Guest Post: Why 50:50 Partnerships can be Dangerous

Posted on July 13, 2012June 13, 2013 by wadmin

We are pleased to introduce our QMP Insights readers to our guest blogger, Mr. James Hillas, P.C., Attorney at Law. The material he offers in this brief and extremely valuable post, is something business start-ups, consultants and even current partnerships can benefit from thinking about. Much appreciation to Jim, for giving us permission to republish his piece.

Many two-owner businesses start out as equal partners to avoid potential conflict. After all, what could be more fair than a 50-50 split? It avoids a potentially awkward discussion about whose contributions are more important, and allows each partner to equally share in the risk and reward.

Unfortunately, what looks like the easy way out can turn into a nightmare. No matter how compatible or easygoing two people may be, they will not agree on everything. And if one of those disagreements involves a major decision, an equal partnership can mean a permanent deadlock leading to a shutdown of the business.

Working out a solution ahead of time can mean the difference between success and failure. One option is to value each partner’s contributions and decide on an unequal ownership split, for example, 51-49.

If the business is structured as an LLC, it is possible to draft the governing documents to permit partners to share profits and losses equally, but have unequal voting power on key decisions.

Yet another option is to add a third owner with a small percentage of ownership—say two percent—to act as the swing vote. This prevents either majority owner from taking action without the consent of at least one other owner.

If two partners are still determined to be 50-50 owners, they should at least have a buy-sell agreement that provides a process for allowing one partner to buy out the other’s interest if there is a permanent deadlock. For example, a simple buy-sell agreement provision for a 50-50 partnership might allow Partner 1 to set the terms of an offer to buy out Partner 2. Partner 2 has two options: accept the offer and sell, or reject the offer and buy out Partner 1 on the same terms. The “shotgun” choice is similar to one sibling cutting the cake in two and letting the other sibling choose which piece to take.

If you are starting a business with another partner or are currently in a 50-50 partnership, consider setting things up or changing them to avoid potential gridlock.

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Jim Hillas can be reached at 503-407-6074, through eMail to Jim@Hillaslaw.com. His website is www.HillasLaw.com .

Getting Things Moving: What to do when progress is stalled

Posted on November 17, 2011August 25, 2014 by Jerry Vieira

Program delays challenge management in all types of enterprise – profit, non-profit, public and private. Stalls, stumbles, delays and barriers seem to randomly and inconveniently attach themselves to all types of organizational initiatives. Whether a firm is struggling with a critical initiative intended to dig its way out of a stuttering economy or dealing with the challenge of quickly responding to unprecedented growth in customer demand for its new product, all initiatives hit roadblocks.

Some suggest that roadblocks are simply a way of life in business – inevitable. That may be true. But if these banes are inevitable and ubiquitous, shouldn’t the management tool kit and training programs of the firm include an effective method for dealing with them?

I am not going to tell you that I have discovered some magic formula for the total avoidance of stalls, stumbles, delays and barriers. Rather, I will share a process and 12-point checklist for rapidly discovering their root cause and overcoming them.

From a Fiddler, comes insight

My insight into this common challenge came from the following scene in the movie Fiddler on the Roof.

Tevia, a poor Jewish farmer in Czarist Russia, is attempting to deliver fresh milk to the townspeople from his farm on the outskirts of town in time for the Sabbath. Tevia is pulling a heavy, wooden two-wheeled cart ladened with cans of milk, the harness around his own neck because his horse has come up lame. He is determined to fulfill his obligation to deliver – leaning forward and pulling in the summer heat on a dusty, gravel-strewn road.

I pondered Tevia’s circumstances. Should a pebble in the road find its way into the path of one of the cart wheels, progress would immediately come to a halt. Tevia would be faced with a choice – either attempt to lift a 400-pound cart over the pebble, or, simply remove a pebble.

The business insight?

Discovering and removing pebbles is the true challenge in making progress on a stalled business initiative ~ not pushing harder or lifting.

A process for discovering and removing pebbles:

The process we offer has four parts: 1) the nurturing of a Culture of Immediacy and sense of urgency around identifying, diagnosing and fixing delays 2) the discipline of having frequent Checkpoints, 3) immediate Confrontation of the stall and 4) a Checklist of 9 C’s for quickly diagnosing and overcoming the real barriers to progress.

