The investors had proposed Ed and we’d
eagerly accepted him when we learned about how he’d achieved success in that project.
Clearly it wasn't the working conditions. They were modern and clean. The
answer seemed to be a combination of factors.
Primarily, the plant was in the wrong place (Newport Beach, California). The
available workforce in Newport Beach consisted of unionized part-time middle-
class housewives who really didn't need the money.
Ed wondered why they even came to work in the first place. So he started
watching what they liked to do, observing before work started, on breaks, and at
day-end. After a week or so of this, a theory rose in his mind. Maybe they came to
work to get benefits other than wages and health insurance - psychological and
lifestyle benefits.
So, along with his immediate staff, he brainstormed a series of possible categories
of such benefits - aloneness vs. being surrounded by kids and its opposite,
companionship of workmates vs. spending the day alone at home; the newness of
things vs. a boring home routine and its opposite, routine when their home life
was chaotic, etc. They finally identified 8 of these needs that could be met in the
company’s workplace.
Then Ed enlisted some of his young bright people and within the month they had
categorized all of the workers according to these 8 needs, needs that were being
met in seemingly incidental ways.
Now came the next brilliant step. Ed had his industrial engineering staff
reorganize the work flow of the plant into “work centers,” each incorporating
certain human skills, technical resources, and a specific job to do - such as
painting a part. They also categorized each work center in terms of which of the 8
personal needs it could fulfill.
Next came a period of selling to the union and a brilliantly successful trial run.
Finally, the whole things was put to the union in final form. The plant would be
entirely reorganized into a work-center concept as would each product to be
produced. Each worker had already been preliminarily classified as to which
work-centers they could fulfill with their existing skills - and according to the
work-centers that would meet their psychological and lifestyle needs (of the 8
categories).
After some negotiations, the union went along with the plan and it was fully
implemented.
The result was an almost immediate tremendous success, so great that within six
months the union leaders were treating management to a beer blast monthly as a
token of their appreciation.
Everyone had benefited. Output of the plant had increased by 1.4 times and it was
quite profitable. Staffing increased by about 20 percent. Employee turnover was
down from 115 percent annually to 10 percent and the quality of the products
produced by the plant was outstanding. The training program to qualify for
additional, higher paying, work centers was full - with the company paying for the
training and the employees contributing their time.
The secret? The new scheme let the employees do what they liked doing! This was
True Organutan Management.
When we flow with what is natural and enjoyable and that also fits an appropriate vision
for our business, our businesses are productive, involved, and filled with energy. When
we do the opposite, we get procrastination, a lot of illness, late deliveries, high turnover
and other forms of avoidance.
The answer seems obvious. And, using the Cybernetic Transposition techniques, you can
create businesses that involve their employees doing what they like to do.
For example, both Silicon Valley and the Route 128 complex around Boston are
populated with companies started by people who were blocked from doing what
they wanted in the way they wanted.
Along with them went tremendous resources of their former firms and great
opportunities. The new companies simply put into practice what they'd wanted to
do at their former one.
That study started me pondering how to bridge the gap between an appropriate vision for
the company and what its employees enjoyed doing. Why hadn't their former employers
been able to see what was obvious?
And within the ventures themselves, why so much bickering and resistance?
As Ed had done, I began observing both the venture companies I ran as a “hired gun” for
venture capitalists and my Fortune 500 clients. Clearly, they were all populated with
conflict, often subtle and unseen. I realized that essentially all the conflict arose from
differing points of view - or what I refer to as “wild horses management.”
Applied Motherhood
Among the most effective practitioners of Orangutan Management are mothers. That's
why I find it a lot easier to turn an experienced mother into a successful organization
turnaround consultant or entrepreneur than an MIT graduate with a Harvard MBA - much
easier, about 6 months versus several years.
Mothers have to learn to deal with pre-literate “full grown souls” in little bodies, their
children. As any of us parents know, our kids have very definite ideas of what’s right for
them. Our job is to bridge between our experience of what will serve our children as they
grow up and their needs as expressed in their preferences, something I have discussed at
length in my forthcoming book, “Parenting Computer-Age Kids.”
What a good parent has learned is how to invent bridges to bring two seemingly
conflicting points of view into alignment. For example, I think that my two sons, who
were 10 and 12 when I initially wrote this, are the greatest in the world - a completely
unbiased assessment, of course.
Sometimes, however, we had the “I want to go vs. I don't want to go” syndrome come up.
After some years of working on an easy solution, I now just suggest that they go into
their room and resolve this conflict into something that works for all of us. Sometimes
that requires that I move from my position but it always seems to work.
Perhaps 15 years ago, I realized that I was treating the members of one of “my”
technology ventures as kids in the same ways. But usually, our prima donnas didn't have
any training in resolving things themselves. So what did I do? The easy and obvious
thing. I hired a “mother hen” for the company, someone with administrative skills who
had raised her own kids and really knew how to mother our whiz kids. It was an informal
yet very effective process - and one that I now insist on when running any venture.
These were often college-educated divorced women with kids. They needed the jobs and
were therefore motivated. We trained them in appropriate interviewing skills, gave them
work on projects that interested them, and got great results.
One of my “weaknesses” is that I can't stand to see people working at less than their
potential. That's why I gave up on having secretaries many years ago. As soon as they
were up to speed in the secretarial job, I'd move them to a higher paying, more fulfilling
one. And that’s how I developed an entire workforce of these “untrained” mothers doing
very highly sophisticated turnarounds.
They could enter a company and gain a level of cooperation from management that our
traditional consultants couldn't approach. At that time, management teams were typically
entirely male and they thrived on some mothering since - if you watch - you'll see that
companies are usually comprised of little kid and teenage personalities that want and
need that mothering, particularly if they are highly entrepreneurial and creative.
In this case, what the managers and employees liked doing was being creative in a
“mothered” environment.
Once our “mother hen” consultants entered the companies and began to apply what I’d
taught them, performance of the companies and employee satisfaction shot up. And our
bills always were paid on or before the due date! (A key indicator of client satisfaction.)
The Point
Orangutan Management is an extremely powerful tool for creating productive and
successful companies once you have a vision for the company that is correct and
appropriately permeable.
By violating the rule of big companies and structuring the work processes around what
your employees individually like to do that is consistent with your vision for the
company, you will create a highly motivated, very productive, go for it team. If you
appropriately manage the vision, effectively turn it into a Shared-Vision, get at least your
key employees using the Cybernetic Transposition Three-Step and apply the other Nuts
and Bolts aspects of effectively managing your small business described in this ebook,
your business has a very good chance of being among the 1%-2% of small businesses
that are effective, successful, very profitable and long-lived.
Chapter Two
Shared-Vision Leadership
Wild-Horses Management
Most teams act something like four people, each standing with his or her back against one
wall of a four-sided room.
Facing straight ahead, each one accurately describes what he or she sees, producing four
quite different and quite true descriptions of the room from four different perspectives.
And each will argue for and pursue the truth of his or her perception, quite ignorant of the
validity of the others' points of view.
If you are leading such a team, chances are you often feel like you're being pulled apart
by wild horses.
If instead of four walls, we substitute you, your sales person, your accounting person and
your manufacturing or service delivery person, you’ll see how most of the conflicts in
your small business arise.
Working with a Shared-Vision is analogous to seeing all sides of the room at once.
Awareness of the whole picture gives each team-member the freedom to pursue his or her
own objectives in a way that supports and is supported by the efforts of all his team-
mates.
Creating a Shared-Vision
A comprehensive Shared-Vision integrates several component Shared-Visions, each of
which triggers complete intuitive and intellectual agreement among the team.
In this process, the entire team is divided into groups of three. Each group sits in a
triangular arrangement with one person designated “A”, one “B”, and one “C”.
Person A starts the process by reading and concretely describing his or her “perfect”
Metastories while B and C silently record their reactions.
This Shared-Vision Leadership Clearing Process is a paper and pencil exercise that
easily and quickly generates remarkably creative resolutions of conflicting perceptions.
For example, imagine that B is quite upset about something that A has proposed. She is
not allowed to talk about her upset. So she writes a detailed description of what she
thinks A has said and her reaction to it in the Shared-Vision Leadership Clearing
Process format, a variation on the Basic Achievement Clearing Process. This consists of:
writing the key points of what she thinks she heard. (Usually people don’t really hear
what is said, they listen very selectively. Often, therefore, they react to what wasn’t
said.)
Then she carefully reads what she has written and circles any word or group of words
that cause a negative reaction.
Next she “edits” her original description until she is entirely comfortable with her
new version of what A has proposed.
Now she role-plays A, figuratively moving to “his side of the room.” As A, she
repeats the process of homing-in on troublesome points and editing.
This involves reading through her own “perfect” version of what A has said and
circling anything that would upset A, followed by editing until her new revised
version seems perfect for both her and A.
Lastly, she repeats the process while role-playing person C. (She circles the words
and phrases that would seemingly upset C and edits what she has written until it
seems perfect for A, C, and herself.)
A and C also perform the Shared-Vision Leadership Clearing Process to resolve any
upset that they may have experienced. This leaves all three members of the group in a
state of inner harmony and intellectual clarity.
In step two, B acts as “sender,” reading and describing her list of perfect Metastories
while A and C record their reactions.
When she is finished, all three members of the group perform Shared-Vision Leadership
Clearing Processes.
Step three involves sending, receiving, and clearing a third time with person C as the
“sender” and A and B as the “receivers.”
This is done in “round-robin” fashion. A first picks a Metastory that he agrees with from
his or from B’s or C’s list that he thinks B and C will easily accept and proposes it. If B
and C agree, it is recorded on a Shared-Vision List. If not, they try to quickly resolve
their disagreement. If not, it is quickly (within 3 minutes) set aside for later consideration.
B then suggests a Metastory that is either accepted by A and C and added to the Shared-
Vision List or set aside. And then C repeats the process. This round-robin continues until
all Metastories have been considered.
Since many of the Metastories partly or wholly overlap, ones that do are integrated
during this step.
Next, A, B, and C briefly discuss the Metastories that have been set aside, the ones they
couldn’t rapidly agree on. They may now agree on Metastories that previously generated
conflict. If so, the newly agreed Metastories are added to the Shared-Vision List.
Remaining disagreements are resolved through Shared-Vision Leadership Clearing
Processes. This quickly leads to completion of the Shared-Vision List.
Finally, the group's agreement is tested by asking everyone on the team to answer three
questions: 1) “Is there anything on your group’s Shared-Vision List that you intuitively
or intellectually feel or think should not be there?” 2) “Is there anything missing from the
list that you intellectually or intuitively think or feel should be there?” 3) “Do you
experience anything other than agreement with and enthusiasm for this Shared-Vision?”
If the answer to any of these questions is “yes,” new Metastories are submitted or
existing ones revised, occasionally with the help of the Shared-Vision Leadership
Clearing Process. Soon the answers to all three of the questions are “no” indicating
complete intuitive and intellectual agreement within each three person group.
This is accomplished by repeating the Shared-Vision Leadership Process with one three-
person group at each corner of the triangle. If the team numbers about 9 persons, this
process ends with the creation of a team-wise Shared-Vision.
Summary
The preceding description briefly and in simplified fashion outlines the Shared-Vision
Leadership process of moving a team from confusion and conflict into agreement and
productive cooperation. During the past 10 years, this approach has consistently led to
rapid improvements in the effectiveness of the participant teams, especially when
combined with the Cybernetic Transposition Super Achievement Three-Step process.
Forms
The three forms used in the Shared-Vision Leadership process are appended to this
description. They are the Metastories, Receiving and Clearing Process forms, the use of
which is described above.
Shared-
Vision
Leadership
Metastories
Please print this form and fill it out by hand with pencil or pen.
Name
Subject
Number 1, Title
As Is Now:
Rating of
Perfection: Perfect
Alternative
Number 2, Title
As Is Now:
Rating of
Perfection: Perfect
Alternative
Number 3, Title
As Is Now:
Rating of
Perfection: Perfect
Alternative
Rating of
Perfection: Perfect
Alternative
Number 5, Title
As Is Now:
Rating of
Perfection: Perfect
Alternative
Number 6, Title
As Is Now:
Rating of
Perfection: Perfect
Alternative
Number 7, Title
As Is Now:
Rating of
Perfection: Perfect
Alternative
Rating of Perfection:
Number 8, Title
As Is Now:
Rating of
Perfection: Perfect
Alternative
Number 9, Title
As Is Now:
Rating of
Perfection: Perfect
Alternative
Rating of
Perfection: Perfect
Alternative
Rating of Perfection:
Shared-
Vision
Leadership
Receiving
Please print this form and fill it out by hand with pencil or pen.
Name
Subject
Sender’s Name
Rating of Perfection:
Receiver’s Alternatives:
Rating of Perfection:
Receiver’s Alternatives:
Rating of Perfection:
Receiver’s Alternatives:
Rating of Perfection:
Receiver’s Alternatives:
Rating of Perfection:
Receiver’s Alternatives:
Rating of Perfection:
Receiver’s Alternatives:
Rating of Perfection:
Receiver’s Alternatives:
Rating of Perfection:
Receiver’s Alternatives:
Rating of Perfection:
Receiver’s Alternatives:
Rating of Perfection:
Receiver’s Alternatives:
Shared-Vision
Leadership
Clearing
Process
Please print this form and fill it out by hand with pencil or pen.
Name
Sender’s Name
1.Write an extensive and detailed description of what you think the sender meant by this Metas
2. Rate how COMFORTABLE you are with the Sender’s point of view as you just described it. U
If your rating is an HONEST 10, go to 7. If not, continue with 3.
