All careers end in failure

I’ve been transfixed by the Leveson enquiry, how a small swell of negative public opinion has turned into a tsunami; a company that was arrogant enough to claim 20 years ago that “it was the Sun wot won it,” is now being publicly vilified and its powerful leaders are being made to look frankly incompetent, febrile and out of control.

All the actors in this pantomime seem to be turning on another. I believe we are at a turning point and witnessing the demise of the 20^th century’s arrogant, alpha male press baron. Maxwell died before he could be arrested, Conrad Black was banged up for fraud and the dynastic ambitions of Rupert the Murdoch have all but been destroyed. It strikes me it’s partially our fault, as consumers, we allowed the press to be mismanaged for decades on the pretext it was all a bit of a laugh and the likes of Max Moseley were asking for it...perhaps it was more serious than that.

I worked as a client of News Corporation for many years. The newspaper side was, without doubt, an arrogant and secretive business that encouraged combative relationships with its’ business partners. The advertising sales people who ‘repped’ agencies were frequently moved on, so they didn’t develop too close personal relationships with individual buyers, but I think this was also partly because of the primeval way that newspapers used to operate. They were tyrannical, self obsessed entities that created the atmosphere where the kind of behaviour being exposed at Leveson would have been acceptable and tolerated. The editor was king (or queen) and sometimes seemed more powerful than the proprietor, and certainly than the commercial management of the paper.

 The television side of Murdoch’s empire is a far more professional, open and smart business.  However, I saw James Murdoch, then CEO, speak at an event with almost messianic like appropriam for the BBC, describing it (I paraphrase) as a parasite that distorts the natural market mechanism. Given Murdoch Jnr had spent most of his working life working abroad, I think his views must have been influenced by listening to other people, like his father, rather through his own experience.

Inherited belief systems like this are dangerous and in the long term harm organisations, whether they are businesses or political parties. Institutions that don’t encourage original thought, self criticism and allow for totems and ideas to be challenged are signing their own death warrants. It’s not just families that behave like this; I’ve worked with a couple of the UK’s biggest and high profile retailers in my time. They behaved in a very similar way, both had dogmatic and charismatic CEO’s who were responsible for the personality of the business and, unwittingly perhaps, created fear cultures.

Once you have a personality culture like this it means that the only people who progress are the ones who buy into the personality cult of the CEO and, more dangerously, almost no one recruited externally could succeed. I witnessed many senior, successful ex pats from other retailers turn up and leave within six months, because they didn’t fit or weren’t liked. It was effectively institutionalised bullying.

It creates a very toxic culture that won’t survive in the long term. The talented people with differing experience or point of view will leave the business meaning only one persons’ opinion actually matters. It didn’t matter that both the businesses were PLC’s, they were run effectively as personal fiefdoms. In periods of economic success it becomes self justifying; people become complacent and start to believe the myth of the organisation and propagate it externally. However, the real talent slowly leaves the business and there is no legacy once the messianic CEO departs.

I’ve seen both organisations fall from grace, one almost went bust because it borrowed excessively to expand immediately prior to the downturn, the other operates in a cut throat retail sector and suffered because of poor and unimaginative marketing in a key period when all its competitors were innovating. However, I think both businesses failed because one overpowerful individual snuffed out talent, didn’t listen to new ideas and had an intransigent and outdated view of the world.

One of the most difficult issues for any leader is when to leave and how to pass on the baton. Whatever one might think of Margaret Thatcher, her inability to plan for succession management destroyed the Tory Party for ten years, Tony Blair created similar carnage in the Labour Party, even though he publicly talked of his legacy. A lot of alpha leaders believe their legacy is important, but they probably don’t have the self analytical tools to ensure a successful handover is achieved. Enoch Powell is often misquoted “All political lives...end in failure, because that is the nature of politics and of human affairs."It’s equally true in business.

