ChangeAbility: Ditch the Drama and Crank Up the Productivity/What's Holding You Back from Getting Your Business Valued?
The Newsletter of Redpoint Coaching
Volume 9, No. 5, November 2010
October’s Indian Summer might have lulled us into feeling that winter would never come, but alas:
Dull November brings the blast,
Then the leaves are whirling fast.
- Sara Coleridge
If, as you ponder the whirling leaves, you decide that life is too short to put up with workplace drama, Lauren’s got some insights and tools for you. Meanwhile, Urs' article on business valuation takes a look at how to assess what your business is worth -- and why it's important to know.
November is also a time to reflect and give thanks to the many blessings we have in our lives, including the opportunity to learn from and work with clients like Bob and Sue Coulter and the team at Red Cross Drug Store, our first featured business. We wish you and your families a happy, healthy, and peaceful Thanksgiving.
Urs and Lauren
P.S. We welcome your responses, comments, and questions at firstname.lastname@example.org.
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by Lauren Owen, MBA
Tears in the hallway. People storming out of meetings. Doors slamming and yelling. Whispered conversations by the water cooler. Nasty Facebook postings about colleagues.
Why can’t we all just get along?
After worrying about profits and cash flow, frustration with drama and discord is the number one complaint we hear about from business leaders. It seems to cut across all types of industries, business models and company sizes.
Drama and discord create stress, and hurt your company's productivity, reputation and most likely the bottom line. When leaders tell us they’re burned out, workplace drama usually is one of the main causes. While there is no magic solution to instantly eliminate these types of issues, we think most leaders could “dramatically reduce the drama” if they took a stand and few key action steps.
Provide a Clear Structure
Often, we see structural issues that encourage discord. Turf wars can erupt when people are not clear about their positions and responsibilities. Very often we see an excess of drama when there are vague or no job descriptions and/or mystery surrounding organizational structure. When we conduct one-on-one interviews at our clients’ worksites, their employees tell us they want to know where they stand and what is expected of them. If you don’t have written job descriptions, an employee handbook that spells out acceptable and non-acceptable behaviors, and an organizational chart that clearly shows who reports to whom, develop them now. (And don’t forget to share them with your employees!)
Understand Different Communication Styles
People are hard-wired to communicate differently. Some people want “just the facts.” Some are story tellers. (Guess what happens when a story teller tries to share a “brief tidbit” with a just-the-facts type A person?) Others would rather bite their tongues off than confront someone, even when it is an issue or behavior that clearly crosses the line. Awareness and appreciation of your own and your team members' styles coupled with some personal development training and coaching can go a long way toward both better on-going communication and prevention of hard feelings.
Realize that Not All Confrontation Is Bad
There’s conflict that results in hard feelings and resentment and there is conflict that gets things resolved, puts issues on the table and encourages commitment to a plan of action. In his book, The Five Dysfunctions of a Team, Patrick Lencioni lists fear of conflict as one these five dysfunctions. If you trust your co-workers, you’re more likely to speak your mind and engage in the healthier kind of conflict. If you don’t, you won’t speak your mind and as a result, your commitment to future team activities will suffer.
Conduct Regular Meetings with Clear Ground Rules
When we ask leaders whose workplaces are rife with drama if they hold regular constructive meetings, the answer is almost always “no.” Regularly scheduled, well-run meetings are essential to clear communication and team building and surfacing potential conflicts. For a list of tips for running good meetings, see Redpoint’s Better Meeting Tips.
Address Under Performers
Oftentimes, poor performers are in jobs for which they are totally unsuited. Do you hire the best people or just settle? Do you have a plan of action to address the poor performers? A huge cost of allowing poor performance to continue unaddressed is that it creates resentment among your top performers.
Give Meaningful Feedback
Here’s a concept. Sit down in a one-on-one setting, confront your misbehavers about their actions, tell them what is and is not acceptable and give them consequences for their actions? Again, not all confrontation is bad. Be sure to be very specific about the issues, focus on the behaviors, not the person, and keep your emotional tone even. Keep in control and keep the conversation short. Then, follow up. Praise for good trends, and address bad trends immediately. Do not wait for an annual review to address these issues.
Meet with the Non-Drama Queens
Ever notice how the bad-behavers tend to get all the attention? Have regular one-on-one meetings with all team members. Actively ask what you can do to help each employee perform and ask about what obstacles they face. This puts you in a pro-active position to potentially head off and/or fix issues before they become full-out drama.