All steps begin with the letter “C”.

Culture: An organization’s culture usually reflects the CEO’s vision and personal example. A disciplined drive to get things done, supported by a culture of immediacy and a sense of urgency will keep the momentum going.

Checkpoints: Frequent Checkpoints is the second most important “C”. Checkpoints are not micro-management. The purpose of a checkpoint is to discover and address barriers and enable progress – not target and fix blame. Barriers and pebbles are discovered quickly and time loss is minimal with frequent Checkpoints.

To punctuate the point, we recommend clients change the company vocabulary by striking the words “Meeting” and “Review” from all company communication and replacing them with the words “Working Session” and “Checkpoint” respectively. These new words imply a strong need for, and set the uncompromising expectation of, the active participation of all members of the team to drive to make progress. These changes in lexicon create a new cultural baseline if this drive didn’t exist prior to the vocabulary change and reinforces it if it did. Participation replaces passivity. Passively sitting back and watching someone present becomes forbidden.

Managers and leadership must demonstrate hands-on participation in these working sessions. They must lead problem solving, knock down barriers and be decisive. Working sessions should end with the following questions: Who is specifically going to do what, by when, to remove the discovered pebbles? Does anyone see any additional barriers or pebbles immediately ahead of us in the road? When is our next checkpoint?

Confrontation: Confrontation does not mean argument. It suggests immediacy, persistence and determination in overcoming a barrier. It means seeing a discussion through until a solution or path-to-a-solution is agreed upon – and not giving up until it is.

People are not confronted in working sessions – barriers are. A combination of objective tough-mindedness and social courage is required to confront a delay discovered during a working session.

In 20 years of consulting, I have found the lack of these two C’s (Checkpoints and Confrontation) are extremely common at all management levels. If the CEO or leader demonstrates a lack of discipline for checkpoints and a reluctance or fear of confronting barriers, the organization will reflect that “looseness” of good management discipline and process.

The 9 C’s Checklist

The list below identifies the most common root-causes of delays in business initiatives. Once you have identified the correct root cause “C”, you can jump to the only “C” that is not on the list – Correct It.

Communication: The importance of this first “C” cannot be over-emphasized. Communication-related delays occur because someone has overlooked the need to communicate something that needed to get done, when it needed to be done and why. It’s difficult to communicate too much.

Capacity: Insufficient personal or organizational time available to complete important tasks can cause delays. Most of the time critical task delays that are laid on the doorstep of Capacity are really related to inappropriate or misaligned priorities.

Capability: Occasionally a team member’s lack of understanding of how to tackle the task at hand creates a delay. In such a case, outside expertise or training will break through the barrier. This is a particularly nefarious “C” because individuals rarely want to admit that they simply don’t have the skills or knowledge to get around the problem – which brings us to the next “C” – Courage.

Courage: Progress often requires personal behavioral change. We all know how difficult it is to accomplish behavioral change – personally and organizationally. Personal courage comes into play most often, when an individual does not have Capability but is afraid to admit it.

A second type of Courage is organizational. We have a good historical example from the 1980’s – the adoption of Total Quality Management disciplines by most major manufacturing firms in the country. This change represented a major shift and courageous commitment made by executives. One of its primary tenets was to first “drive out employee fear”. Honest, open communications, generated from data and fact, and rewarding people who identified and overcame barriers earlier rather than later, helped drive out the fear of enable the desperately needed change.

Co-operation: Typically, what appears as a delay caused by a lack of cooperation, either from an individual on the project team or from a support department, is actually caused by a priority misalignment. Management Clarification and Communication quickly overcome these barriers.

Cognition: Ever been caught in a “deplaning jam”? It’s the experience of de-boarding quickly from an airplane only to be jammed-up in the terminal by Grandma hugging all her six grandchildren right in front of you? People scurrying on their way to catch a cab or to baggage claim start crashing into one another as they stop short – preferring that collision to crushing Grandma and the youngest granddaughter wrapped around her leg. Grandma has stopped and stalled progress – oblivious to the consequences of her behavior.

Sometimes people simply don’t know they are in the way of progress by their inaction or that what they are doing is counter-productive.