I don’t think it’s in the DNA of many leaders to realise when their time is up. People believe they are indispensible and that an organisation will fail without them. This is almost always untrue. However, what is true is that leaders often plan poorly for their succession and then handle it badly. The sudden loss of power and status is difficult to contemplate, so it’s delayed until absolutely necessary. This lack of planning is the single most likely issue to cause a legacy to be destroyed.

The size of the business is irrelevant, the small business can have bigger leadership issues that of a PLC. The leader is often the owner, it’s not in the public eye and the impact of the boss is greater (because the business is smaller.)

As ever, there are some simple steps:

v  Plan the business. I don’t mean have a business plan (although you should.) I mean have a three year vision. What are your personal ambitions? Do you want to stay fully involved or move on? I’m not a great fan of partial involvement or consultancy. Businesses change very quickly and a departing senior executive hanging around soon becomes irrelevant. Decide what you want to do and work towards it.

v  Get decent external advice. One of the biggest issues as a senior manager is how you evaluate your own performance. You get measured against hard numbers such as turnover or profit growth, but often the soft stuff gets ignored. If you were going to get a non-exec involved (and I’m not always a great fan in small businesses,) one task would be to get them to evaluate, motivate and mentor the senior team.

v  Are you still learning? It’s very easy at the top of the business to get caught up in management issues and forget to improve your craft skill. Go out and see what’s going on. I don’t mean networking events with other CEO’s, I mean actually seeing what’s happening just around the corner; things like Consumer Entertainment Show in Las Vegas.

v  Try to get objective advice. Look broadly, not just amongst a favoured few. It’s easy to have favourites; often they will tell you what they think you want to hear. You need to understand the full range of opinion. My suggestion is to do it formally; staff surveys by an external research business and a formal review process, but also make sure you spread your time amongst all staff.

How not to be brilliantly stupid

The cover of this month’s Vogue has a full face, close up photo of the model and actress Sienna Miller, juxtaposed immediately beside it is the headline “Sienna Miller on pregnancy and privacy.” Vogue has a monthly readership of 1.3 million readers. I assume there is no irony or humour intended, as rather like their ironing, I suspect the journalists at Vogue get someone else to do their irony for them.

Without trying to be condescending about fashionistas, I do think there is something profoundly stupid about a seemingly intelligent and cogent person talking openly about privacy on the front page of a world famous magazine. My (possible naive) assumption is that if you want privacy you don’t herald the fact on the front cover of a newsstand, you just remain silent.

There is a brilliantly perceptive phrase in French; “jolie laird” which means “pretty ugly.” It’s a insight that some seemingly unattractive people can, in fact, be gloriously attractive, that people with one set of attributes can, in fact, behave like the complete opposite. I have a similar insight "brilliament stupide," roughly translated means “brilliantly stupid.” This, in a nutshell, means that members of corporations, companies or political parties, made up of extraordinarily well qualified and gifted people can say or do things of such febrile stupidity that any external analyst cannot find a rational explanation for their behaviour.

The period around the dot.com bubble was the prime example of this; around the millennium so much utter management rubbish was talked about the internet with ridiculous valuations for companies, when the reality was the internet was actually a sub-optimal medium with poor quality websites on slow dial up connections, aimed at a bunch of consumers with no desire for e-commerce. Companies, like Time Warner, destroyed their value with their deal with AOL, dubbed the worst deal of all time.

The initial investors might have been naive, what was completely incomprehensible was the inability of seemingly well qualified management teams to learn from the hubris and failure of the dot com bubble and continue to make ridiculous investments 5 years after the bubble burst; ITV paid £175 million for Friends Reunited in 2005, then managed to destroy all the value in the business and sold it 5 years later for £25 million. About the same time, News Corp acquired My Space for $580 million and sold it in 2011 for $35 million. Two mature, seemingly intelligent media businesses, with great track records of success carefully built over long periods of time, getting duped like teenage girls in a fake perfume shop in Oxford Street, to part with huge amounts of money to buy assets that they subsequently destroyed.

