As Tolstoy said, “Happy families are all alike; each unhappy family is unhappy in its own way.”
I believe it is the same in business. The exceptional (happy) companies get the same four decisions right consistently – People, Strategy, Execution and Cash. The other 75% or so have myriad reasons why they did not make it past a few years or stopped growing.
Decision #1 – People
Would you enthusiastically re-hire everyone on your team?
In a study done by Harvard in December of 2015, they calculated that a “toxic worker” was worth about $12,500 in turnover costs where even the top 1% of superstar employees only added about $5,300 to the bottom line. In another study done by Careerbuilder in 2012, a bad hire could cost as much as $50,000! According to the aforementioned info, it would take ten superstars to make up for one toxic worker! (This info blew my mind. Another fun fact below.)
They define this toxic worker as follows –
Skilled employees who do real damage and are been fired for egregious company policy violations such as:
- Sexual harassment
- Workplace violence
It is in the financial interest of the company to bite the bullet and remove these(get this) surprisingly highly productive employees (who in their right mind would fire a highly productive employee, right?) from its payroll for the long-term financial health and well-being of the company.
Another big reason to remove a bad hire is that you become less attractive to A players. The corollary is also true. When you have a high percentage of A players, you attract even more A players as they want to work with their industry-leading peers in a challenging and rewarding environment.
Here is a link to the HBR article.
Decision #2 – Strategy
Can you state your firm’s strategy simply?
Your strategy may not be simple but you should be able to state it simply. Here is an example (or two):
“Wheels up” – Southwest puts more planes in the air every day than any other airline. Every decision they make, every action they take is checked against this simply stated strategy. They strive every day to make sure that they turn a plane fast and get passengers on fast. This simply stated strategy combined with their main profit metric of profit/plane means that the more often they have planes in the air, the more profitable they are. This simple equation has them reaching an unprecedented 43 consecutive years of profitability (as of September, 2015).
(My simply stated strategy is “Be Exceptional” – I want each of my customers to find my work with them to be an exceptional experience that has exceptional ROI which will in turn help them to beat the odds and be one of the 10% of companies that lasts generations. This simple phrase reminds me every time I sign an email or post an article that I need to keep working hard to improve my knowledge and skills to help my customers be leaders in their markets and who I am working for.)
What is your simply stated strategy? Can everyone in your company recite it when asked?
Decision #3 – Cash
Do you have consistent sources of cash to fuel growth?
Here is a crazy fact: each year, there are scores of businesses that go out of business because they grew too fast. (Crazy, right?) Why? Production could fail to keep up with demand, or you have more cash going out to pay providers sooner than customers are paying you or maybe some other unforeseen reason.
Dell had this type of issue a number of years ago. Their cash conversion cycle (CCC) was over 60 days meaning that for every dollar they invested, they got it back in cash 63 days later. They were literally running out of money and the faster their top line grew, the faster they were going out of business. Michael Dell came back with a new CFO and they turned this around quickly so their CCC is now -39! That means that they receive cash from their customers 39 days before they have to pay any of their suppliers.
Growth sucks cash no matter how efficient your CCC is. Be sure to understand profitability and cash flow in order to make wise growth decisions.
As some of us have seen, most companies die of indigestion versus starvation. (I have worked for one or two of these, have you?)
Decision #4 – Execution
Are all processes running without drama leading to industry-leading profitability?
There is a great story about Ivy Lee, productivity consultant, who told Charles Schwab (not that Charles Schwab), CEO of Bethlehem Steel in the early 1900s, that he could help him increase efficiency (and sales) in his organization. He was already one of the richest men in the world but was relentless about execution. Mr. Lee said that he only needed about 15 minutes with each of Schwab’s team. When asked how much it would cost, Mr. Lee said, “Nothing”. However, after three months, Schwab could write him a check for whatever he thought the job was worth. Three months later, Mr. Schwab was so pleased with the results that he wrote Mr. Lee a check for $25,000 – equivalent to over $400,000 today! (That’s right, for about one hour of work for Mr.Lee. That makes my fee look like chump change!)
Mr Lee ended up spending only about 10 minutes with each executive and got their commitment on the following:
- At the end of each work day, write down the six most important things you need to accomplish tomorrow. Do not write down more than six tasks.
- Prioritize those six items in order of their true importance.
- When you arrive tomorrow, concentrate only on the first task. Work until the first task is finished before moving on to the second task.
- Approach the rest of your list in the same fashion. At the end of the day, move any unfinished items to a new list of six tasks for the following day.
- Repeat this process every working day.
That one change in their behavior focused their energies, gave them purpose and helped them to make hard decisions. It was also really simple to do. (This is super easy to do every day but why do so few of us do this? I do something similar by combining what I learned years ago from Stephen Covey and Hyrum Smith before they combined to become Franklin Covey. I write down at the end of each day what I have to do the next business day, prioritize the list by A, B and C and then prioritize again by number within each group by importance and urgency. It ends up looking like this A1, A2, A3…B1, B2, etc. I do not waver from the order so I get the most important and urgent done first and so on. I have a bit more detail I use as well. Please let me know if you want to know the entire system. It is pretty simple.)
I heard a wise man say recently that he would take a mediocre strategy with excellent execution over a world-class strategy with flawed execution every time.
Execution matters more than we give it credit for and is usually one of the most overlooked aspects of running a business.
If you can line up your team and organization around these four decisions, you will realize that you already have all you need to be a great company and just need to ask (or be asked) the right questions to discover your unrealized potential.
It is not easy and does not happen overnight but it is well worth it. Your customers, team members and shareholders will thank you.