3. If your rating is LESS THAN 10, carefully read the description that you
wrote under 1. While doing so, CIRCLE EACH WORD OR PHRASE
THAT TRIGGERS INTUITIVE DISCOMFORT IN YOU.
4.Modify and/or rewrite your description that you wrote under 1. Change anything that you have
5. Rate how COMFORTABLE you are with YOUR MODIFIED DESCRIPTION. Use a 1-10 scale wh
If your rating is an HONEST 10, go to 7. Otherwise, continue with 6.
6. If your rating is LESS THAN A 10, carefully re-read the modified description that you created
7. ROLE PLAY THE SENDER. Read your HONEST 10 DESCRIPTION FROM HIS OR HER PERSPE
9. Modify and/or rewrite your description that you just rated. Change anything that you have cir
10. ROLE PLAY THE THIRD MEMBER OF YOUR GROUP. Read the description that you and the
11. If your rating is an HONEST 10, you have completed this process.
If your rating is LESS THAN 10, carefully read your latest description
and, while doing so, CIRCLE EACH WORD OR PHRASE THAT YOU
INTUITIVELY THINK OR FEEL WOULD CREATE DISCOMFORT IN THE
THIRD MEMBER OF YOUR GROUP.
12.WHILE ROLE PLAYING THE SENDER AND THE THIRD MEMBER OF YOUR GROUP, read th
13. If your rating is an HONEST 10, you have completed this process.
If your rating is LESS THAN 10, carefully read your latest description
and, while doing so, CIRCLE EACH WORD OR PHRASE THAT YOU
INTUITIVELY THINK OR FEEL WOULD CREATE DISCOMFORT IN THE
SENDER OR THE THIRD MEMBER OF YOUR GROUP – OR THAT
DOES IN YOU. THEN MODIFY THE DESCRIPTION UNTIL IT IS A TRUE
10 FOR YOU, THE SENDER AND THE THIRD MEMBER OF YOUR
GROUP.
14. Modify and/or rewrite your description that you just rated. Change anything that you have ci
Chapter Three
Negotiated Job Agreements
1.0 Introduction
1.1 The Negotiated Job Agreement Process (NJA) quickly brings a supervisor
and subordinate into intuitive and intellectual alignment with respect to the
supervisor's expectations and the subordinate's ability to meet those
expectations. As such, it quickly brings the subordinate up to speed.
This is a simple and common sense but very powerful process that very few
managers know about. I have used it to cut the time managers and senior
managers take to get up to speed from as much as six months to a few days.
Since the manager of small business has very little if any time to spare, this
process can make the difference between gaining or losing when you hire an
employee.
1.2 The NJA also forms a valid basis for constructing Position Descriptions,
Task Lists, and performing Employee Evaluations.
2.2 In order to reach that point, we have to communicate with the other person in
a way that lets them know what we want and they have to communicate with
us in a way that lets us know that they can and will achieve what we want.
2.3 Achieving this communication can be very difficult because words mean
different things to different people. We know that but most of us still assume
that the words we use are automatically understood as having the meaning
that we intend. As a result, there is the risk of being unintentionally
misunderstood and creating confusion.
2.4 Therefore, we have to concretely define the meaning of what we say. By far,
the most effective way of doing so is through examples (stories) and
metaphors. Historically, stories were the way that wisdom was passed on by
the elders of the tribe to the younger generation. To be effective managers,
we have to learn to do that same thing.
2.5 The NJA Process builds upon this story-telling mode of communication to
concretely define what we want and to then embed that definition in our
listener's intuitive and conscious minds. Once we have done so, our
subordinate knows, intuitively and intellectually, what we want done and
how. When we are confident that they can and will do what they know we
want, we are able to comfortably and effectively delegate the job that has
been described to them.
2.1.1 tasks,
2.1.2 communications,
2.1.3 behavior, and
2.1.4 attitudes.
At the top of the page, record a title that indicates the job you are describing.
3.2 For each item on this list, create a simple title, such as, “Completing Things.”
Then, for each item remember an example of something you have
experienced that very concretely shows what you mean by the item. For
example, an example might be, “Like Mary used to do it,” (which is now
very meaningful to the you but not yet to the subordinate).
3.3 Utilizing the format of Form 2 (attached), copy all of the titles but NOT the
stories.
3.5.1 Read and describe the first item by giving the title and telling the
associated story as concretely as possible.
3.5.2 Ask your subordinate whether he/she has ever personally had an
experience or has seen a situation that approximates the story. Almost
always, the answer is “yes.” If the answer is “no,” elaborate on your
story or come up with another relevant example until the subordinate
gets the point and can come up with an example from his/her own
experience.
3.5.3 Ask your subordinate to describe his/her related experience and listen
very carefully to what they say. If their experience adequately
matches what you mean by your point, ask them to record a summary
of what they have described on Form 2 under the same title. If not,
talk back and forth until you are sure that your subordinate has the
point. Then have them record their experience.
3.5.4 Repeat the three preceding steps for each of the items on the your
Form 1. The whole process usually takes about 60-90 minutes.
3.5.5 At the end of the process, give your subordinate or job applicant the
opportunity to go through each item on their list, indicating to you
whether they feel that yours is a reasonable expectation of them. If
not, negotiate until you reach concrete agreement.
3.5.6 Upon concluding this process, your subordinate or job applicant will
have a concrete idea of what you expect of them and you have a
concrete idea of what to expect from them. Therefore make a copy of
the completed Forms 1 and 2 and each of you sign them for future
reference. Your copy should go into the employee’s personnel file.
4.0 Forms
Attached are NJA Forms 1 and 2.
COVERING: (job)
1. (title)
2. (title)
3. (title)
4. (title)
5. (title)
COVERING: (job)
1. (title)
2. (title)
3. (title)
4. (title)
5. (title)
Chapter Four
People Management Guidelines
1.0 Introduction
There are a series of basic guidelines for managing people that underlie the other
recommendations that I’m giving you. Most, if not all of them are common sense but
they may be common sense ideas that you haven’t thought of and might not
otherwise.
These are good guidelines for both your day to day interaction with the people you
manage and those occasions where corrective action is required.
At the end of this procedure, you’ll find a brief list of these guidelines. I suggest that
you keep it on your desk and review it daily.
The best way to implement these guidelines is to create a Metastory for each one
based on your own experiences and/or observations – and to then use the Cybernetic
Transposition Three-Step to set an unconscious objective of managing your people
according to your interpretation of these guidelines.
2.1 Recognize That People, Not Structural Changes, Are What Make An
Company Work Or Fail.
Good talented people who are dedicated and motivated can make almost any
company structure succeed. Conversely, lackluster people who are poor,
unmotivated performers will be ineffective under any company concept.
Some individuals who have long and distinguished records of service in the
company reach a point where their job responsibilities move beyond their
energy level or capabilities. This is a natural development and should be
expected… it will probably happen to all of us.
Both the manager and the company have an obligation to those people who
have served it loyally. They should be compensated fairly and should be
given assignments where they have an opportunity to make a continuing
contribution.
But, if they can no longer pull their own weight, they have to be removed
from the mainstream. It is not fair to the balance of the company to leave
them there. It is certainly not fair to them. The manager must promptly
inform those who cannot stand the pace so that they may make the necessary
adjustments without delay. He or she must also provide the necessary
training and support to ensure that the knowledge of such an employee is
made available to the company in an effective manager.
Each individual should have a set of specified goals that he/she is expected to
accomplish within a certain time frame, so that there will be no
misunderstanding about what he/she is supposed to do. Actual
accomplishment against those expected results should serve as the basic
measure of performance.
At the same time, the company’s system of rewards and penalties must
reinforce this concept. Rewards should be for achieving results, not for effort.
In a competitive free enterprise environment, trying hard is not enough.
Achieving results is what counts — the difference between winning and
losing.
If your people aren’t achieving the required results, it is your job to find out
why and take action to resolve the problem.
The most frequent and worst mistake managers are apt to make is to live too
long with marginal or poor performers. Most managers kid themselves into
thinking that by allowing these individuals to continue, they are being fair and
that somehow time will correct the situation. Nothing could be further from
the truth — basic personality faults or skill deficiencies simply do not get
corrected with time.
Your job is to home in on the source of the problem before making an action
decision.
No matter what you do, it is almost inevitable that some misfits are certain to
creep into any company. This happens, no matter how carefully people are
screened or evaluated. The primary causes is convincing misrepresentation
by the prospective employee when they are hired and/or wishful
think/projection on the part of the hirer.
important that you act constructively when you do take action, that you help
the employee learn from the experience and that you do the same.
The best ways that you can learn from the situation is by creating a series of
Metastories of your significant interactions with the employee, from the time
you first met him or her to the termination situation. When you have
converted the memories of these situations into Metastories, you should set
an unconscious objective by converting the resulting Wish List into an
unconscious Target using the Cybernetic Transposition Super Achievement
Three-Step processes.
It is the people who are too easy going, too willing to compromise principles
to avoid conflict and more interested in being liked than in getting things
done who are the problem. They create a mushy working environment that
makes it impossible to develop a strong team or achieve outstanding results.
An effective manager must understand that race, age, sex, heritage and socio-
cultural characteristics have nothing whatsoever to do with evaluating an
individual’s effectiveness in a company.
As a manager, you should focus on and evaluate the things that really count:
Who faces problems squarely? Who has the guts to tell it like it is? Who
does not?
Who produces results? Who meets his or her commitments? Who does
not?
An effective manager will ensure that people in the company know exactly
where they stand and what their career outlook is at all times — even if it
hurts.
This doesn’t mean that anyone should expect to have a special career path
mapped out or to be promised a future promotion – although that may be a
good idea where people have exceptional abilities that line up closely with
the goals of the company.
But it does mean that each person is entitled to know whether he or she is
performing well or poorly in his current assignment and whether he or she is
regarded as having future growth potential.
There will be times when a company must reach outside to find the best
available people to meet its management needs and standards. However,
promotion from within should be the company’s overall plan and goal.
Toward that end, a company should support projects to prepare its people for
increased responsibilities.
But, in the final analysis, all of us ultimately shape and control our individual
destinies. A company can point the way and assist with company-sponsored
educational and training programs but self development is the key to success
— and each of us must shoulder that management responsibility on his/her
own.
There is honesty and integrity in what everyone says and does. Everyone
feels free to say what he or she really thinks.
Superiors are willing to really listen to the other person’s side and point
of view — and are willing to admit “I’m wrong” if facts and logic show
that is the case.
3.0 Conclusion
Where this kind of environment exists, performance will be good – assuming that the
company’s vision and goals are appropriate, and people will achieve new heights of
achievement and contribution.
Unless this kind of environment exists, good people will leave and only mediocre
people will remain. Any company staffed with mediocrity is certain to lose.
4. Communicate expectations.
Chapter Five
Preparing Task Lists
1.0 Introduction
Very few small business managers enjoy dealing with paperwork. But a certain
minimum amount of paperwork is required to ensure that you and your employees
are clear about what’s expected, where authority is delegated and who they report to.
Failure to make these things clear almost always results in things falling between the
cracks, usually in an expensive way, and significantly reduced productivity when
two people tell a third what to do.
1.1 This procedure describes how to develop and apply Task Lists. No matter
how small your business, everyone involved should have a detailed Task
List. Once your business has grown enough to require Position Guides, Task
Lists should be prepared for each person below the level of supervisor who
does not have a Position Guide prepared for his or her position.
1.3 Task Lists are a list of key functions arranged by priority and day, or specific
times of a week, month, or quarter.
2.0 Who
2.1 Preparing Task Lists is the responsibility of the supervisor.
2.2 The supervisor and employee should work together in preparation of a Task
List for the employee’s position.
3.1.1 List by order of importance all the tasks you have responsibility for
and the day you are required to do them. List the additional tasks that
you feel you should be performing but are not presently and mark
them with an asterisk in the margin.
3.1.2 List everything you do or feel you should do, daily, weekly and
monthly.
3.1.3 List how long it will take for each task; if possible, define an
estimated start and end time for each task.
3.2 The supervisor should review the complete set of Task Lists prepared by
employees reporting to him or her to ensure that they are correct and that the
set comprehensively covers all required tasks.
3.2.1 If the same tasks are included on more than one employee’s Task List
and the supervisor wants that task done the same way by everyone
who will be doing it, they should create an Operating Procedure that
details how the task should be done, (i.e., how to open the facility,
how to close the facility, etc.).
3.2.3 The supervisor should modify each employee’s Tasks List as required
to match tasks and skills, to assign task to whomever likes to do them
and has the required skills, wherever possible, and to ensure that the
total set of tasks assigned to the supervisor is adequately covered.
3.3 After Operating Procedures have been developed and conflicts concerning
task allocation have been resolved:
3.3.1 The Task Sheet should be updated by the supervisor after review with
the employee.
3.3.2 All staffs should be trained in any new Operating Procedures and
policies.
3.4 Specific measures of performance should be established for all items on the
Task Sheet and agreed by the employee and the supervisor.
3.5 The supervisor and the employee should then meet to review the modified
Task Sheet. After both agree to the specifics on the Task Sheet, it should be
signed by both parties, a copy given to the employee to guide him or her and
the sheet is filed in the employee’s personnel file and posted in the work
area, if applicable.
4.0 Conclusion
4.1 Task Lists change as the market, methods and personnel change.
4.2 Task Lists define the key functions that each person is responsible for
performing.
4.3 Task Lists are used in the "backup" training, to ensure that when someone is
absent the key functions of a position are still covered.
4.4 Task Lists are a means to minimize the risk that things fall through the cracks
and to develop working relationships between supervisors and employees.
4.5 Task Lists are the written understanding between supervision and employees
of what will be done without supervisory decision making.