How does this happen?

We live in a world dominated by news and comment and it’s very difficult to go against the flow or reject the zeitgeist. News Corp bought My Space because they could see advertising budgets money moving from offline to online, therefore they had to set up an internet division, then they bought the 5^th most viewed domain in the US, with the objective it would drive traffic and revenues would follow. 

The logic is infallible; the Murdoch management team came from a strong traditional media heritage, where audiences are predictable and tend to do what they are told, whether reading the Sun or watching football on Sky. Traditionally, if News Corp invested significant funds into content, it generated an audience and revenues followed; however social content on the internet can’t be controlled in this way. They also probably didn’t know that Facebook had launched 17 months before they bought My Space, with no real funding and would destroy the value in the business.

I suspect very few people criticised the News Corps logic at the time and it’s easy to be smart in retrospect, however there are lessons we can learn.

How not to be brilliantement stupide.

1.     Businesses need to be flexible; News Corp has a command and control culture that doesn’t lend itself to social technology businesses. My Space could have been the future of the music industry, but required a different approach to, say, acquiring the Wall Street Journal. In the digital world, businesses that aren’t flexible will always underperform.

2.     It’s a bizarre fact of business life that companies often destroy the inherent value in the companies they acquire. The acquirer can’t help themselves; they’ve made a bunch of people millionaires, so they insist that the people are going to do it their way and stand in line. The deal will have been done at the top table and those people move on to the next acquisition, leaving the middle management salary men from HR, Corporate Communications, IT, Compliance etc to start imposing best practise. Over a couple of years they ensure the business becomes a mini me of the big company and loses the inherent culture that made initially made it such an attractive acquisition target. It requires strong leadership to ensure to continue to drive value into acquisitions and will involve unpopular decisions.

3.     Ignore the zeitgeist. Facebook has revenues of $6 billion, and the IPO values the business at $100 billion. I’m sorry, I don’t think so. Ignore fashion and hype, concentrate on the fundamentals. When faced with a difficult decision I always think “would Warren Buffett do this?”  

4.     If you are acquiring (or being acquired,) get real information, do proper due diligence and commission your own research. Ask difficult questions about how it’s going to work after the money is banked.

5.     Get wise advice. Have proper non-execs and listen to them. Don’t recruit your friends, recruit experts to whom your success matters and then remunerate them based on what they deliver.

When is a forecast a bad guess?

It’s something strange about quotations that the memorable ones get attributed to many people. I used to avidly quote this one under the misapprehension that it was the insight of Sir John Banham, former head of the CBI “it is better to be approximately right rather than precisely wrong.” I recently found very similar quotes attributed to both JM Keynes and Warren Buffet (I assume Keynes got there first) “I'd rather be vaguely right than precisely wrong.” Given these three people must have an aggregated IQ in excess of 600; they must surely be on to something.

I’ve recently spent a lot of my time pouring over business plans. The curse of Microsoft Office is that they are beautifully produced, with great graphics and with incredibly detailed graphs and tables. Most of the plans are designed to attract investors and are, naturally, optimistic. They often predict fairly reasonable single percent growth forecasts for the next couple of years and then suddenly the forecasts shoot up to thirty or forty per cent growth from 2013 onwards.

Without doubt they are produced by people with MBA’s and other qualifications I couldn’t aspire to, but I get very suspicious when I see a Himalayan growth spurt from a business that’s been steadily doing single digit growth for the last 5 years. Forecasting is one of the most difficult things we have to do; if we are too conservative, we would never invest and grow a business, if we are wilfully optimistic, we run the danger of over investing and going bust.

My concern is that we have too many tools that appear highly scientific, but in reality, generate rubbish. I am not a statistician by trade, but I am capable of getting cobbling together a bunch of numbers and using a spread sheet to produce substantial growth forecast, then factor in the (inevitable???) upturn in the economy, consumers adoption of new technology and a large slug of self belief and I could come up with forty per cent growth forecast for a couple of years time. It’s bound to be wrong, but hey, no one will look back that far.