Perform a Cost-Benefit Analysis on Your High Maintenance Employees
Sometimes your higher performers can be higher maintenance and, we admit, sometimes they are worth the extra effort. Sometimes they tear apart a team and are huge energy drainers.
Get Clarity about the Why
Daniel Pink, in his book Drive: The Surprising Truth About What Motivates Us, states that research clearly shows that workplaces that engage their workers with a clear sense of purpose to something bigger than profits or self-interest have more engagement, and less turnover and burn-out. If someone were to ask each of your employees what the purpose of your company is, what would they say? Would it be: “make more money” or “create market share"? Or would they say something like what the team members of our pharmacy client say: “We help people live healthier lives”? Would your workers refer to your company as “they” or as “we"? In Pink’s opinion (and ours), words matter. “Humanize what people say and you may well humanize what they do.”
What's Your DNA in the Situation?
In other words, what’s your role in this situation? While you might protest that you hate the drama, if you were really honest with yourself you might understand that the drama is satisfying some need of yours. Attention? Power? Control? Do you avoid all conflict, even healthy conflict, at all costs?
What Gets Measured Gets Managed
Think of drama and discord as leading indicators. Our colleague Walter Oelwien, author of the excellent blog, www.Managerbydesign.com, suggests tracking the number of mini (and major) dramas on your team and setting a goal to reduce it. “Having an awareness of your drama/reactive score will help you understand where you are as a manager.”
Here are some resources for you:
Redpoint’s Tool for Giving Better Feedback
Redpoint's Better Meeting Tips
Empathy exercise: “A Day in the Life.” A simple exercise for your next team meeting to develop empathy among different departments.
Assessment Samples: Hire smarter with assessments. See samples here.
By Urs Koenig, PhD, MBA
Daryl is our dream client. He runs a smooth and profitable operation. His business is his passion. There is no personnel drama (see Lauren’s article this month). He hired us to develop and execute his personal business exit strategy. Every time Lauren and I leave a meeting or hang up the phone we feel energized and thankful for working with such a great client.
Daryl, like many of our other clients, has the vast majority of his net worth tied up in his business. To his credit, he has taken advantage of the opportunity to put aside tax deferred money into retirement accounts. Daryl is a smart man.
But we noticed something interesting when we started working with Daryl: While he was checking the performance of his retirement accounts almost daily, worrying about the ups and (mainly) downs and wondering how he would ever be able to retire, he had no clear idea about what his business was worth. He had never had his business valued.
Using a back of the envelope valuation approach, we showed him that the value of his business could potentially be more than 10 times that of his retirement accounts. We then asked him the following questions:
- Wouldn’t it make sense to stop worrying about the fluctuations in your retirement accounts (something you have very little control over anyway) and instead focus on maximizing the value of your real retirement asset, your business?
- If we agree that your business is your real retirement asset and we need to do all we can to maximize the value of the business, wouldn’t it be helpful to know where you stand today (i.e. what your business is worth today)?
During our discussions it became clear that Daryl’s procrastination was due to the following questions, which we encounter often among business owners:
Yes, I do want to exit the business in the next five to ten years, but I don’t plan to sell my business tomorrow. I am not going through a divorce or other court action and my business is not part of an estate dispute. In other words, there's no pressing reason to know the value of my business, so why should I get a valuation now?
If your goal is to maximize the value of your business (or even better if you are working toward a specific retirement number) you need to know where you stand today so that you can start taking action to close the gap. Most of us know the strengths and weaknesses of our business. However, the process of going through a professional valuation often helps us identify and then focus on the area where we'll get the biggest bang for the buck.
I might be stretching my athletic metaphor a bit here, but try to think of your valuations the way a competitive athlete thinks of performance testing: It gives you a benchmark of where you stand in relation to your goal and enables you to adapt your training program.
Your reason for getting a valuation (e.g. to get a baseline vs. for a divorce) will drive the methodology and the cost. What we are talking about here is a simple baseline valuation to give you an idea of what your business might be worth for sale to a third party.
Who should I use to get a good valuation done?
If you are looking for a referral for a valuator, start with your CPA and/or financial advisor. Also check with your industry association and see whom they endorse. Redpoint Succession and Leadership Coaching also has a pool of professionals that we recommend. If you are interested, contact me at email@example.com.
Like leadership coaches, business valuators are not required to meet any state or federal licensing requirements. Anyone can therefore call himself or herself a valuation expert. However, several organizations offer professional certifications for business valuation advisors. Ask the service provider about his/her professional designations and experience in your industry.
Seek someone who has a significant level of experience conducting business appraisals. Valuing a business is part art and part science. Experience cultivates the judgment that is a critical component of a good business valuation.