Chapter Six
Preparing Position Guides
1.0 Introduction
As your small business grows beyond a few employees, significant confusion and
conflict will occur unless you formalize who is supposed to be doing what and with
what areas of authority, who employees report to and what their responsibilities are.
Not doing this will almost ensure not only conflicts but that important things will fall
through the cracks.
1.1 There should be a written Position Guide for every management and
supervisory position in the company. Other employees should be guided by
Task Lists. Otherwise, your employees will operate based on their
observations and assumptions. This will usually result in significant waste of
money and time and significant aggravation for you and them.
1.2 Position Guides are written to clarify and document the specific authorities,
responsibilities, duties, and standards of performance for each key job at your
company. In the best case, they are based on the agreements generated
through the Negotiated Job Agreements process. They ensure that your
expectations are clearly documented, as no one can perform to expectations
unless they clearly understand them.
2.2 You must have accurate and comprehensive information on the tasks
performed by the position before writing a Position Guide. Refer to the
Developing Task Lists procedure for information and a form on Task List
development.
2.3.1 Introduction: A brief paragraph stating the name of the position and
the company.
2.3.4 Reporting Relationship: Indicate to what position this job reports (use
the title of the position, not the individual's name). Also, indicate the
titles of any positions that report directly to this position.
2.3.7 Principal Duties: . Duties are the specific tasks that must be
performed to accomplish the responsibilities of the position.
.
2.3.8 Measurements of Performance: These must be specific and, if
possible, quantifiable measurement criteria used to evaluate the
performance of the employee. This will focus the employee's efforts
on listed criteria. Make sure the standards cover all the key functions
of the position.
2.3.9 Acknowledgment: State that the position guide has been reviewed
and is understood. It should signed by the manager and the employee
receiving the position guide, and then filed in the employee's
personnel file, with a copy having been provided to the employee.
2.4 Position Guides must be regularly reviewed and revised. Reviews are
recommended twice yearly (every six months). Job duties, authorities, and
responsibilities will change over time and position guides need to be
modified accordingly. All revised position guides must be dated, signed and
filed in each employee's personnel record.
You will receive great benefit from these periodic reviews. They require you
to decide whether all items included in the previous Position Guide are
relevant and important. As such, they provide a good basis for maintaining
control of what is to be done in your business and by whom.
2.1 The basic function of the Sales Manager is to generate a steady flow of
profitable business for the Company, to build an appropriate backlog of such
business, and to provide necessary Customer Support functions as required to
ensure customer satisfaction. It is also to perform the necessary planning,
organization and management with respect to the Company's Sales functions.
In addition, he/she is to perform so as to achieve the Company's objectives
and as needed to support the business and obtain maximum growth and
profitability.
2.3 Establish qualifications for Sales and Customer Support personnel and,
where appropriate, participate in interviews of candidates. With the
concurrence of the President, hire and train qualified candidates.
2.4 Evaluate work practices in the Company's Sales operations; design improved
practices and, with the President’s approval, implement them.
2.5 Define and implement relevant training for Sales and Customer Support
employees. Monitor their performance and recommend required changes.
2.7 Identify risk areas in Sales and Customer Support operations and identify
and, with the President’s approval, implement ways of minimizing such
risks.
2.10 Ensure that the Company’s Sales and Customer Support employees are
properly supported as required to do their jobs.
2.11 Ensure that the Company’s Sales functions are effectively integrated with
Divisional operations, so as to support smooth and efficient work flow while
minimizing errors.
2.12 Provide effective leadership of the Sales functions in accord with the
Company’s Business Plan and Mission Statement.
3.1 The Sales Manager reports directly to the President of XYZ Corporation.
3.2 The Sales and Customer Support personnel (if any) report directly to the
Sales Manager .
4.0 REQUIREMENTS:
4.1 Education:
4.2 Experience:
4.3 Skills
4.4.1 Must possess the ability to basically perform and understand the
activities performed by the Company.
4.4.2 Must possess the ability to plan, evaluate, train, and manage the types
of Sales and Customer Support that the Company performs.
4.4.3 Must have the ability to effectively and efficiently build and maintain
the team of employees required to implement the Sales and Customer
Support functions.
4.4.5 Must possess the ability to effectively manage the Sales and
Customer Support operations of the Company.
4.4.6 Must possess the ability to gain the cooperation of and achieve
effective integration of the functions under him/her with interfacing
functions within the Company.
4.4.7 Must ensure a high level of cooperation with the Divisional functions
of the Company.
4.4.7 Must provide effective leadership to the Sales and Customer Support
operations of the Company.
4.4.9 Must possess the ability to "shift gears" quickly, while still staying on
track with existing projects and responsibilities.
4.4.10 Must possess the ability to plan Sales and Customer Support
operations and to satisfactorily implement them.
4.4.12 Must have excellent verbal and good written communication skills
sufficient to effectively communicate with management,
subordinates, and customers.
4.5.1 Seek guidance, direction, and training for the performance of duties.
4.5.2 Train, motivate, coach, counsel, and evaluate the employees as the
need and opportunities arise.
4.6.4 Always have a set of basic contingency plans dealing with the risk
factors associated with the Sales and Customer Support functions.
4.7 Initiative:
4.7.3 Constantly scan the Sales and Customer Support environments for
new and new-to-the-Company opportunities and techniques that
would improve the Sales and Customer Support operations.
4.8.2 Serve as a role model for other personnel through commitment and
enthusiasm as a team member of XYZ Corporation.
5.0 AUTHORITY:
5.1 Develop and maintain Sales and Customer Support plans and reporting.
5.2 Hire, assign, transfer, evaluate, and terminate with respect to authorized
positions within the Sales and Customer Support functions.
5.3 Approve all operating expenditures of the Sales and Customer Support
functions that are within their budgets.
5.4 In conjunction with the President, plan and manage training and evaluation
programs to ensure that all Sales and Customer Support functions operate at
the highest levels of quality and efficiency.
6.1 Provide the leadership, direction, and implementation of the mission and the
vision of the Company as it relates to the Sales and Customer Support
functions.
6.3 Establish and maintain effective planning and budgeting processes for the
Sales and Customer Support functions. Maintain the focus and direction of
the Sales and Customer Support team with respect to the targeted work.
6.4 Design and manage Market Analysis and Prospect Selection processes.
6.6 Provide a reporting system to the President that will track Sales and
Customer Support performance (including Sales Captures, Revenue, and
capture rates) and provide monthly status against the Sales and Customer
Support plans.
6.7 Actively work with the Sales and Customer Support employees, training
them to effectively perform required functions.
6.9 Develop and maintain an effective Incentive Plan for the Sales and Customer
Support Personnel.
6.13 Develop and maintain a high level of teamwork and personal responsibility
among Sales and Customer Support employees.
7.1 He/she is successfully meeting or exceeding the goals and objectives of the
Company as they relate to the Sales and Customer Support functions.
7.2 He/she is providing timely and adequately complete Sales and Customer
Support reports to the President.
7.3 His/her achievements address the responsibilities and duties listed in Section
6.0.
8.0 ACKNOWLEDGMENT:
I have reviewed and understand the above job description and believe it to be
accurate and complete. I also agree that the President retains the right to change this
job description at any time after discussing it with the Sales Manager .
President Date
Chapter Seven
Effective Delegation
1.0 Introduction
1.1 Whether or not to delegate is often considered a manager's choice; however, in
reality, there is not a choice. At some point in time, a person's area of
responsibility will become greater in scope than they can physically and mentally
handle.
At this point, one must delegate some authority to others in order to properly
fulfill all of the responsibilities of the position. Being an effective manager
requires delegation of authority.
1.3 Employees must be given a direct explanation of who they are responsible to
(report to) and who he/she takes orders from. Chaos results when more than one
manager or supervisor begins giving instructions or orders to the same individual
as these orders frequently conflict.
2.2 Clearly communicate the task. The manager and subordinate should agree on the
following:
2.2.4 A time schedule which provides not only a deadline for the completion of
the task, but specifies checkpoints along the way as well.
2.3 Delegate the good and the bad. If you just give others the undesirable tasks, you
will retard their motivation, commitment and development. Delegate interesting,
rewarding and challenging jobs as well as mundane tasks.
2.4 Delegate gradually. Do not transfer too many responsibilities at one time.
2.6 Inform all affected people and departments. This is to eliminate confusion and to
help maintain cohesiveness in the operation of the department. When you assign
a task, be sure that everyone knows that this individual has the responsibility and
authority to complete the job.
2.7 Let the subordinate manage. Delegate for specific results and let the individual
decide how to go about doing the job.
2.8 Follow-up. Make sure that you follow up and give the person constructive
feedback on the results attained.
2.9 Remain consistent. Keep your expectations consistent with the original agreed-
upon results. If changes occur discuss them openly with the individual.
2.10 Review with them in private surroundings. Should the results be less than
desirable, review them with the individual and concretely show how he or she
could have improved their results. Do not just tell them. Show and give concrete
examples and stories so that they get a feel for what you are describing.
3.0 Delegation
3.1 Delegation of authority may be divided into three categories as follows:
3.1.1 Total Authority - The individual may take action without notifying
anyone for approval.
3.1.2 Partial Authority – You retain veto power and the individual may take
action only after securing approval for the action.
3.1.3 Limited Authority - The individual can develop actions to be taken and
make recommendation but cannot take action.
3.2 What to delegate? Divide your responsibilities and duties into three categories as
follows:
3.2.1 Relatively unimportant routine duties and tasks. These are items
where a bad decision will not be costly and can be corrected with
minimal consequences. Label these as “A” items
3.2.2 Fairly important tasks and duties. These are items where your
experience and expertise may be required and although errors and
mistakes may be most costly, they will not be disastrous. Label these as
“B” items
3.4 Delegate some of your “B”, especially those that you cannot complete within the
allowed time.
3.5 Retain all of your “C” items. Those are responsibilities that require your
personal handling.
4.0 Authority
4.1 In order for a subordinate to accomplish a task, he/she has to be given a certain
amount of authority. Remember, authority can be delegated, but it is still
your responsibility to see that the task is accomplished.
4.2 You want the subordinate to develop a plan of action and then you want to trust
his/her ability to make the proper choice in conjunction with his/her ability and
course of action to implement the decision.
If you have performed the Negotiated Job Agreement process with them, you
will have a good idea of what you can trust them to do.
4.3 Point out to subordinates any policies and procedures that they should be aware
of. Put these or any other instructions in writing. Reference can always be made
to a written copy.
Remember, very few people can recall everything that is said, and
particularly, accurately recall the respective context.
5.1.1 Reports must provide you with the right information at the right time to
be of value.
5.1.2 Periodic meetings held with your subordinates will allow for interaction
with them as well as comments on activities, accomplishments or
problems.
6.2 It is equally essential to keep your subordinates informed and give them the facts
they need in order to make intelligent and timely decisions.
6.3 Never leave your staff with instructions that are so specific that they have no
room to be creative.
You will be surprised at both how much more cooperation you will receive when
you allow your staff to be creative and at the valid improvements they will often
suggest.
Now, let your staff do what you told them they could do. Allow them to make
mistakes! That’s how people learn (and remember that the mistakes made will
only be on the non-critical items).
7.2 It is also vitally important to let competent subordinates perform in their own
style rather that insisting that they do things as you would have done them.
That’s a basic aspect of Orangutan Management.
Evaluate your subordinates on their results, not only on their methods. But, if
appropriate, learn from their methods.
7.3 Having given an employee the authority to act, your next concern should be that
their actions conform to established policies and procedures. In a small business,
policies and procedures are usually few but very important. Adhering to them is
a necessity.
Should you agree, the change must be instituted before the action is initiated by
the subordinate.
Far too often we jump at the chance to criticize and take for granted tasks that are
done well. Criticism has its place, but so do compliments. Both are very
important in building and developing managers within your organization.
Remember to keep adding value.
Learning is important; it takes time, and it must be adapted to the duties and
skills within the company. The company can imitate other corporate philosophies
and practices, but execution of the policies and procedures is the most important
ingredient.
Successful execution skills are acquired only through practice and constant
nurturing.
8. Forms
Attached is a Delegation Planning Worksheet.
Using it, you will list the tasks you perform and assign them to A, B and C categories,
identify to whom to delegate each and determine how many hours per week you will
save by delegating.
Employee: Position :
Date:
===============================================================
Make a list of all the tasks you perform. Note the hours per week you normally spend on
each. Then rate each one according to a scale where A = relatively unimportant routine
duties and tasks, B = Fairly important tasks and duties where your knowledge and
expertise is somewhat required but the cost of errors will be modest, and C = Critically
important tasks where an error in judgment or a poor decision will be very costly.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
Chapter Eight
Effective Employee Evaluation
1.0 Introduction
1.1 Employees generally want to be kept informed of how well they are performing.
Job performance will generally improve if there is feedback to the employee
regarding his/her performance.
1.2 An effective evaluation starts a dialogue between the employee and their
manager if there was none. The communication that develops in the evaluation
will reinforce to the employees that they are part of the organization.
1.4 Evaluations must focus on job performance and improvement. While wage and
salary issues are related to job performance, they are not to be addressed during
the evaluation process.
1.5 The limited resources available for salary and wage increases should be
allocated among employees based on the evaluations of all of them. Until that
process is complete, it is inappropriate to address wage and salary issues.
2.1.1 To evaluate how the job is being done, where praise and confirmation is
due and what areas, if any, are in need of improvement.
2.1.2 To evaluate the employee’s short and long term potential with the
company.
2.2 Informal discussions with employees between formal reviews will lead to more
objective formal evaluations. This will also aid in eliminating surprises to the
employees at the time of the formal review.