The reality is that most forecasts are based on an element of subjective gut feel. I would argue that a service business would struggle to make an accurate forecast for more than 2 years. Why? Because the future is beyond our control; we usually have short term contracts, clients review with ever increasing frequency and our business performance is dictated by macro events way beyond our control. Therefore, when I look at a business plan, I only really give any credibility to forecasts for the next 24 months.

There is a vast difference between forecasts and projections. My view would be that beyond a couple of years we should only be making projections. Don’t attempt to be accurate, but describe a series of likely events and make low and high projections. If you take this approach, you will be closer to Messrs Banham, Buffett and Keynes, which strikes me as a reasonably good place to start.

Why being busy can stop a business growing

“If you want something done, ask a busy person to do it” is apparently credited to Lucille Ball. It’s a lovely piece of homespun philosophy that’s actually completely untrue. I would suggest a couple of updates “If you want something done, you will eventually do it yourself “ or secondly “ask someone else to do it, but make sure it’s worth their while.” Everyone is busy, busy, busy and there is no way round it.

Technology was meant to make our lives easier; in fact, it’s been the complete reverse. Every new piece of business technology takes up more time, we never realised what bliss being unconnected was. Now, we are meant to linked in and cc’ed on e-mails that have no bearing on our lives, but we feel compelled to read them. It makes us work longer hours and we are always in touch, but not always communicating properly.

Being busy has become a default response in business. I now meet a lot of people from different walks of life and they are all manic. It’s the equivalent of commercial BO to admit you have a bit of time on your hands. Evidently some people are busy, but if it’s often a default response. It probably comes down to poor organisation and an inability to prioritise and delegate rather than sheer volume of work.

I suspect we also claim to be busy because careers are competitive and being busy now equates to being important. Secondly, in straightened times being busy means that you are valuable to you company. The third reason is more fundamental and I believe has a profound effect on corporate performance.

There is a general tendency to be obsessed in the now, and it means you can avoid thinking about the future; which is difficult, imprecise and risky. Think about your own schedule, divide what you do into four areas; internal and external contact, then secondly, the now and the future. I would bet the biggest sector will be the now, and probably internal.  The issue is that people often focus on the least profitable area rather than the long term future of the business. Time spent with clients is probably the most valuable and long term planning is more important than short term management.

Now, I’m not saying that the short term doesn’t matter, but it’s probably more valuable to set the strategy and closely manage a competent team rather than trying to micro manage everything yourself (and I’ve seen many senior managers who can’t leave detail alone, they usually create more problems and frustration than they solve.)

I am also a firm believer in the benefits of new knowledge, especially for senior people in an organisation. I’ve always found that half an hour in the company of an inspirational or creative thinker is far more valuable than the same time answering e-mails.

Yet we often default to the short term, we sit in conferences surreptitiously on the crackberry; rather than listening to the wisdom of other peoples’ experiences. I think one of the greatest dangers to the productivity of businesses is that senior people are being exposed to fewer, genuinely inspirational ideas and the people we hold in high esteem aren’t the challengers or the mavericks, but often people who were extremely capable at writing code at Harvard.

Here is my anti busy-ness mantra:

• Make sure you spend 10% of your time away from the mundane and being inspired. Build it into the culture of your business. Get in clever thinkers and speakers, and perhaps take people to interesting events (for example, Intelligence Squared.)
• Make meetings shorter, punctual and focussed. I used to go bonkers in pointless status meetings where people drifted in 10 minutes late and then spent 10 minutes getting coffee or tea. Create a culture where meetings are short, sharp, punctual and there is a very clear agenda. I think 20 minutes is the perfect time. If you want short meetings, don’t sit down!
• In service businesses, people are often controlled by their diaries, rather than managing it. Try to get it under control and carve out time to think and discuss the business. Then act on it.
• Do what you hate first. Always. Get the difficult and crap things out of the way immediately.
• Delegate effectively. People are usually more capable than you give them credit for, give them a chance to fly you will be amazed and be prepared to allow them to fail.
• Absolutely minimise internal communication by e-mail. Face to face is far better. Get the best possible firewall and eradicate spam and try and only use e-mail for external communication. Try to check e-mail only twice a day and create a culture of not having to answer everything.  
• Try to get out the habit of saying you are busy, it’s a communication barrier and possibly rude. Try to make time to have conversations, however short, with people who want to talk to you.

   

The Hippo vs. The Llama

We came across the HIPPO Principle the other day, it’s highly relevant to smaller, private businesses. HIPPO means the Highest Paid Persons Opinion. The opinion of the Grand Fromage is the most important. It’s prevalent in most organisations; the pressures of time, the insecurity of power, the arrogance of experience all mean that the leader of group often imposes his or her will on a group of co-workers without thinking through the consequences. Even worse, employees try and double guess the view of the HIPPO and only bring ideas and solutions that will win their approval. It’s potentially disastrous, think of behaviour of Sir Fred Goodwin at RBS and his single minded management style to realise the danger of a management culture that doesn’t accept constructive challenge well. 

It’s a real issue in small businesses. Firstly, the HIPPO in a private business is usually the owner and senior manager, meaning they are all powerful. Secondly, the founder of private businesses have often set the business up in their vision and don’t necessarily want to accept challenge or change. Therefore it’s often easier to surround yourself with people who agree with you, rather than encouraging the difficult git who comes up with a brilliant left field idea that challenges the whole status quo of a business.

However, it’s critical that businesses have processes that encourage self evaluation and challenge themselves. Smaller businesses often succeed by being visionary and the thought leaders in their sector, but to do this they need to constantly evolve and stay ahead of bigger competitors. If they merely follow the pack, they lose any real purpose.
How, as a busy business owner, can you keep ahead? We have a new principle; not from Africa, but South America, the LLAMA principle:

The LLAMA principle: Listen, Look, Analyse, Mentor, Action.

People can confuse leadership with dictatorship. If a leader who shows any sign of weakness or vacillation, it indicates poor management skills. Conversely, our view is that one of the greatest management skills is the ability to listen. Failing to listen to new ideas and advice often stops businesses developing and inhibits growth in value. So it’s important to find ways to actively listen to people within (and outside) a business.

So how do you get employees to contribute good ideas?

It’s a conundrum; I’ve been to countless ‘awaydays’ in boutique hotels around the M25, where people are encouraged to cast off their shackles, think freely and “push the envelope” (I believe it’s called ideation.) Often they are based on false principles, such as there is no such thing as bad idea (which is patently rubbish.) I can honestly say that after having been to more than 100 awaydays, I’ve rarely come across a truly actionable idea. I've heard great thinking from very bright people, but usually the best ideas fail to be implemented.

Why? Largely because unfettered thinking produces unrealistic solutions. We can only come up with ideas that deliver actionable results if we think within practical boundaries of a business. We need to exploit our experience, use real data, speak to other experts and, perhaps, borrow ideas from other places. We need to strike a balance between suffering from closed minds and encouraging people to come up with loads of impractical ideas on the basis that you might eventually find a nugget of gold.

If "awaydays" are ineffective ways of generating ideas and analysing business problems, what’s the answer?  Firstly, get people together in small groups and have a very clear & defined brief. Have frequent, short meetings with clear tasks and roles. Set a defined agenda and make people actively prepare. Then LISTEN to them, don't interrupt, don't challenge, just LISTEN. Check their recommendations with external experts; and possibly research the outcomes. This is what we mean by LOOK; try to think in the widest possible context about how their recommendations could work in your specific market.