Criticality: The negative economic implications of delays (and the positive economic implications of rapid success) should be visible to all members of a project team. Creating and sustaining a sense of urgency is essential by the manager ultimately responsible for the P&L impact of the program. When a delay is on the critical path it must be confronted immediately. Again, sometimes people just don’t realize the critical nature of a task assigned to them. Setting deadlines helps punctuate criticality.

Credibility: Do the team members really believe there is a need for the change initiative? Do they trust the judgment of the management team? Has the management team’s judgment proven itself in the past, demonstrated by a good track-record of success?

Trust doesn’t happen overnight and a lack of trust may linger just beneath the surface, as a pebble that is difficult to see – perhaps buried in a small puddle of passivity. In such a puddle, you can’t see the pebble, but you can feel, see and hear its effect. You may be afflicted by a Credibility pebble if you hear the phrase, “Program du jour”, notice a roll-of-the-eyes in the ranks of the team when the objectives are described, or recognize a blasé attitude..

Capital: Sometimes funding is needed to overcome a barrier. In some cases there is an ingrained philosophy, or unspoken rule of not asking for funding. To overcome this hesitancy, set expectations at the beginning of an initiative to make capital-related issues visible immediately.

Example: A Persistent Barrier Falls to 3 of the “C” Questions

A number of years ago I was working with a client to rebuild their weak sales pipeline. When I asked the sales manager what he thought the barriers were, he answered, “Time”. In our vocabulary that “C” is Capacity. He continued, “We have to baby-sit every project opportunity from birth to death – including project coordination. This makes us too busy to look for new business.” I suggested that they document the customer engagement process, divide it into phases and assign different phases to different departments– freeing up their time to engage more new customers and new projects. Stunned silence was the response. No one had thought to solve the bottleneck by looking at it as a process capacity issue instead of a sales problem

I asked, “Is there anything else in the way? He said, “Training. We don’t know how to use the pipeline management system.” In our vocabulary that “C” is Capability. We scheduled training for the next sales meeting.

“Anything else”, I asked? He said, “The CRM system isn’t designed for our business”. They ordered a new, easy-to-deploy system that fit the business better. It could be installed in the next 45 days in time for the next sales meeting and would cost only a few thousand dollars. That “C” is Capital.

Anything else? “Nope”

I then suggested a series of working sessions, (Checkpoints), over the ensuing several weeks to assess progress on these pebbles and identify any new or additional barriers.

These pebbles had been jamming their cart wheel for more than two years. In one hour, using our list of “Cs” we identified and began the process of removing them. You can too – if you have the Commitment and the Courage to Confront them.

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Learn more about a QMP program for deploying a culture of Performance Excellence and Getting Things Done

Don’t Give Up on the Top Line (no matter how tough things get)

Posted on August 8, 2011August 25, 2014 by Jerry Vieira

The Most Common Reaction to Economic Turmoil: Expense Reduction

There’s a line in the Willie Nelson tune “Nothing I can do about it now” that goes like this:

I’ve survived every situation
Knowin’ when to freeze and when to run.

Two years into the current economic downturn, there is plenty of evidence that companies are trying to do both. Firms continue to take aggressive steps in reaction to reduced demand. Cisco just announced layoffs of 6,500 employees. Other big name firms such as Merck, Lockheed and Boston Scientific also announced staff reductions. Borders finally threw in the towel, closing its last 400+ stores. It once had 1,200 outlets, employing more than 35,000. And most recently, HSBC indicated it will let go between 25,000 and 30,000 employees.

Small to mid-sized company layoffs typically don’t make a lot of news. But a quick informal survey at the other end of the corporate spectrum, showed that smaller firms, particularly those without an international earnings contribution to their performance, have experienced a down-turn in revenues of anywhere from 25% to 40% from their peaks in 2007 and 2008. They’ve aggressively cut expenses and conducted layoffs as well.

Of course, there are exceptions. Companies with specialized innovations targeted at niche market problems are doing much better than firms depending only on their traditional products and markets. But by-and-large, corporate “economic adjustment” initiatives focus on operational expense reductions.

Instability in Europe continues, the DOW is down more than 1,500 points since July 1, unemployment and underemployment in the U.S. remain high, Asian demand for US exports will decline as a reflection of reduced US demand for their imports, and the US Congress is mired in finger-pointing politics vis-à-vis problem solving. Under these economic conditions, can you blame anyone for immediately reaching in the first aid kit for the expense reduction tourniquet?