2.3 Since the point of the whole process to ensure that each employee is working
effectively and growing in effectiveness and efficiency, informal discussions
provide a forum for coaching and training.
2.4.1 Each item in the log must be dated, the employee’s action explained and
initialed by the supervisor. It may also include the employee’s
comments regarding the incident.
2.4.2 Employees must be aware of all entries in their personal incident log. If
violations are noted and not discussed with the employee, they will not
change their behavior and the process has not accomplished the desired
result. If the action is positive, the employee deserves immediate
recognition.
2.4.3 If the action listed on the incident log has resulted in a written warning,
so note.
2.4.4 The personal action log will provide a chronological record of events
which will be helpful in formulating an objective formal review.
2.5.1 Update the employee on how management rates their performance, how
they can more effectively apply their strengths, any relevant weaknesses
and how to deal with them and what improvements, if any, are expected.
It is also an opportunity to reinforce positive aspects of the employee’s
work.
2.5.3 Allow the employee to identify their needs related to improving their job
performance.
3.1.1 Set up a reminder system with the employee’s name, job title,
supervisor’s name, anniversary dates, etc. For a small business, this will
probably be an index card file with monthly dividers. However, it could
as well be a computer calendar program that provides programmed
reminders.
3.1.2 For all new, full time employees, set the initial evaluation date at 30
days after the date of hire, again at 6 months and on a semi-annual basis
thereafter.
3.1.3 For all new, seasonal employees, set the initial evaluation date at 30
days after the date of hire and again at the conclusion of the season.
3.1.4 The date of the next scheduled evaluation is placed on the card and the
card is filed in the proper month.
3.1.5 On the 25th of each month, administration pulls the cards for the
employees with reviews coming up next month, and provides the
appropriate manager with names and blank review forms.
3.1.6 The cards that have been removed from the master file are placed in a
suspense file until the evaluation is completed, signed and returned to
the office. The evaluation rating and the date of the next scheduled
review are then added to the card and it is placed in the proper month for
the next evaluation.
3.1.7 If any cards are remaining in the suspense file on the 20th of the month,
inform the appropriate managers that the reviews are past due. The
suspense file should always be empty by the 25th when the next group is
due to be pulled. If any evaluations from the previous month has not
been completed by this date, the matter should be referred to a senior
manager for action.
3.1.9 A copy of the signed review form should be delivered to the employee.
4.2 Prior to completing the evaluation form, the manager must read and understand
the employee’s Position Guide and/or Task List to ensure that the evaluation is
both specific accurately reflects the expectations of the job. If a Negotiated Job
Agreement has been developed, it should also be carefully reviewed.
4.3 The employee should receive a blank copy of the evaluation form and fill it in
prior to the evaluation meeting with the manager. It is very important for the
employee to be given the opportunity to identify issues that need to be discussed
in the review.
4.3 The rating criteria on the evaluation relate to quality of work and job specific
criteria. The job specific criteria will come directly from the employee’s
Negotiated Job Agreement, Position Guide and/or Task List.
4.4 Each item on the form will be rated on a 5 point system, with 5 being the best
possible score.
4.5 The scores of each of the items are added and the total score entered in the
appropriate space unless particular items carry significantly greater weight than
the others. If that is the case, each such item should be multiplied by a factor
4.6 The total possible score is derived by multiplying the number of criteria items
by five. If, however, items have been weighted for greater importance, the total
possible score is derived by adding the weights of all of the items reviewed (use
a weight of 1 if no importance weighting multiplier has been established for an
item) and the total multiplied by 5.
4.7 The overall performance rating is then attained by dividing the total score by the
possible score and is then stated as a percentage. Typical evaluations of this
score are:
Note that these ratings and actions are not cast in stone. You should adjust them
to match your intuitive evaluation of the person. However, if you intuitive
evaluation and the quantitative score don’t agree, it is very important for you to
find out why they differ. Perhaps the employee is being required to do things
that he or she shouldn’t while they are also performing critically important
things that aren’t among their stated activities..
4.8 It is important to point out examples of the employee’s good performance and
strengths, if possible. Employees need positive reinforcement. These examples
must be genuine and job related; empty praise will not accomplish the desired
result.
4.9 Areas needing improvement must be addressed on all evaluations. This will
establish the objectives and expectations for the employee’s performance during
the upcoming review period. A good rule is that for every criticism you plan to
make, you have a positive alternative that you are ready to help the employee
adopt.
4.10 The evaluation form contains space for the employee’s remarks regarding the
evaluation, as well as those of the manager.
4.11 The employee and the manager must both sign and date the evaluation form.
5.1.1 Longevity: Rating an employee on the length of service rather than the
quality of performance.
5.1.2 Halo Effect: Rating an employee’s performance in all areas higher than
deserved because of outstanding performance in one or two areas – or
lower.
5.1.3 Bias: Allowing personal feelings toward the individual by the manager
effect the evaluation. You should determine whether those feelings are
related to job performance and, if so, the best way to act on them by
using the Super Achievement Clearing Process. If you still have
inappropriate personal feelings, use the Base Reframing process to
resolve them.
5.2 Objectivity will be enhanced if the manager has kept a good chronological
accounts of the employee’s performance throughout the review period. Memory is a
treacherous friend and, if you rely on it in evaluations, a potentially destructive one. So
keep accurate and timely records.
5.3 Once the evaluation form is complete, set it aside for a day or two for reflection,
before reviewing it with the employee - especially if there has been an incident
involving the employee’s performance in the recent past that may effect the
objectiveness of the review. Review the original evaluation comments and
make any necessary changes or additions.
5.4 Presentation of the evaluation is the most important step in the process,
therefore, it is important to follow these guidelines:
5.4.3 Ensure understanding: The employee must leave the evaluation with an
understanding of what is expected for the next review period and how
6.0 Conclusion
6.1 The company’s most valuable resources are its personnel. A key element in
motivating an employee is the periodic formal performance evaluation. To be
effective, it must assess the employee’s value to the company in an objective
manner.
Chapter Nine
Holding Effective Meetings
1.0 Introduction
1.1 Any group of people who have to coordinate their activities hold meetings.
These can be ad hoc meetings in a corridor, the parking lot of other informal
places and situations but if more than two people are involved, this is not
usually an effective way of dealing with things.
1.2 Formal, effective meetings can and should be used as a tool of management for
communicating important information, information gathering for analysis of
problems and opportunities, brainstorming solutions and tactics, planning, staff
training, and task assignments.
1.3 Properly organized, these meetings can be efficient, effective, motivating and
produce meaningful results. Improperly organized, they are usually a waste of
time and a demotivator. The purpose of this procedure is to point out how to
hold properly organized meetings.
2.0 Concept
2.1 Management expresses itself through a series of decisions made by those who
have been vested with authority to make those decisions. These decisions will
enable the best utilization of all available resources (people, equipment, time,
etc.) to achieve the desired result. Meetings are the coordinating factors in the
application of sound management.
2.2 Meetings provide each individual with the means to take advantage of the
unique problem-solving ability of each member and provide the vehicle for the
orderly and structured dissemination of information and directives.
2.4 Meeting minutes must be kept and distributed as a recap to all attendees. The
same form (recap of the minutes) can and should also contain the follow-up
meeting schedule and, if possible, at that time, the agenda for the follow-up
meeting.
3.0 Function
3.1 Meetings are designed to assist managers and employees in addressing issues
and solving problems. They are structured and planned so as to keep non-
productive discussions to a minimum. THIS IS A KEY POINT!
3.2 The manager in charge is the facilitator for the meeting and is responsible for
keeping the meeting on track (focus), within its set time frame, and for
accomplishing the items on the agenda. All participants should understand that
their job is to participate in keeping the meeting on track.
3.3 Meetings that fail to achieve their objectives or that exceed the planning time
are not effective. It is the facilitator’s job to ensure that neither of these
eventualities occurs. This means that the facilitator must actively control and
guide the meeting, asking him/herself whether each topic that arises contributes
to what is to be achieved.
3.4 If it is clear that the meeting’s objectives cannot be achieved within the stated
time, the meeting should pause and, with the guidance of the facilitator,
intermediate objectives should be established and achieved. If this occurs, prior
to the end of the meeting, a tentative plan for an additional meeting to meet the
originally stated objectives should be established.
4.0 Objectives
4.1 Objectives of meetings vary but meetings are usually held to identify and solve
problems, with emphasis on operational procedure or the communication of
plans and results.
4.2 There are three general types of meetings. A meeting may involve more than
one category.
4.3 Meetings also provide managers and supervisors with a unique opportunity for
training and developing their people. Issues and situations that come up during
day-to-day operations can be discussed and resolved so that all employees can
learn from every one else’s experience.
5.0 Structure
5.1 Standing meetings, such as monthly review and planning meetings, should be
held at the same time, place and day of week, whenever possible. This ensures
that participants can plan and develop a routine for attendance and preparation.
5.2 Meetings extending beyond one hour in length usually go past the point of
diminishing returns. However, longer meetings can be necessary, in which case
ten to fifteen minute breaks should be scheduled and held after each hour.
5.3 Activities, assignments, and decisions discussed during any meeting should be
recorded and disseminated to the participants. The meeting agenda form
provides a good vehicle for documenting the meeting.
5.4 Care should be taken to not overload the agenda for any meeting. A good rule of
thumb is to cover up to five new topics and three carry-over topics from prior
meetings, at a max.
6.0 Format
6.1 Whenever possible, the meeting agenda should be prepared by the facilitator
(manager) and distributed to all participants 72 hours prior to any meeting. This
will allow attendees to prepare for a productive session.
6.2 Any meeting participant wishing to have an item placed on the agenda should
submit it in writing to the facilitator at least 24 hours prior to the scheduled
meeting time.
For department meetings, an issue log can be kept that all department
personnel can access. Any time an issue comes up that someone would like
discussed, they can note the topic in the log for inclusion in the agenda.
6.3 Adherence to the agenda, time frame, and achievement of meeting objectives
are the responsibilities of the facilitator.
At the start of the meeting, the facilitator should clearly state the objectives for
the meeting and ask the participants to avoid bringing up any issues that doesn’t
contribute to achieving those objectives.
7.2 The Management Team should meet once per week. The meeting will include
all Department Managers and be led by the President. The purpose of the
meeting is to ensure that the managers are in accord with the direction and
activities of the business. This meeting is the responsibility of the President.
7.4 A series of strategic planning and budgeting meetings should be held annually.
The number of meetings in the series will depend on the needs of the annual
planning cycle. The President is responsible for the strategic planning meetings
and all department heads should attend.
7.5 The President is responsible for holding semi-annual review meetings with all
employees. The purpose of the meetings is to share with all employees the
strategy and vision of the organization and its progress in accomplishing its
goals. The meeting provides an excellent forum for recognizing exceptional
contributions and for acknowledging those employees or departments that have
qualified for performance awards.
8.0 Summary
8.1 Meetings can be of great value in the areas of planning, problem solving,
decision making, performance improvement, and increasing communication
throughout an organization.
8.4 To establish the meeting policy, all managers should complete out a Meeting
Plan Sheet for their standing monthly or weekly meeting.
8.4.2 The schedule of the standing meetings will be established and the first
one planned around the Meeting Agenda.
8.5 For subsequent standing meetings, a new Meeting Plan Sheet need not be
completed unless the purpose or content of the meeting will be significantly
different. A separate Agenda should be used for each meeting.
8.6 A Meeting Plan Sheet and a Meeting Agenda should be used for every non-
standing meeting.
9.0 Forms
Two forms are appended. The first, the Meeting Planning Sheet, provides the format
for organizing an effective meeting. The second, the Meeting Agenda And Action
Plan provides the format for effectively communicating to and coordinating the
participants in the meeting. It is to be delivered to all participants, preferably 72 hours
prior to the meeting.
Purpose of Meeting:
today's date
to: from
1)
2)
comments/notes:
1)
2)
3)
comments/notes:
Chapter Ten
Who Do You Need to Hire? And How to Hire the Right Person.
1.0 Introduction
1.1 Ideally, your business employs only the number of people required to provide
all of the skills and time required to perform all of the activities needed to make
your business successful.
1.2 In order to ensure this, you need to first identify all of the functions that need to
be performed. Then you need to determine which of them are currently being
done satisfactorily. What remains that isn’t being done satisfactorily is what you
have to meet through training, task allocation or hiring.
1.3 What’s left after you train and reassign tasks is what has to be met by hiring.
1.4 By using the Negotiated Job Agreement process to effectively identify and
communicate your requirements, you can precisely define the person that you
want to fill each position. Then, by using the Perfect Partner process, you will
rapidly draw to you candidates who very closely fit your detailed specifications.
1.5 When applicants show up, you can quickly identify the ones that probably are
good fits with your requirements by using the Negotiated Job Agreement
specifications in the interviewing process.
1.6 Of course, some applicants fool themselves about their abilities and, in the
process, they can tend to fool you. So the best course is that when you have one
or more apparently great applicants, hire each as a consultant on an hourly basis
to perform one or more tasks similar to what they will be expected to do in the
job. Both the quality of the work product and the time they bill you will tell you
a lot.
2.2 These should be grouped into major categories on one or more sheets of paper.
2.3 If you key them into a computer spreadsheet, you will have a permanent record
and a legible working tool.
2.4 Note which of these functions is currently performed at least satisfactorily and
by whom (including yourself). Again, the use of a computer spread sheet makes
this easier.
2.5 Group the functions that you are personally performing into two categories:
2.6 You need to either add people or train existing people to perform the functions
that are not currently being performed satisfactorily or that you are performing
but feel you should not be. Therefore, mark the functions that require additional
people with an “A.” Mark with a “T” those functions that you feel your present
people can be trained to perform satisfactorily. This may require that some of
the functions those people are currently performing be added to the “A” (or add)
category. The key is to have all of your people doing what they will do best and,
to the extent possible, like to do.