Then take the ideas away and ANALYSE them, maybe only focus on two or three that might be actionable. Put together small Action teams (who might be different from the Ideas team) and task or MENTOR them to come up with actionable plans that can be implemented. Then find ways to ACTION the ideas and bonus both the team that came up with ideas and the people who made it happen.

Our view is that if you follow an ordered, open process (with an animal based acronym) you have a chance of keeping your business fresh. The most important part is LISTENING.
This leads us to the IGUANA Principle. IDEA GENERATION, UNDERSTANDING AND NEW ACTIVITY. But that’s for another day.

How should private companies handle bonuses?

We live in a bonus culture. As companies have become bigger and more complex, attracting, incentivising and remunerating senior staff has become a logistical minefield. Certainly in the UK, we have a severely wounded National Press on the lookout for the next overpaid fat cat who they drag into the bear pit and give a good kicking about his (yes usually his) remuneration. To be honest, most companies are pretty lame in how they justify their senior executives’ remuneration, probably because they can’t, so the ‘Press know they are on safe ground; giving a banker a shoeing is likely to appeal to most readers.

The concept of bonuses has evolved; originally they were developed as a mechanism to hold onto senior staff, reduce fixed overheads and to hedge against underperformance. This is when they were discretionary, however, now almost all senior directors expect a healthy bonus structure and this filters down into lower levels of the organisation. The issue is that bonuses quickly become expected by staff rather than being regarded as a measure of performance, and often the criteria for awarding them are soft, based on a variety of criteria rather than individual performance.

Harness this with the fact that many companies are fearful of unsettling ‘key’ employees, and one wonders whether we have created something that rewards longevity of employment rather than added value. I suspect the whole issue of bonuses causes more grief and upset in companies than acting as a motivational tool.

However, they won’t go away. We are firmly of the opinion in private companies that they should be viewed in different ways.

In our view bonuses should have three purposes in private businesses.

v  A high performing individual performance can have a far greater effect in a small business than in a larger one, so they can be used as a means on rewarding and retaining key individuals for specific performance. We shouldn’t be afraid of highlighting and rewarding key people for outstanding performance.

v  Secondly, people talk, especially in smaller businesses. The accepted wisdom is that bonuses should remain secret; the reality is that they won’t. You might consider using bonuses as a method of highlighting key, high performing individuals, perhaps even publicly. Use them as an incentive to others.

v  Thirdly, we all want bonuses to do two different things; reward performance and encourage longevity of service. These are two very different issues and perhaps should be treated separately. In terms of encouraging longevity, there is always an issue in smaller, private businesses of sharing equity. It’s hugely emotive, probably goes way beyond its real value. Perhaps consider two bonus structures; one for individual performance, the other for long term service, creating a long term investment pot that senior staff share in.

Our recommendation for handling the bonus conundrum in private businesses.

v  Firstly, explain (in writing) exactly how the bonus will be calculated, who qualifies, how it’s judged and who is in control. It has to be seen to be fair, properly setup and administrated and benefit both company and the employee. Make it a transparent, fair and objective. Bonuses can become a minefield if they are seen to be divisive, secret and unfair. Good companies communicate well with their staff; make sure the whole bonus strategy is open, fair, thoughtful and equitable.

v  Move away from the all or nothing approach. Have quarterly reviews with staff, properly assess their performance and create a system where they earn points towards a final, annual score. Part of the dissatisfaction with bonuses is the lack of knowledge or control of the outcome.

v  Make it a mix of individual and company performance (probably half and half.) Individual performance needs to be recognised, even in tough times. Also it needs to be a mix of hard and soft criteria, and related to individual roles.

v  If you can’t afford to pay a bonus in cash, be creative. It doesn’t mean you can’t reward exceptional performance. In a tough year, extra days holiday maybe be as welcome as cash. If a company is seen to empathise and be understanding, it can help make up for lack of cash.

Jumpstart Consulting helps small, private businesses succeed.