Taking a Second Look at Revenue Upside Options:

Stemming the bleeding is crucial under these economic conditions. However, in the frenzy to cut expenses, the potential for revenue upsides gets short shrift. Why? Expense reductions can be swift and easily seen in reduced cash outlays. Revenue upside strategies, on the other hand, even in good times, carry with them risk. Financial executives and conservative CEOs will opt, almost every time, for the less risky, faster impact, sure thing. Revenue-upside options fall to the side of the road.

Nonetheless, there are a handful of strategies for realizing revenue upside in a down economy. Due diligence and responsible managerial behavior should compel managers in serious economic times like these to, at least consider the revenue-upside options that follow. An impulsive, headlong rush into any one of them would simply be unwise. Rather, we suggest a serious vetting exercise, followed by execution of the best.

Upside Potential #1: Market Focus

Focus is typically rejected, out of hand in tough times. When the business is hurting why would anyone in their right mind “narrow” their focus? Shouldn’t we be casting the net further?

Not necessarily.

Spending time to reconsider the market segmentation of your customer base and the unique conditions extant in each of those segments helps you identify areas that might benefit from additional focus and re-deployed resources.

Not all the market segments served by your business are affected equally by the economic winds. Not all market segments have adopted your products and services to the same degree. Not all market segments are afflicted with the same competitive infestation. And most importantly, not all segments of the market receive the same economic value from your product offering.

For example: Let’s say that, in general, customers in a particular market segment garner a 10X economic benefit from your product in a relatively short time frame. That is, the economic return on what they buy from you is 10 times more than they paid. In other segments, the return may be less. It is more likely that focusing additional effort in the market for which your product yields the highest return to the customer would have a higher probability of success than expenditures in other areas where that return is less.

In contrast, broad-brush marketing initiatives intended to expand a firm’s reach are less efficient because they: a) dilute resources, b) dilute the economic return differentiation of your brand, c) begin to encompass more competition in each new segment and d) don’t adequately leverage your greatest successes. Focus is likely to be more effective and profitable.

Upside Potential #2: Pricing

This alternative has two options: 1) holding prices and 2) increasing prices

Holding Prices: The competitive nature of tough economic times inevitably presents opportunities for price cutting, particularly as a means to close hotly-contested deals. The reasons for this are many. First, weak, undifferentiated competitors are starting price wars. Secondly it’s the easiest option for the sales person and requires the least amount of sales effort. Third, it typically doesn’t make much of an impact on sales commissions, unless the commission is tied directly to the profit margin of a deal. Fourth, sales people are not trained or disciplined enough to sell on value. Fifth, in tough times customers (particularly purchasing managers) know they can request price concessions and “work” one vendor against another. Finally, owners and managers frequently don’t have enough good first-hand information or a well-enough established relationship with the key customer decision-makers to mitigate price discussions.

The truth is, allowing price cutting, even in tough economic times, is really an admission of several foundational weaknesses. The product is may not be providing a differentiated economic value to the customer (wrong target customer). Management may be out of touch with customer decision makers. The strategic market segment focus is one that has too much competition. Or managers don’t understand how to direct their sales team on how to avoid price-based competition.

In a mini-workshop, I asked CEOs of small to mid-sized B2B firms to imagine their best product being purchased and used by their best customer. I then asked them to pencil out what they thought the 3 year economic impact would be on their customer – that impact being the amount of profit their product would drop to the customer’s bottom line. For example, if their product was of very high quality, what would the economic impact be to the customer for purchasing the high quality product vs. a lower quality product from one of their competitors?

In this 15-minute exercise, not one CEO was able to arrive at an answer. If the CEO can’t describe it, how can they expect their sales people to? If the sales people can’t explain it, how can price-based competition be avoided?

Raising Prices: A number of years ago we were working with a client whose new product adoption was stalled, gaining virtually no traction in the marketplace no matter their continuing effort to increase distribution agreements. It was priced 3X higher than the most popular competitive approach. Of course, the sales people thought their job was futile and continually pleaded for significant price reductions.