2.7 The functions in the “A” category are those that will be performed by new hires,
to the extent possible.
3.2 The most effective ads are those that clearly state the functional requirements of
the job and provide a brief “selling” description of the company. I favor having
the applicant write a brief letter stating why they consider themself the ideal
candidate for the job.
3.4 When you have isolated a number of “possibles,” call them on the phone.
(Delegate this task only at your peril.) Before doing so, prepare Form 1 of the
Negotiated Job Agreement process. Prepare an phone interview form (Form 3,
attached) with 5-10 questions dealing with the most important functional and
4.2 Your phone interview form for this person provides a good starting point for the
“meat” of the interview.
4.3 If you feel it is worthwhile to continue the interview after covering the
preceding, shift to the Negotiated Job Agreement process. Give the applicant
several copies of blank Form 2’s with your item titles filled in.
4.4 When the prospective employee has a clear understanding of your requirements,
ask them to indicate whether they can meet you needs, one by one. Ask for
proof (examples) of their ability to do what you want.
4.5 If they seem like good prospects, ask them for references and call those
references while the prospective employee is still on site. This reduces the
probability that they will coach their references to say what they think you want
to hear.
A good way of doing this is have another senior person give them a tour of the
company while you are on the phone. If questions arise, you'll have an
opportunity to discuss them with the prospective employee.
5.2 Be sure that the task or tasks you assign are very representative of what you
need them to do. Tell them you will pay by the hour.
5.3 Give them a simple form indicating starting and finishing times and total time
expended for each task, and the total amount due to them. Give them a deadline
and a reasonable upper limit on the fee that is, perhaps, 50% more than you
think the job will require.
5.4 When you receive their submissions or observe the results they produce,
evaluate their work against your requirements. Rate each task on a 1-5 scale
where 5 is best. Evaluate the time they are charging you. Rate the
reasonableness of time billed on the same 1-5 scale.
5.5 Ideally, the person who scored highest on a combination of the telephone
interview, personal interview, and consulting tasks is the person you will be
most comfortable with who can also probably do what you require.
6.2 Make sure that they understand that their Negotiated Job Agreement Form 2
should be their primary guide in performing their job.
6.3 Also let them know that the first performance review will take place in about 30
days from their date of hire along with a salary review and that performance
reviews will then take place at 6 month intervals – assuming that you plan to
follow through in this fashion.
Chapter Eleven
A Primer on Marginal Contribution
Marginal Contribution Analysis is one of the most powerful tools that a small business manager
has to know what is going on in their business – in advance of historical financial reports.
In this chapter, I will explain Marginal Contribution Analysis. In the next, I will show you a
number of applications.
These explanations assume that you understand the basic components of an Income Statement
and the basics of bookkeeping using a program such as Quickbooks or Quicken.
Dollar Marginal Contribution = The Net Price of the product or service less its Direct
The Net Cost.
Price is simply the price that you charge less any discounts and rebates.
For example, if you are selling something that you purchase from someone else, use the
Internet to sell it and UPS to deliver it, your Direct Cost for that something would be:
Direct Cost does not include any of your selling expense (except commissions), advertising,
facilities, interest, utilities, management (including you), warehousing expense or indirect labor
overhead.
If you add up all of the Indirect Costs just listed and divide them by the Percentage Marginal
Contribution, you get the Breakeven Sales Level of your small business.
For example, if your Percentage Marginal Contribution is 50 percent and your Indirect
Overhead is $160,000, your breakeven is $320,000 sales ($160,000/0.5). At this sales
level, your profit is zero. Below it, you are running at a loss. Above it you are making a
profit.
For example, if your Indirect Overhead is $100,000 and your Percentage Marginal
Contribution is 40 percent, you will have to make $250,000 in sales ($100,000 divided
by 0.40) before you actually make a profit.
However, if you make $300,000 in sales which is $50,000 over the Breakeven Sales
Level, all of the 40 percent of selling price that is your Percentage Marginal
Contribution will go to Profit. In this case, on $300,000 of sales, your Profit would be
$20,000.
But on $400,000 of sales, your Profit would be $60,000 and on $500,000 of sales your
Profit would be $100,000.
will have to increase your sales to pay for it. (After that, you’ll probably decide not to get a car
or to get the cheapest one you can find.)
For example, using the same Percentage Marginal Contribution of 40 percent, if you
lease a car whose cost is $500 per month or $6,000 per year, you will have to increase
annual sales by $15,000 just to pay for it.
The same thing goes for when you consider giving yourself or anyone else a raise. And for
facilities expenses, furnishing, advertising, additional employees, etc.
One of the most basic causes of small business failure is excessive Indirect Overhead. So be a
tough guy. Ruthlessly scrutinize any Indirect Overhead expense. Evaluate what each proposed
increase in Indirect Overhead will yield in increased sales or reduced expenses.
For example, an adequate personal computer yields a big decrease in accounting and
secretarial expense (if you can use part-time people) but a more expensive model (e.g., a
laptop vs. a desktop or a fast, high capacity machine when a slower, lower capacity
machine will do) will probably decrease your Profit. A fancy copying or fax machine
may or may not yield an expense reduction while always involving an increase in
expense. Only if you need the added capacity should you get a fancier model when a less
expensive one will work.
If the cost of selling to and supporting that customer exceeds the Dollar Marginal Contribution
generated by that customer, you have four intelligent choices:
Increase the volume of your sales to that customer which is something you can often do by
telling them that their prices will increase if their monthly sales fall under a certain figure.
In this case, the minimum sales level that you specify should generate a big enough total
dollar marginal contribution to ensure that the customer yields a meaningful Contribution to
Overhead and Profit.
Reduce your selling and support costs for that customer so that they are less than the dollar
marginal contribution that customer generates.
Get rid of the customer if they won’t agree to any of the first three alternatives.
In a very few cases, the prestige of having a particular customer makes it worthwhile to accept
their business at zero or very little Contribution to Profit.
Youtoshould
If you want make NEVER retain
a charitable a customermake
contribution, that has
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negative Contribution
organization to Profit.
that provides you with
Doing so is one of the most frequent
a taxable deduction for that contribution. ways that small businesses fail.
As previous noted, your Breakeven Point is the sales level that produces the first dollar of
profit.
The Breakeven Unit Sales level is the number of units of product or services that must be sold
to break even.
Each unit below that point that sales fall produces a loss.
Typically, the Direct Cost of Producing and Delivering Product or Service consists of the total
of:
When operating your business, you will usually total these costs over a number of units of
product or service rather than on an individual unit basis. If delivering a service, divide the total
by the number of hours of service delivered to get a cost per hour. If delivering a product, divide
the total by the number of units of product delivered to get a cost per unit of product.
For example, suppose that it is the end of September and your business operates on an
accounting year ending on December 31. This means that ¾ of the year has already
passed.
Suppose, as above, your Breakeven Dollar Sales is $250,000 and that your Unit
Marginal Contribution is $2.50. You, therefore, have to sell 100,000 units before you
start making the first dollar of profit.
Suppose that you have only sold 60,000 units this year so far. If you keep selling at the
same rate, you will only sell 80,000 units which is 20,000 short of breakeven. This
means that, all else remaining the same in your business, you will lose 20,000 x $2.50
which equals $50,000 this year.
That’s a big problem but you are now aware of it with three months left to fix things.
You have the options of at least: effective promotion, price changes, and reducing your
Indirect Expenses.
For example, suppose you have noted that your sales are pretty insensitive to modest
price increases. Suppose your current net sales price is $6.25. If you raise your price by
$1.25, to $7.50, your Unit Marginal Contribution will increase by the same amount to
$3.75.
The increased Unit Marginal Contribution will, if sales stay constant, decrease your
projected loss by the projected number of units sold during the rest of the year times the
increase in Unit Marginal Contribution or 20,000 times $1.25 equals $25,000. So that
one change has the potential of halving your loss.
Suppose that last year you ran a direct mail campaign that cost $12,000 and generated
60 new customers, each of whom bought an average of $500 during the ensuing 3
months. (If you keep appropriate accounting records, you should be able to determine
this in about five minutes.) With your 40 percent Marginal Contribution, this means that
these new customers contributed an additional Marginal Contribution of .40 x $500 x 60
which equals $20,400 during the first 3 month period.
Given the cost of $12,000 for the advertising campaign, these new customer generated
an additional $8,400 Contribution to Profit which is not enough to close the gap but
certainly helpful. However, with your proposed new pricing, this will increase by $6,000
to $14,400. Better but not yet good enough.
Thinking about the situation, you remember that you have recently been approached by
a direct marketing consultant who claims to be able to produce a 1.5% to 2%
conversion to sales versus the 0.5% you got. He’s given you case studies and references
of similar businesses so you get on the phone and call them. Indeed, what the consultant
claims is true, at least with these clients – who are probably his best, of course.
The consultant usually charges $5,000 to design a small business campaign but will give
you the first one for half of that as an incentive to get your business.
So you think, okay, let’s assume that he’ll produce at least a 1% capture rate, double
what I got last time. If he does and nothing else changes, that will generate double the
Marginal Contribution of last time, bringing it to $40,800. If I deduct from that the
$12,000 cost of the campaign and his $2,500 fee, this yields an additional Contribution
to Profit of $26,300 assuming my old prices. And if I add in the 50% increase in Unit
Marginal Contribution resulting from my proposed price increase, I add another
potential $20,400 to my Contribution to Profit bringing the total from the direct mail
promotion to $46,700.
Now, I see the possibility of increasing my Contribution to Profit by $25,000 through the
price increase on the sales that I project making if I change nothing else plus the
$46,700 that I project making through the improved direct mail campaign and the price
increase, bringing the total to $71,700.
Given the initially projected loss for the year of $50,000, this would yield a $21,700
profit – assuming no negative reaction to the price increase. If, however, unit sales drop
by 10 percent of the now projected 29,600 unit sales for the 3 months or 2,960 units, my
profit would drop by 2,960 x $3.75 Unit Marginal Contribution which equals $11,100,
still leaving a $10,600 profit – which is a lot better than a $50,000 loss.
In fact, I realize that I could lose just under 20% of the 3 month projected sales due to
the price increase and still break even for the year. ($21,700 profit divided by $3.75
Unit Marginal Contribution equals 5,786 units which, in turn, equals 19.5% of the
projected 29,600 sales for the quarter.)
That’s pretty comforting since my experience is that I really won’t lose more than a few
percent in sales due to the price increase, given that I really have no local competition
and that shipping costs from my competitors would more than outweigh my price
increase on a typical order.
However, while I’m thinking this way, lets go a little farther. I remember the admonition
to keep my Indirect Expenses low. So I take a look at them. My secretary/administrative
assistant, Norma, handles the bookkeeping, letters and phone traffic. She’s been asking
me if she can cut 2 hours per day out of her schedule so she’ll be home when her kids
arrive from school. This could be a win-win situation.
So I talk with her and ask her whether she believes she can get all her work done in 6
hours a day. She says, “Normally yes. However, you’ll have to handle the phones when
I’m not here. But there usually aren’t too many calls at that time of day.” I think about
it. My 16 year old son has been pestering me for more spending money and could do a
good job with the phones.
I’m paying Norma $36,000 a year which, with labor overhead of 18% (not including
health insurance), costs me $47,280. She works 40 hours a week which equals 2,080 per
year. So she is costing me $20.42 per hour not including health insurance which
wouldn’t change if she cut her hours.
At $20.42 x 10 hours per week, I’d save $204.20 per week which would add up to
$204.20 x 13 weeks equals $2,655 for the quarter. If I pay my son $5.00 per hour
“allowance” to do this, my savings for the quarter would still be $2,005 which would
increase my profit by that amount – and I’d have two happier people.
That’s not bad. If I make the price increase and get right on the direct mail campaign
and tell Norma and my son, Doug, the new deal, I could be looking at a profit as high as
$23,705 for the year.
This is the kind of thinking that a successful small business person has to do!
But if she hadn’t known her Marginal Contribution and kept decent accounting records, she
wouldn’t have been able to do this exercise. In fact, she might have just kept in a straight line
and gone out of business.
Chapter Twelve
Applications of Marginal Contribution Analysis
Advertising
Non-Percentage Sales Expense
Promotional Materials and Other Expense.
Since, using Quickbooks or any similar accounting software, you can easily produce monthly
financial reports, it would seem logical to make this calculation on a monthly basis.
However, the effect of advertising and other promotional activities is cumulative and may last
longer than a month. That is, the third time you run an ad or do a direct mailing, you’ll usually
get a higher response than the first.
You can observe these effects by keeping a daily record of sales (as with an Excel spreadsheet)
and automatically calculating the average weekly sales. If you compare the results following a
promotional activity with the longer term average before that, you can see the impact of the
promotional activity.
For example, lets look at the direct mail campaign discussed in the last example. The
cost of the campaign was $12,000 and it produced 60 new customers in 3 weeks. We
know the length of time by looking at a graph of the number of new customers captured
per week versus time and seeing where the number of new customers captured per week
WEEKLY SALES
30
25
20
15
10
0
-6 -4 -2 0 2 4 6 8
Weeks
If you divide the period Direct Cost of Acquiring a Customer by the number of customers
acquired during that period, you have the Direct Cost of Acquiring an Average Customer.
In this example, the period costs were $12,000. The number of new customers was 70
total in 5 weeks less 10 that would have been captured at the rate that existed before the
campaign, for a total of 60 new customers attributable to the campaign. This works out
to $12,000 / 60 = $200 per average new customer captured.