The depth and breadth of that experience is also important. Does this person have experience providing a valuation for your purpose (i.e. for a sale, for a divorce, for an estate dispute)? Does the person have experience valuing businesses in your industry, in your geographic area?
And finally, as with any other service provider, ask for a client list or references and have them explain their methodology. And always have them sign a non-disclosure document.
What information do I need to provide? How long does it take? How much does a valuation cost?
For a basic and straightforward valuation, you need to provide at least three years worth of financials and any forecasts (such as cash flow) you might have. You will also need to fill in a questionnaire about your business that is often followed by a series of interviews. You will also get questions about expenses that valuators might deem “discretionary.” For example, if your annual owner’s compensation is $200,000, but the industry standard for your position is $100,000, that additional $100,000 would be considered a discretionary expense and would be added back into the cash flow of the business for valuation purposes.
The time required will depend, among other things, on the purpose and scope of the valuation and the availability of information. Once all the information has been delivered, a reasonable turnaround time for the report is between 14 and 60 days.
An appraiser’s fee is typically based on an hourly rate and the estimated time required to complete the project. Many appraisers will quote a flat fee for a particular type of project. In our experience, valuations start at around $3,000 but can get significantly more expensive, depending upon the purpose of the valuation.
What drives value and what can I do to increase it?
Assuming that you are doing a valuation to determine the value for a sale to a third party, the value of your business today depends on three factors: 1) how much cash it generates today; 2) expected growth in cash in the foreseeable future; and 3) the return buyers require on their investment in your business. Any factors that are potential risks to the stability and expected growth of your company will negatively impact its value. Factors that decrease the risk and strengthen potential earnings help build value. That’s where a strong management team, stay clauses for key employees, documented operating procedures and good systems pay off.
What Is Your Next Step?
If you are looking to exit your business within the next five to ten years and your last valuation is more than two years old, we would urge you to get another done. Having a valuation done will not break the bank. It will provide you with a useful benchmark for your business exit planning and will most likely call out the areas that, if improved, will significantly increase the sales price for your business.
Our new column is our effort to celebrate the simple joys of having fun. Remember fun? You know, “lively, joyous play or playfulness: amusement, sport, recreation, etc.?" We challenge you to think about the most fun time you’ve had this month as well. And if you can’t remember the last time you did anything that fits the bill, we encourage you to get out there and recreate!
Urs: The most fun I’ve had this month was...
flying in the co-pilot seat of an eight-seater from Homer to Anchorage with views of the Harding Icefield, Denali and the vast bush of Alaska: The most beautiful and scenic business flying I have ever done! I felt like a boy again when my biggest dream was to become a pilot (or an internationally acclaimed soccer star of course!). The smell of airplane fuel, the roaring of the engine at take-off, wearing the headset, holding onto the stick and touching the pedals (all the boy’s stuff. As the aircraft accelerated down the runway I was just about ready to start singing out loud when I remembered that I had Lauren and our colleague Barbara Carper sitting behind me, so I just broke into a huge grin!
Urs as co-pilot
Lauren: The most fun I’ve had this month was...
My annual October “girls weekend” in a cabin near Mt Rainier. Two and half days of conversation, good food, books, walks in the woods (see picture of some elk we found lounging around), and yes, a little vino, with some of my best friends in the world. We hashed out world politics, workplace and career issues, and personal challenges. As soon as we start packing up to go home we start looking forward to next year. Bliss!
Some elk we came across on one of our walks
Red Cross Drug Store in La Grand and Enterprise, Oregon
Owned by our clients and friends Bob and Sue Coulter, this community pharmacy serves the beautiful eastern Oregon communities of Enterprise and La Grande.
Their motto: People Who Care. Their Mission: Helping People Live Healthier Lives.
We truly admire how they do business. They research and share the latest health information and take extra time with their customers to explain medications and possible side effects. Their drivers not only deliver prescriptions but also look out for their elderly customers and shut-ins. Red Cross team members hold fundraisers to fight cancer and help pay for community members’ medical bills. In their “spare” time, they travel the world on medical relief missions.
Learn more about Red Cross Drug Store on their fun and informative Facebook page.
US KNOW WHAT YOU THINK+++++
Send an email to ChangeAbility@redpointcoaching.com. We welcome your feedback!
ChangeAbility is a publication of Redpoint Succession and Leadership Coaching, which is run by Lauren Owen, MBA and Urs Koenig PhD, MBA.
Copyright Redpoint Succession and Leadership Coaching, 2010. All rights reserved
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