A brief assessment showed that a certain portion of the tiny installed base went to a segment of the market whose needs were unique. Only this product could meet those needs, for a myriad of reasons. (Interestingly, initially the market had found my client, not the other way around.)

Rather than reduce prices we suggested the business refocus their efforts to this one segment, highlighting to potential customers the unique fit and match of the product to their unique needs. After focus and redeployment of time, money and energy (no increases), adoption took off, with no accompanying price reduction.

Now some people would call this just another version of Revenue-Upside, Option #1 – Market Focus. That’s largely true. However, the rest of the story is that while focused and penetrating this particular segment, customers began to request additional features and functions – which in turn led to increased selling prices. In the end, the average price point rose to 4X its original. (Remember, the original was 3X the competitive approach).

At no time was there a need for a price reduction and the business turned completely around, growing much faster than anyone had anticipated. By focusing on market segments where the economic value and unique characteristics of your products are understood, the opportunity exists for improved performance products at increased prices.

Upside Potential #3: Fragmenting Offerings

Sometimes fragmenting your offering into more affordable pieces makes it more digestible for clients. Increased revenue accrues when decisions that otherwise would have been delayed can be made with smaller financial commitment by the customer. This provides your firm at least a small amount of revenue vs. none. It also sets the groundwork for follow-on purchases.

When fragmenting your offering, selling prices of the fragmented pieces need to be set so that the sum of all the pieces of the fragmented offering sum up to more than what would be charged were the product/service sold all at once. Is this “sum-of-the-parts pricing” gouging? No. The costs of doing business associated with the planning, coordination, administrative management and handling of multiple orders justifies the increased pricing – and you can be honest with customers about that price penalty. They understand that it costs more to do business that way and might even be encouraged to buy larger chunks to avoid paying that premium.

Depending on the type of product or service, fragments or phases might be identified as any on the following list: planning, design, testing, tooling, manufacturing, test, integration, set-up, training, service and/or recycling. The bottom line is that fragmenting your offerings should make it easier for customers to buy something rather than not buying a more costly nothing.

Upside Potential #4: Adding Services to Product Lines

Have you noticed that, these days, nearly every durable-good purchase comes with an offer to buy a replacement or service contract? Last week I bought a 16GB PC thumb-drive for $27.99. The checkout clerk asked if I wanted to buy the replacement warranty. I declined, but certain types of renewable service warranties can be very profitable add-ons.

Upside Potential #5: Acquisition or Licensing

Opportunity to acquire businesses and intellectual property during major economic downturns increase as companies struggle and values are depressed. However, as with any acquisition at any time, there is reason to be cautious.

Buying a competitor’s business to capture their customer base (barring SEC denial) is not necessarily a coup, even at a bargain price. Your competitor’s customers may be receiving a technologically obsolete, poor quality or functionally inferior solution. In such a circumstance, you would be wiser to boost investment in your own product development effort vis-à-vis buying your competitor.

Opportunities for acquiring intellectual property may arise more frequently in tough economic times as well, as challenged companies look to find sources of cash. Turning IP (purchased or licensed) into products and then into cash, however, doesn’t typically happen quickly. A better way to ensure a speedy IP-to-cash transition is to acquire IP that can be integrated quickly into your current product offerings, increasing their functionality, their value to the customer and their selling price.

Just Don’t Do Something, Sit There! Think!

In most businesses the ratio of execution-driven people to strategic-thinking people is low. Of the two roads to survival in a downturn, expense reduction and top-line, the expense reduction road is best travelled by the tactically driven, the top-line by the strategy-minded.

The strategy-minded are often those at the top of the organizational pyramid. So, it’s only self-discipline and personal values that will compel people at the top to consider revenue upside.

George C Scott in the movie Patton said this to his troops.

“I don’t ever want to hear we’re holding anything. We are advancing all the time.”

Be brave. Seriously consider the revenue-upside options in the face of adversity.

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Learn more about the QMP Marketing and Sales Engine and how it can revitalize both top and bottom-line growth

Looking in the Performance Excellence Mirror

Posted on July 7, 2011August 25, 2014 by Jerry Vieira

A Performance Excellence Culture is the Nutrient-Rich Soil that Enables your Business to Grow and Thrive

Between 1986 and 1996 the Evergreen Research Project was undertaken to identify business practices that were common to high performing firms. A team of 50 leading academics and consultants compiled data on dozens of companies and the 200 most common business practices used. The objective: find those few practices that truly made a difference.