If you divide the Total Dollar Marginal Contribution by the average number of customers that
you had during that period, your have the Dollar Marginal Contribution per Customer.
Per the example cited earlier, these new customers yielded $20,400 Marginal
Contribution in a 3 month period and, since this business’ customers buy at a pretty
consistent rate month in and out, we can multiply this by 4 to get an annual Marginal
Contribution for these customers, or $81,600. If we divide this by the 60 new customers,
we get a $1,360 Annual Dollar Marginal Contribution per Customer.
If you divide the Direct Cost of Acquiring an Average Individual Customer by the Dollar
Marginal Contribution per Customer, you have the Breakeven Number of Periods for an
Individual Customer.
Continuing with this example, if we divide the Direct Cost of Acquiring an Individual
Customer by the Annual Dollar Marginal Contribution per Customer we get
$200/$1,360= 0.147 years or 1.8 months to pay for the cost of acquiring each new
customer, on the average.
This latter calculation is very important. On the average, a customer who leaves before that time
has passed costs you money. One who stays longer than that period makes you money.
The Dollar Marginal Contribution for that customer is the Dollar Sales to that customer times
the decimal Percentage Marginal Contribution.
The Direct Cost of Selling To and Supporting a customer is the total of all burdened labor and
expenses associated with selling to and supporting the customer. Usually, the biggest
components of this is advertising and promotion.
How do you know whether advertising and promotion pays off? That’s a very important
question for a small business.
The answer is that you can only tell if you keep detailed and orderly records of customers
acquired following a promotional activity and the sales that they contribute.
If I capture twelve new customer following a direct mail ad campaign that cost my business
$12,000 (perhaps 12,000 direct mail pieces), the cost per capture is $1,000 per new customer.
If my average customer sticks with me for 5 years, (without taking inflation into account -
which I don’t need to since I raise my prices at greater than the rate of inflation), they contribute
a lifetime $337.50 x 5 = $1,687.50 of Marginal Contribution.
If I’m running an auto repair shop and am able to charge for essentially all of my customer
support, my Total Cost of Selling To and Supporting the average customer is, therefore, $1,000
– the cost of acquiring that customer via direct mail marketing.
Therefore, over the life of that customer their Contribution to Profit is $687.50 ($1,687.50 -
$1000.00).
That makes the advertising worthwhile. However, if I look at sending out 12,000 pieces of
direct mail and capturing only 12 customers, I see that my capture rate is only 0.1 percent. A
little research on the Internet indicates that the average capture rate for direct mail is 0.5 to 1.0
percent. So I’m leaving a lot on the table.
If I could increase my capture rate to 0.5 percent, my cost of capture would drop to $200 per
customer and the lifetime Marginal Contribution of a customer would increase by $800 to about
$1,488, an increase of 116 percent.
A little research on the web tells me that including meaningful personal testimonials in my
direct mail will bring my response rate up a great deal. And, by using a very good headline that
clearly puts my selling proposition out in a way that anyone can grasp will also bring my
capture rate up. And if I effectively use colors (red) to make my point, my response rate goes up
again. Finally, if I use the Clustering Market Analysis process (see later in this ebook) to very
specifically identify who I want to reach and what I want to say to them, my rate goes up again.
In fact, I talked with an ad man who claimed to have achieved a 14 percent response rate on an
Internet sales campaign in this way (David Garfinkel). I hired him to write the sales letter for
this ebook series.
Now, through a little simple analysis, I have found one of the most important ways to focus my
time.
If you can acquire a customer for $100, you are doing better than the average. For example, the
customer acquisition cost for Internet sites such as AOL averages $250, it is $50 to $75 for
credit card companies, $100 for long-distance phone service providers, and $100-$250 for
mortgage lenders. For large consulting firms, the customer acquisition cost can run as high as
$50,000.
If you lose an existing customer after only 2 years when your average customer life is 5 years,
you have lost not only the 3 years of Marginal Contribution that you forfeited but you have also
lost the cost of acquiring a replacement customer.
For example, if your average Customer’s annual Marginal Contribution is $1,360, the
average customer sticks with you for 5 years and it costs $200 to acquire a new
customer, losing a customer after only 2 years costs the forfeited Marginal Contribution
of $1,360 x 3 plus the cost of acquiring a replacement customer of $200 or a total of
$4,280.
Clearly, if you have to give that customer a bonus of $500 to keep them or have to settle
a disputed matter by giving away $750 of product, rather than losing them, you should
do it.
If you don’t and if you then have lost and spent $4,280 to get a replacement customer,
you’ve spent a lot of money to be in the same place that you were when you started.
Obviously, it is in your interest to keep the amount spend as far below that figure as reasonable
but, think, won’t a customer for whom you did a special favor stay with you stay with you far
longer than an ordinary customer?
From a customer’s point of view, Nordstrom is a very nice place to shop, assuming that their
selection and prices meet your needs. It’s also a $6 billion sales corporation that yields a net
profit of about $110 million.
Costco is another example. Their returns policy is almost open ended. I recently asked how long
I would have to return a computer monitor if it didn’t work right. The answer? Two or three
years.
Of course, Costco is a service organization that makes all of its net profit before taxes from
membership fees. But it has grown to be a $35 billion in sales - service organization. They use
that clout with their suppliers to generate a remarkable returns policy for their customers.
That’s what Customer Service is about! The sooner you do something special for your
customer, the sooner you bond with them and do so at the lowest cost.
That bond is worth lots of money to you. A happy customer is a long-term customer. However,
know what your customer’s worth and make sure that what you spend to bond with your
customer makes sense.
Adding Equipment?
To add or not to add, that is the question. Toys are nice but this is a business. Anything you add
had better make you money or you may not be in business very long.
Deciding whether to add equipment involves a very simple calculation – as well as some very
not so simple other considerations.
The calculation is that if the Marginal Contribution that a piece of equipment will
generate through either acquiring new business, increased prices or cost savings – or all of
the above – OR as required to retain customers that you would otherwise lose exceeds the
acquisition and installation cost of that piece of equipment, the answer may be a go.
However, when calculating the acquisition cost of a new piece of equipment, remember that any
new piece of equipment usually requires training, learning time and has direct installation costs
involved in putting the equipment into action. All of those costs should be included in the
acquisition cost calculation.
Adding Personnel – And The Highest And Best Use Of Your Time
The same thing goes for adding personnel. The calculation is the same.
However, in this case, you have to take into account another factor: the highest and best use of
your time – or that of others in your business – that anyone new might free up.
Think about what you do in your business, the various activities. Then try to calculate the per
hour Marginal Contribution that each generates. Obviously, some contribute more than others,
some much more.
In accordance with the Delegating process, you should delegate all of the activities that generate
a relatively low Marginal Contribution as appropriate. This may involve hiring new personnel.
If you carefully use the Negotiated Job Agreement process to define what you want a new
person to do, you should be able to find that person. (A precise specification usually produces a
precise result.) And, using that same process, you should be able to get them up to speed
rapidly.
Of course, you should include in the cost of acquiring this person the value of your time as well
as any direct expenses.
You usually have lots of ways of using your funds – such as adding and training people,
advertising and promotion, acquisition of equipment and paying off high interest loans (e.g.,
credit cards). And you usually don’t have enough money to do all of these things. So you have
to decide what to do.
The first step is to calculate the Marginal Contribution that each possibility will contribute, on
both an immediate and a longer-term basis.
In order to calculate all of these nifty factors, you’re going to have to keep careful and detailed
records.
Lots of small businesses fail because they don’t know what it costs them to produce, sell,
deliver and support their product or service.
So, at the request of my client, I started digging. I first asked to see the records of
product cost by customer and was given them. Then I asked for the underlying job cost
data – how much material and labor had been used to produce each product lot. That
data simply didn’t exist.
In fact, when I dug a little bit more it became obvious that the company had no idea of
what its costs were except in total. So I had them do some job costing on sample orders.
The results astounded the management and the investor. Of 24 products they sold to
their largest and most prestigious customer, 23 were sold at prices far below their cost
and 1 was sold only slightly under cost.
When we added things up, based on that data, we found that the company had given
$1.2 million dollars to their largest customer in the most recent year. Their customer
was well aware of this and when the small business tried to raise prices, they were
unsuccessful. There were lots of other suckers out there bedazzled by the big company’s
bright-lights name.
For example, do you know what your time costs your business?
When I asked a group of small business people how much it cost them to make a 5
minute phone call, the highest estimate I got was $1.00.
Your hourly salary x [1 + (Labor Overhead per Dollar of Salary and Wages) + (Dollar Indirect
Overhead per Dollar of Salary and Wages)].
Total Indirect Overhead per Dollar of Salary and Wages is calculated by dividing Total Indirect
Dollar Overhead by Total Dollars of Salary and Wages.
So, if you are paid a salary of $62,400/year, all of which you spend in direct activities
and you work a 40 hour work week (2,080 hours/year), your salary is $30.00 per hour.
If your business’ Total Dollar Indirect Overhead is $130,500 and its total of Salary and
Wages is $150,000, its Indirect Overhead per Dollar of Salary and Wages is 0.87. If its
Labor Overhead is 0.18 per Dollar of Salary and Wages, your Total Indirect Overhead
per Dollar of Salary and Wages equals 1.05.
Your cost per hour is, therefore, $30.00 times (1 + 1.05) = $61.50 per hour or $1.025
per minute.
For example, if you decide that you will spend 30 percent of your time on producing the product
or delivering the service and 70 percent on managing, planning, training, product or service
design and accounting – and stick to it, 70 percent of your salary will be correctly included in
indirect expense.
A good small business CPA can help you work out allocation rules and the framework of your
accounting system. It’s a good investment.
This another lesson that lots of small business people learn too late.
Chapter Thirteen
Job Costing
Again, I’ll remind you that “If you don’t know where you’re going, any road will take you
there.” And in small business, “there” is often bankruptcy.
Do you remember the story of the food service company I evaluated on behalf of a potential
investor? They thought they were doing great but it turned out that in the previous year, they
had made a gift of $1.2 million to their largest customer. That resulted in a loss of $1.0 million.
In other words, they took $1.2 million out of their own pockets and gave it, as a gift, to their
largest customer, one of the world’s larger firms.
They just didn’t know what things were costing them. They were flying by the seats of their
pants.
Well, that’s a great way to fly into bankruptcy and one of the foremost reasons that small
businesses fail.
It simply requires that, in your accounting system, you assign every item of expenses that you
can to a specific job.
For example, I had the food service company set up a simple job costing system. It
wasn’t easy but it wasn’t complicated. The hard part was getting everyone to do their
part.
The first aspect was labor. Every minute of every person’s direct labor time had to be
assigned to a specific activity such as preparing the ingredients for product #10 or
packaging the finished goods for product #13.
The second was material. One person was made responsible for dispensing raw
materials. She recorded the item, amount and job to which they were assigned, for
example 13 lbs. carrots for product #7 or 10 lbs. ground chuck for product #2. Since not
all of the material checked out was always used on the assigned job, the same person
was responsible for checking in the remaining material and deducting it from what was
used for that product batch.
Then, the accounting department entered all of this information by date and product
number and also entered the number of finished units of the product produced from that
labor and materials. From this, they derived the direct cost per unit of that product and
then, after adding labor burden and indirect overhead, the total cost of each unit
produced.
Given that most accounting software is designed to handle job costing, once all the
employees became aware of the need to keep accurate records and the consequences to
them personally of not doing so, the job costing system produced daily updates and
weekly and monthly averages of unit cost for each product.
With this information in hand, management could focus on reducing costs where they were
excessive and bringing the pricing structure into line with costs.
That’s one of the things that you’ll have to do to make your small business successful.
Therefore, be sure to have your CPA assist you in designing a job costing system from the very
outset.
Chapter Fourteen
Clustering Market Analysis
This and most of the other chapters are in the format of so-called standard operating procedures.
These are more direct, by the numbers descriptions than the rest of the book. They are intended
to be reviewed at once and then put into action when the appropriate requirement arises in your
business.
1.0 INTRODUCTION
1.1 Clustering Market Analysis is a unique process that I invented after many years
of working with and developing Artificial Intelligence software and products.
It converts intuitive knowledge into specific logical tools that will make you
MUCH smarter than your competition about your market.
1.2 It is pretty simple, pretty quick and very inexpensive. That makes it ideal for a
small business.
1.3 And it makes you much wiser – given that wisdom is unconscious knowledge
put into the world and learned consciously.
1.4 As you may have gathered by now, one of my favorite sayings is, “If you don’t
know where you’re going, any road will take you there” and, in small business,
“there” is usually failure.
1.4.1 One of the things that a great number of small business people don’t
know enough about is their business’s market. In other words, they
usually don’t know who will actually buy something that they can offer;
what, specifically, these people want and why; what will they pay; how to
effectively reach them; and how to effectively sell to them.
1.4.2 That’s a lot of not-knowing and the results can be devastating. The most
typical results are: products and/or services that won’t sell, lots of wasted
time and money trying to change that, catastrophic underpricing, losing
sales that could easily have been closed, etc., etc.
1.5 Research indicates what is intuitively obvious – that there are many different
types of people in the world – in fact, there are 12 basically different clusters or
types of unconscious perception and behavior.
1.5.1 Unfortunately, however, most people assume intuitively that others are
basically like them and also trust others to be like them, a very self-
destructive approach. This creates violated expectations most of the time
because the odds that this approach is correct is about 1/12 of the time or
about 8 percent of the time, on the average.
1.6 The most effective market analysis is based upon recognition of the 12 different
clusters of people. Members of each clusters can be relied upon to perceive and
behave in basically the same way – and in a way that is uniquely different from
the other clusters.
1.7 This can be accomplished because of the amazing power of the human brain.
Recently neuro-anatomists were finally able to synthesize a “silicon neuron” – a
semiconductor version of a single brain cell. Based on this work, they were able
to estimate that a single human brain (containing, typically, about 100 billion
neurons) has about 1,000 times the computing power of all of the computers in
the world – if those computers were efficiently networked together. All in all, a
remarkably powerful resource.
1.8 Therefore, when using the process described herein, do not be fooled by the
relative ease of the process. It is a very sophisticated process that draws upon far
more of your brain power that most things that you do.
1.9 When this type of Clustering Market Analysis is used to integrate the knowledge
of a sales team, it produces powerful awarenesses of the types of people who
will buy - and how to most effectively deal with them - and those who will not
buy.
1.10 When groups of actual and potential customers that represent the most likely
customer clusters interact with you and your people, you can very rapidly
develop highly sophisticated and effective ways of sharply expanding your
customer base and profits with minimal investment.
2.2 The concept of framing is relevant in this process. Framing is simply the process
of separating one logical element from another. Usually, intuition is rather vague
and generalized – but through framing, it can become quite clear and precise.
Streddogranthroughth
If you found that a difficult thing to do, the reason is the lack of framing. Now
take a look at a framed versionEcitystreetsbarkingand
of the same thing:
w
…st red dog ran through the city streets barking and wagging his tail happily as
h….
In this case, the logical elements - words – were framed by blank spaces.
2.3 In similar fashion, the type of logical framework described below will frame
your intuitive knowledge of people, knowledge that usually comes forth as vague
feelings and perceptions.
One group I worked with compared Presidents Lincoln and Clinton and
identified the following dimensions of difference between them:
a. honesty
b. age
c. self- vs. other-centeredness
By using this process with additional presidents, they identified the dimensions
of difference among the clusters in the “presidential marketplace”.
3.2 By then establishing the endpoints of each dimension and calling them 1 and 10,
this group was then able to convert their intuitive experience of each President
into a series of numerical ratings.
For example, on the scale of honesty, where 1 = very dishonest and 10 = very
honest, they rated Lincoln as 10 and Clinton as 1 and on the age scale, they rated
Lincoln 10 and Clinton 5 (even though, chronologically, they weren’t that
different in age when elected president).
The total set of ratings (for these and other presidents) evolved to the following:
3.3 By comparing the numerical ratings, they clustered together Lincoln and Reagan
(Cluster 1) and Clinton and Nixon (Cluster 2) – and that Lincoln and Nixon were
quite different.
3.4 The way that the Absolute Difference score presented in the preceding table is
calculated is by:
Calculating the difference between the scores between the pair on each of the
six dimensions (e.g., Integrity Difference = 2).
Totaling these scores for all six dimensions = 5.
Dividing that total by the number of dimensions = 5/6 = 0.83.
4.2 Bring together this group for a session of at least several undisturbed hours,
preferably off-site where you won’t be disturbed by the phones.
4.3 Have each person read this process description. Discuss the process to ensure
that each person understands it.
4.4 Have each person prepare a set of differentiating dimensions, as we did with the
Presidents. Be sure that they note the names of the people whom they used as
examples in isolating the dimensions.
5.4.1 Now compare any two of those different pairs of people and identify the
ways they are different. Do so by picking adjectives as was done with the
presidents. Continue this process until you run out of newly identified
differences. If two or more adjectives really describe the same thing, pick
one of the set and eliminate the others.
4.5 Discuss the dimensions among your group. The objective of the discussion is to
agree on a limited set of dimensions (not more than 10) and to define the 1 and
10 ends of each scale.
4.6 The entire group should then Cluster their prospects, captured customers, and the
customers they lost as we did with the Presidents.
5.4.1 The best way to do this is to, first, each make a list of all the prospects
and customers that you/they feel you/they know at least modestly well
and the sales results with each.
5.4.1 The next step is to rate each of the persons on this list on each of the
agreed dimensions. Also rate each of the initial group of people created
under step 4.4. Finally, all of you, individually, group the identified
names into Clusters.
5.4.1 The best way to do this is to “eyeball” the scores. Patterns will pop out.
Start with the largest group of individual customers and/or prospects that
appears to be similar and generate Total Scores for each pair.
5.4.1 Pairs that are in the same cluster will have low scores while pairs in
different clusters will have high scores.
4.7 Now ask them to submit the names of people whom they see in their largest
individual Cluster. Discuss this within the group, submitting additional Clusters
for consideration until the both the set of Clusters and the list of Clusters-
members is acceptable to all in the group.
5.4.1 When all of the prospects and customers have been grouped in this way,
the homogeneity of each Cluster’s sales results will be very great.
4.8 Finally, have those group members with the highest percentage of “wins” with
prospects and customers in a given Cluster, identify the sales tactics that work
best with members of that Cluster.
5.1.1 By averaging the sales results for each customer, you will clearly see the
Clusters that are non-buyers and those that are the “hot” buyers.
Obviously, your business should direct itself toward the latter and
abandon efforts aimed at the former.
5.2 Once you have identified the tactics that work best with each Cluster (step 4.8),
you will have a very powerful tool (a roadmap) for achieving much improved
sales performance with members of that Cluster.
5.3 Through simple techniques such a Metastory modeling and anchoring and Role-
Playing, this knowledge can be embedded in your intuition and that of your
employees. By setting appropriate Cybernetic Transposition objectives, this
effect can be substantially enhanced.
5.4 By sitting down with a group of customers and prospects whom you have
identified as belonging to a single high-potential cluster, you can gain an
powerful intuitive understanding of the members of this cluster, what they want
and don’t want and how to find, who is and isn’t significant competition and
why and how to sell to members of this cluster.
5.4.1 By repeating this step for all of the high potential clusters, you will
develop a very powerful intuitive and intellectual understanding of your
market.
5.5 You can effectively use these clusters on an ongoing basis, updating them by
adding and subtracting member identified via the clustering process just
described.
5.5.1 Use them to monitor your market, your business’ offerings and behavior
and competition. This is a very important leading indicator – so that you
become aware of required corrections before it costs you a lot of money.
5.5.2 Use them to evaluate new product, advertising, promotion and service
offerings.
5.5.3 Use them to identify opportunities that you haven’t yet recognized and
things that your business is doing that are no longer effective.
Chapter Fifteen
Constructing Value
1.0 Introduction
This is a very important concept that is best illustrated by thinking about the last
time you bought a car.
Rate the importance of each of the following factors to you personally using a 1
to 10 scale where 1 equals “of no importance whatever” and 10 equals “of
maximum importance”.
Body style
Body shape
Exterior color
Type of engine
0 to 60 mph acceleration time
Type of suspension
Type of brakes
60 to 0 mph braking distance
Type of transmission
Number of gears
Tinted windows
Power windows
Power steering
Power brakes
Air conditioning
Aluminum wheels
Materials covering the seats
Interior color
Quality of the sound system
CD player
VCR player
Reliability
Gas mileage
Off-road performance
Trailer hauling capacity
Luggage space
Type of seat belts
Rear window defroster
Now make a new list of everything you rated 4 or below and a second new list of
everything you rated as 8 or above.
Imagine an auto sales person spending all their time selling you on the merits of
everything on your 1 to 4 rating list.
Even if they prove that what they are selling is excellent with respect to all of
those factors, it wouldn’t have much, if any, effect on your buying decision.
But if they spend all of their time proving to you that their product is best with
respect to all of the factors on your 8, 9 or 10 rating list, you’d probably think
they’d done a pretty good or even excellent job of selling to you.
The difference is that, in the first case the sales person was trying to prove the
value of the car’s selling price by focusing on things that had little value to you.
If he or she were to have asked you to put a dollar figure of what you would be
willing to pay for each of the features on your 1 to 4 list, the total would be far
lower than the purchase price of the car.
But, if they did a good job of proving to you the excellence of their product in
terms of each of the items on your 8, 9 or 10 list and they asked you to do the
same thing, your total would probably exceed the price of the car.
And if that total exceeded the purchase price by 25 percent or more, you’d
probably tell them you want to buy the car, on the spot.
An effective sales person will understand the items that would be on your 8, 9 or
10 list and be able to prove the excellence of their product with respect to each –
because they intuitively understand what customer cluster you represent and
what’s important to that cluster.
In so doing, they will be constructing value and when the value that you
intuitively perceived exceeded the price of the car by about 15 to 20 percent, you
will probably buy.
That’s exactly what you have to do with your prospective customers. You must
understand how they intuitively construct value and sell your product features by
proving the excellence of your product with respect to each of the high value
items incorporated in their intuitive value model.
The best way to do that is by clustering and querying your customers via
Clustering Market Research, querying relevant peers, selling to your customers,
framing the knowledge that you gain by doing so, integrating that knowledge
with other people in your small business who also sell or provide customer
support and putting all of that knowledge into a useable framework using the
Cybernetic Transposition techniques.
2.2 Ideally, you will have conducted the Clustering Market Research process
and have identified your high potential target clusters and specific
individuals in each of those clusters.
If so, do the following separately for each of your target clusters. If not, do
it with an intuitively selected group of your “best” customers.
Ask each of these customers to review each item on your list and to rate it
on a scale of 1 to 10 where 1 = has absolutely no value to them personally
and 10 = has the maximum value to them personally. When they have
finished this, ask them if there are any other aspects that are important to
them. If so, ask them to record those aspects and rate them on the same
scale.
2.3 Ask your respondents to put a dollar figure on the value that a particular
aspect has to them. Do so by asking them to consider a specific situation
with and without the value aspect in question. Also ask them to give you a
dollar value of a new “basic” version of your product, one with none of
the bells and whistles.
2.4 Transcribe all of this data into an Excel spreadsheet, one page per cluster.
Title each row with the name of the customer who gave you data. Under
that, title a row “value.” Do this for each customer, two rows apiece. Title
the columns with the complete list of value aspects. Next to each “value
rating” column, head a column “$ value.” Thus, you will have two
adjacent columns for each value aspect. Record the customer scores in the
appropriate cells.
2.5 Use Excel’s average function to calculate the by-cluster dollar value of
each value aspect (column).
2.6 Use Excel’s average function to calculate the average rating for each
value aspect (column).
2.7 Group all value aspects with an 8 to 10 score together under the title “high
value” and all of those with a 1 to 4 score in a second list headed “low
value.” Put the average dollar value next to each value aspect.
2.8 Add up the dollar values for each of the aspects with an 8 to 10 score and
add the dollar value of a “basic” version of your product or service for
each cluster. This will give you an approximation to the intuitive value
that members of each cluster put on a product or service for which you are
able to prove the existence of each of the high value items.
2.8.1 If this value is less than your selling price, you will need to
develop arguments that take apart each value item into its
components and prove a high value for each of them.
For example, a value item might be front airbags. Clearly, they can
reduce the probability of the driver or passenger being killed in an
accident. However, there are a lot of other aspects to this: avoiding
the guilt of hurting someone else, avoiding ruining your children’s’
lives by injuring them, avoiding pain and suffering, avoiding
scarring and grotesque distortions of appearance, etc. By focusing
on each of those items, you can substantially increase the intuitive
value of front airbags in most people.
2.8.2 If, however, this value is greater than your selling price, you have
the opportunity to raise your prices. And if you additionally go
through a program of increasing the intuitive value of one or more
of the high value components, those where you have a good story
to tell, you can raise your price even more for that cluster.
2.10 Now, in Excel, create a summary spreadsheet covering all of the value
aspects and all of the clusters. On this page, create a row for each high
potential cluster. Label each row with the appropriate cluster
identification. Now label two columns for each value aspect, labeling one
with value name – rating and the other with value name – dollar value.
Record each cluster’s average ratings and dollar values in the appropriate
cells.
2.11 Use Excel’s average and standard deviation functions to calculate the
average and standard deviation for each column.
2.12 Where the standard deviation for a particular value aspect is greater than
1, be very careful about using that aspect in your GENERAL
communications. A high standard deviation means that, while some target
clusters put a high value on the aspect, others put a low one. Put maximum
emphasis on aspects that have a high average and a low standard
deviation.
2.14 When you create a communication, test it on the relevant target group. If
you are working with clusters, test it individually on the target cluster for
which it was developed and the other high potential target clusters,
individually.
Videotape the session if that’s okay with your respondents. Second best is
audio taping. And, if you do neither of those, have someone take verbatim
notes of the respondents’ comments during the session.
3.0 Summary
3.1 It is a fairly easy process to identify the aspects of your product, service,
support and customer relations to which your prospects and customers
assign a high value.
3.3 Higher perceived value allows higher prices. So be sure that your pricing
keeps track with your customers’ and prospects’ perceived value. The
dollar averages that you have computed will give you some guidance in
this.
3.4 Normally, when you prove a perceived value that is 25 percent higher than
the price, you have an impulse buy. This may be a good way of capturing
new customers – assuming that you can hold them. Otherwise, you are
leaving money on the table.
Chapter Sixteen
Selling To Pain
1.0 Introduction
1.1 The purpose of this Standard Procedure is to define and explain the
process of selling to a person's needs.
1.2 Many sales people try to prove how much they know about a product
without bothering to determine whether it meets the prospect's needs. And
even if they do identify the prospect’s needs, they typically launch into
product recitation. This isn’t effective.
1.6 Sales are made emotionally and it is therefore necessary to build emotions
in a way that will make the prospect want to buy what you are offering. To
do this, you need to identify the pain that a prospect is feeling and to keep
them focused on that in ways that bring the prospect to the readiness to
buy. At that point, you typically don't have to ask for the sale; they offer it.
2.2 Consider this from your own experience. When you have a severe
toothache, do you ask how much the dentist will charge to fix it? Or are
you more concerned with how quickly you can see the dentist? The pain
drives you and the dentist is the solution.