The findings were published by William Joyce, Nitin Nohria, Bruce Roberson and McKinsey & Company in a book entitled, “What Really Works: The 4+2 formula for sustained business success” published by Harper Collins.

The conclusion: High performing firms adhered to four common behavioral imperatives, plus two behaviors from another secondary group of four. Two sides of getting ready in the morning Success was demonstrated by a 15X greater Total Return to Shareholders than companies not practicing these business behaviors. Not only was their performance better, it was sustained over a longer period of time.

The four essential practices are:

Make your strategy clear and focused
Execute flawlessly
Build a performance-based culture
Make your organization fast and flat

You’ll need to buy the book for the rest. But here’s my point: The bottom three essential practices all relate to performance excellence.

Good soil yields good crops

A culture of performance excellence is like highly nutritious soil. Business initiatives are seeds. Even a marginal seed planted in excellent soil will yield a crop – maybe not a great one, but at least something. On the other hand, an excellent seed planted in depleted spoil will yield nothing.

If you must work at anything in your firm, it is most imperative to work on fortifying the soil by building a culture of performance excellence.

Taking a quick look in the mirror

If you’re wondering whether your business culture is nutrient-rich, take the organizational performance excellence self-assessment that follows. For each of the bulleted items, ask yourself, “To what degree is this performance discipline practiced consistently across our business?” Rate each on a scale of 1 to 5, with 5 being the highest rating. When you are finished, total the results.

Goals and Objectives Setting: Our goals and objectives are clearly understood by all. They are strategically-sound, economic and quantitative. Everyone has several goals. They are specific, coordinated and aligned.
Project Planning: Our project plans are detailed. They have timelines, milestones and adequate funding. We consider team member selection carefully based on skills not simply availability.
Ownership/Leadership: The ownership of each of our major business initiatives is clear. There is a single point of project manager responsibility and authority. Our project managers exhibit good project leadership skills and resourcefulness.
Sense of Urgency: Meeting deadlines is a cultural imperative in our firm. Meeting commitments is critical. People work late and on weekends to assure they don’t miss a deadline.
Expectations: Individual performance expectations are clear, documented, measureable.
Accountability: Individual rewards and consequences are clearly understood.
Measurements / Metrics: Both process and outcome metrics are measured in all important aspects of our business.
Checkpoints / Feedback: Our business initiatives are characterized by frequent and productive team working sessions vis-à-vis presentations, reviews or ineffective meetings.
Personal Performance Management: Individual goals, targets and roles are clear. People’s performance evaluations relate directly to achievement of goals and the way in which they were achieved or not achieved.
Training Programs: We have standard training programs across the firm for all critical roles. Training is expected. People are not assigned to a task without being trained, tested and qualified.
Process Consistency: Our critical business processes are consistent across the firm as are the tools and systems used for executing them.
Priorities: There is high level of clarity amongst our employees regarding priorities. They know how to determine the difference between urgent and important. They consistently follow-through on tasks to completion.

It is not uncommon to find a struggling business scoring (if the assessment items have been rated honestly) in the mid 20’s. But whether the core is 23 or 38, imagine the economic benefit of driving either score to something closer to 50.

Changing the Culture

It’s not hard to imagine the concern a small to mid-size business owner might feel after taking this look in the mirror. Embarking on a cultural change that would move the company from, say, a score of 23 to 48 might well seem daunting. What will his people think? Will they head for the door? Will they embrace the initiative? Will they understand how important it is?

A well-respected and successful CEO, once told me that when faced with the uncertainty, consequences and fear associated with making critical decisions, he was always spurred on to make those tough decisions by the uncertainty, fear and consequences of not making the decision.

Like every major quest, if considered as a mountain it appears impossible to climb, but as a series of small, guided steps it is achievable – and worth it.

How much is it worth?

If you are a small to mid-sized business owner and can achieve a 15 times greater total return to shareholders than your competition, how much more will your business be worth when you sell it? And how much more will you be worth in the years between now and then.

And what would the consequences be if your main competitor did it first?

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Learn more about a QMP Performance Excellence cultural transformation