2.3 Not only is it the sales person's job to identify the pain, they must keep
returning to that pain, assisting the prospect in become fully aware of it.
With very little input from the sales person, when the pain is great enough,
the prospect will buy.
2.4 If you can honestly meet the prospect's needs, can honestly cure their pain
better than other alternatives, you can ethically sell in this way. If not, the
process may blow up in your face. Remember, it is amazing how effective
most people are in knowing when you don't believe in what you're selling.
3.2 When they are on the verge of coming into contact with their pain, it is
absolutely okay in most situation to say something like, “What was that on
your face a moment ago?” if you see them flinch, grimace, blanch or such.
Or “Did you notice that your voice got harsh when you said that?” In other
words, help them to convert their unconscious signals that you observe
into conscious awareness on their part.
3.3 Remember, it is your job to keep them consciously aware of the pain, not
by calling it “pain” (which is just a conscious label) but rather by assisting
them to recall situations where they experienced the pain.
3.4 Once the prospect is primed, by being in intimate contact with his or her
pain, it is time to very briefly offer your solution.
The operative word is “very briefly.” Each person has a value structure. If
you hit their “hot buttons,” those points they value highly, it takes very
few words to communicate the value of what you're offering. (See the
procedure Building Value for more on this.)
3.5 If the prospect raises objections, you haven't done your job of focusing
them on their pain well enough. The key is not to directly answer the
objections but rather to bring them back to the pain by asking open-ended
questions.
A good question might be, “Would you tell me more about that?” when
they voice an objection. Your job is to get to the root of their thinking, not
to try to resolve your own discomfort by just talking.
3.6.2 Focus the questions. Start with the general and head toward the
specific. For example, “In what ways are cleaning services
important to your business?” Then, “Which chemical cleaning
services seem best for your business?”
3.6.3 Ask uncued questions first and the cued ones. For example, an
uncued question is, “What is needed?” A cured question is, “Here
is a list of possible needs. Do you have needs that aren’t on that
list?”
3.6.5 The best probes for clarity are the ones that tell exactly what you
want to know. For example, “Could you be more specific about
that?” “What do you mean?” “Could you tell me a little more about
that?”
3.6.8 Other types of probes include brief pauses (up to about 5 seconds),
“Would you explain further?” “Would you give me an example” “I
don’t understand.”
3.6.9.1 “If you could change one things (about the service they
are receiving from a present supplier), what would it
be?
3.7 Remember that you’re using open-ended questions to focus the prospect
on their pain. That requires you to be very alert to both their responses and
the emotional responses that accompany them.
3.7.1 Usually, people avoid focusing on what pains them. They try to
paper it over. But they are often grateful for an opportunity to talk
about it with a sympathetic other person. Therefore, you should put
on your empathetic self while still maintaining perspective of your
objective. This requires practice.
to discover it and focus them on it. Finally, ask them how you did
and how you could have done better. Take careful notes.
4.0 Conclusion
4.2 If you do an effective job of identifying the prospect's pain that your
business can resolve, bringing them into and keeping them in contact with
it, and briefly proving the value of what you are offering, you will be very
successful in selling.
4.2 The key skill in this process is open-ended questioning, a skill that you can
develop and enhance through role playing and use of the Cybernetic
Transposition Three-Step.
Chapter Seventeen
Cold-Calling
1.0 Introduction
Let’s be honest. I have only met one person in my entire business career who
likes to make cold calls. He was so unique that his colleagues called him
“The King of the Cold Callers.” However, cold-calling is often necessary. So
this process is designed to make the best of a difficult activity.
2.2. Making “cold calls” is difficult for practically everyone because the
concept triggers a basic human emotion, the fear of rejection.
2.3. You can substantially resolve this fear by doing one or a series of Base
Reframing and Sub-Personality Negotiation processes once the fear has
been triggered by giving cold-calling a try.
2.4. Many companies have developed a two-phase format for cold calling
which has been found effective and seems easier.
2.6. Studies made at the Wharton School of Business, indicate that people
are more comfortable making initial approaches on the telephone.
2.8. These same people will almost always refuse to see an unscheduled
visitor, even someone who has taken the time and effort to travel
across the country to see them.
3.2 It has been determined that this two-phased cold call works best when the
telephonist and the personal caller are different people. But it will work
with one person taking both roles.
3.3 A change in sexes seems to work best for this two-phase cold call.
4.3 Look good! Be proud of your appearance. Believe it or not, if you feel
unkempt, you will project that image over the telephone.
4.3 Say your piece, then listen and take notes. Use open-ended questions
to specifically identify their objections. It is impossible to overcome
objections if you do not hear and understand them.
4.5 Remember you are arranging to get the called person's appointment
time with verbal charm and empathy, you’re not selling anything else.
4.7 Your success rate will increase significantly if before you make an
appointment-setting cold-call, you use the Zapper process of Short-
Term Unconscious Planning.
5.2 Have an outline script. It need not be formal or complete, but you
need to keep on track. Do not memorize. Its job is to remind you of
the next point you want to cover.
5.4 Tell them the exact reason for the call. Don’t waste their time.
5.5 If you get a yes, set an exact time for the appointment. Then restate
your understanding of the agreement, “Mr. Johnson will call you at
4:15 PM today, as agreed.”
5.6 Never pursue a negative person. Accept that they are having a bad day
or a bad life and get on with yours.
5.7 No matter how the call has gone, be polite and thank the person called
for their time and patience.
6.2 Record the name of the business called, everyone you spoke with, the time
and date of the appointment, the telephone number and extension(s) at
which you made contact.
6.3 If you are the salesperson who has a telemarketing appointment, remember
that you are still making a cold call. Behave accordingly. Be sure to set a
Cybernetic Transposition objective for your overall selling results and use
the Zapper process of Short-Term Unconscious Planning immediately
before each sales call.
6.4 Do not assume an appointment means the contact wants to see you; the
telephone call may have hit at a weak moment. Be prepared to resell from
scratch. If things seem to be going wrong, be sure to use the Zapper
process of Off-Track to On-Track.
How big, how many locations, who is your competition, who are you
talking to and where does he or she fit in the company.
Amazingly enough, many of these answers can come from his or her
secretary or assistant if you know how to ask.
Be sure to check the Internet. Most businesses have a web site these
days and they usually present meaningful information about the
business and their products. Learn to do this quickly.
If you have done your Clustering Market Analysis, you should know a
good deal about the types of prospect who are likely to become a
customer.
6.6 If you don’t know something about the customer, ask. Do not be
afraid to verify what you think you know. People generally like to
dispense knowledge.
6.7 Do not attempt to overwhelm the contact with your knowledge. Sell to
pain.
6.8 Remember that the call is successful if you get a contract or a positive
agreement to go to the next step in obtaining a contract.
7.0 Summary
Cold calling can be emotionally challenging. An effective process, an
organized routine and use of the Cybernetic Transposition Three-Step and
Zappers makes it much easier – and much more successful.
The two-step process described above is one of the most effective cold
calling approaches for most situations.
Chapter Eighteen
Effective Negotiating
1. Introduction
1.1 There are lots of books on negotiating tactics. A few of them present what I think
is good advice.
However, the purpose of this chapter is present and explain one simple form of
effective negotiation that I know works because quite a few of my clients have
effectively used it.
1.3 In any negotiation, there are “brick walls” that limit the negotiator’s
maneuvering room. Until you determine these, the chances of achieving a
successful negotiating result are substantially reduced, especially in “difficult”
negotiations.
1.4 Negotiations are like the rest of life: “If you don’t know where you’re going, any
road will take you there.” So you need to set specific goals and establish
effective tactics to be successful in your negotiation. Your tactics are the “how”
that leads you to the goals.
1.4 The concept of matching energies is key to any negotiation, with your children,
your spouse, or your prospect.
If you are perceived as weak, the other negotiator will typically try to take
advantage of you - with the expectation that you’ll give in.
If you are perceived as too strong - overbearing - the other negotiator may
simply refuse to “enter the arena,” fearing that they will certainly lose.
The key is finding a middle ground where the strength you are projecting
matches that of the other negotiator. That’s called “matching energies.”
Identifying what causes such emotions and triggering them are key to a
successful negotiation.
It’s often good to get such issues on the table quickly, for example saying:
Clearly, that gives you some power in the negotiation but making such a
statement without being willing to follow-through is foolish and unproductive. In
that case, your “opponent” will probably call your bluff which puts you in a
seriously weakened negotiating position.
1.7 Just as an actor or actress needs to prepare and rehearse to give an effective
performance, you need to prepare and rehearse to play out an effective
negotiation.
The best way to rehearse is through “role-playing” where someone plays the
other negotiator and you play yourself. Then you switch roles and continue to do
so until you feel fully confident in implementing your tactics.
1.8 If the negotiation seems to be getting off track, use the Zapper Off-Track to On-
Track process. It will usually get things back on track in a few minutes.
1.9 Many people get into a “feel good” mode when a negotiation is going well - and
they forget to consolidate their gains. To consolidate, you must get a written and
signed agreement of some form. Otherwise, you’re just dealing with talk - and
talk can change from day-to-day.
If the firm is publicly held, it is easy to get information about it from the Internet
and by scanning the government records of the SEC (the Edgar database of the
Securities and Exchange Commission).
If the firm is private, they may have a web site and you may be able to also get
useful information from D&B. Another good tactic is to search the Internet
and/or your public library where you can find magazine databases. You can look
up all the articles on your “opponent’s” company. Usually, these are the result of
a great deal of research and can bring you up to speed quickly. Do the same thing
with respect to the personalities involved. It’s amazing how much you can find if
you track someone back through their previous employers.
If, for example, you find that the firm is short of cash and pushing like crazy for
profitability, it is likely that their negotiator will have these considerations on
his/her mind. Thus, when you ask for more money, to stay within the negotiating
space you also have to point out how your proposition will make their company
money - e.g., through your firm’s knowledge, reliability, etc. In this example,
you are then participating in the space of “profit,” by talking about helping them
to make profit, creating a partnership.
2.2 Planning your tactics involves identifying your very specific goals, identifying
the strengths you have to present, knowing your weaknesses well enough to
avoid getting into discussions of them, knowing what’s important to the other
side, knowing how you are going to ask for what you want and knowing how to
counter the other side’s objections, if they raise them. The key is to go into the
negotiation with your best plan, rather than “winging it.”
2.2 Matching energies requires feeling strong and prepared inside of yourself,
knowing that you have a lot of value to offer, being aware that what you are
requesting is reasonable, and being prepared. If you have trouble seeing the other
person as an equal, tending to feel they are “above you” in some way, you’re not
ready to match energies.
I had an English client some years ago who quickly built a very
successful company with my help. In doing so, one of the things we had
transcend was that my entrepreneur client felt “one down” in the
presence of powerful and successful large-company CEO’s. By working
with his self-image using Base Reframings and setting Cybernetic
Transposition objectives and, then, by role-playing until he felt
comfortable, he eventually was able to successfully negotiate with the top
of the British business culture and, then, with then Prime Minister,
Margaret Thatcher.
The key is tactics, practice, tactics, practice... after setting your Cybernetic
Transposition objective. The watchword is that if you can successfully pretend to
be equal, you probably will be perceived as being equal. By role-playing
practice, you can convert pretense to reality.
If you feel nervous or out of sorts just before a negotiation, do the Zapper Ki
Grounding process. And always do the Zapper Short-Term Planning process just
before entering the ring.
2.4 It is key that you know enough about your negotiating “opponent” so you know
what he/she wants. The fact or the threat of denying them what they want makes
them feel pain. To the extent you are able to intensify their awareness of that
pain, they will be increasingly willing to give you what it takes to satisfy their
pain. So your job is to keep focusing them on their pain until they are willing to
“buy” your position. But, again, never say or imply you will do something that
you are not prepared to do. (See Chapter Fifteen.)
2.5 Rehearsing is so key to successful negotiations that I can’t really stress it enough.
Role-play with your spouse. Role-play with friends who know your negotiating
“opponent.” As you do, you will invent more and more refined tactics for
reaching your goals. Keep notes and incorporate your “inventions” in your
negotiating “script.” Your role-playing “opponent” can help you in this process
by letting you know what worked and did not work with them and what other
approaches would have worked better.
2.6 If you follow the steps described in this procedure, chances are extremely good
that you will be successful. When you reach the point where your “opponent” is
ready to “give in” or has already done so, you will have a choice: consolidate
your gains or lose them.
Do not be afraid to ask him/her to sign a document that you’ve already prepared
or to ask him/her to prepare such a document on the spot that he/she will sign.
Keep your eye on the ball. What you’re after is a result that matches your goal,
not a “feel good” experience.
3.0 In Summary
3.1 Identify the negotiating space, plan your tactics, match energies, sell to pain,
rehearse, and consolidate your gains. Use the Cybernetic Transposition Three-
Step. Learning to do all of this will take some time and effort but the results will
be worth it.
His was a small firm that had been repeatedly beaten down in price by
one of the largest firms in the country. He initially thought he didn’t have
any choice but by the time he left for the negotiation, he was raring to go.
He was pretty pleased with the results of the process. Just think what
would have happened if he’d also used the Cybernetic Transposition
processes!
Concluding Remarks
There’s a lot more that I could have covered but I just picked out the “nuts and bolts” that I
think will give you the best leg up with your small business.
If you diligently use the Cybernetic Transposition techniques and apply what I’ve described
herein and in my ebook that I gave you as an advertised bonus, Proven Secrets for Making Large
Sums of Money in Your Own Business, I’ll expect you to send me an email one of these days
telling me how remarkably successful your small business has become and that you’re rolling
in money.