A Lesson From The Trenches

Follow The Yellow Brick Road

This week I drove for an hour and a half to take a tour of a company that manufactures vibration devices. These rather simple looking motorized devices sit there and vibrate on the side of dump trucks, rail cars, and concrete forms. Sounds pretty boring, huh? Actually, not really. And if you invest the five minutes it will take to read this article I will let you in on the most potent strategic weapon available to succeed in this economy and the impending upturn.

The first thing you notice when you enter VIBCO is the smiling faces. Not just on the receptionist but on everyone walking by. Huh? The next thing you begin to feel is the energy, even in the lobby. Huh? How can anyone who works in a mature manufacturing company, in this economy, in a state with one of the highest unemployment rates be happy and energetic? One thing is for sure, if I see it so do customers, and suppliers, and other visitors.

The Chisel That Made The Statue

The actual purpose of my visit and tour was to hear about how VIBCO had implemented Lean Manufacturing techniques into their company processes to achieve competitive efficiencies. I spent almost four hours walking around their facility and listening to office workers, assembly personnel, shipping clerks, and machinists enthusiastically explain how they had redesigned their work spaces and processes to dramatically reduce labor hours and inventory costs. One of the things that really stuck out was the degree of business knowledge these employees had regarding financial and manufacturing performance improvements and there affect on the company as a whole.

Although I was certainly impressed with the improvements that Lean Manufacturing had on VIBCO's business it was obvious to me that this tool was not the primary driver of the success of the company I had just toured. To believe this would be like attributing the greatness of Michelangelo's statue of David to the quality of chisel that he used. So if it wasn't Lean Manufacturing, what was it? I believe that the answer lay in a response I got when I questioned one of the VIBCO floor supervisors.

Consultants and Buzzwords

While walking through the machine shop I asked one of the supervisors the following question, "how long did it take before you believed that changing the way you worked according to Lean Manufacturing principles would actually benefit you and the company?" His response was, "at first I figured here we go again, another consultant with another set of buzzwords. The problem was that this guy didn't go away. He came back week after week after week. That's when I knew this was important and real. So I gave it a try."

The Epiphany

Karl Wadensten, President of VIBCO had been home sick when he got the call. A huge order for a major construction firm was in jeopardy. Unfortunately, both Karl and VIBCO had become quite skilled at fire drills. Also unfortunately, this time it wasn't enough. Karl had enough. VIBCO needed to change, he needed to change, and he needed help. Lean Manufacturing would be the lever he would use to navigate the company in a new direction.

VIBCO's Real Story

I promised if you read this I would let you in on the most potent competitive weapon available to succeed in this economy and beyond. As the chisel did not sculpt David alone, in my opinion Lean Manufacturing did not reinvent VIBCO alone. Rather the men behind those tools first had to envision what they wanted to create and then find the right tool to make it a reality. You see the most potent strategic weapon available to succeed in this economy and the impending upturn is leadership. Any vibration device company can implement Lean Manufacturing and probably even achieve similar operational results. But not every vibration device company has a Karl Wadensten.

So what do leaders like Karl do that makes them so effective?

• They have vision. George Bernhard Shaw probably put it best. "Some men see things as they are and ask why? I dream dreams that never were and ask why not?" Leaders see things as they could be, share that vision with others, and then take steps to make it a reality. What is the vision for your company?
  
  
• They are not afraid to publicly admit they don't know everything. When VIBCO missed the big shipment Karl made a decision to change his and his company's behavior rather than silently blame his employees, fate, etc. He did not sit as his desk alone and wring his hands. This takes self confidence, courage, and high self esteem. Could you do this?
  
  
• They are not afraid to get help. Designing devices wasn't VIBCO's high priority problem, building and shipping them was. Karl is an expert in vibration devices not in Lean Manufacturing so he found someone who was. Do you seek help when you don't have the expertise?
  
  
• They are enablers. Once Karl found an expert in Lean Manufacturing he enabled both the expert and his employees to move forward into an area that was unfamiliar to him. That takes courage. Do your employees feel comfortable moving forward without your constant supervision and approval?
  
  
• They walk the talk. If you want your employees to change their behavior, change yours. The machine shop supervisor didn't believe until he saw that Karl was serious enough to remain committed. Do you walk the talk?
  
  
• They are smart enough to value the whole employee. VIBCO pays an hourly wage to have an entire person on site each day. Does it make sense to just have them use their hands? VIBCO now reaps large benefits by having a fully engaged, intelligent, and motivated workforce. What percentage of your employees capabilities are you utilizing every day?
  
  
• They're visible and they communicate constantly. Karl sits in an office in the middle of his employees with all glass walls. He can see and hear everyone and they can see and hear him. He is upbeat, highly motivated and a believer in his company. It shows and it is contagious. Guess how much this costs him and his company as opposed to sitting in a corner office out of sight of everyone?

VIBCO has had no layoffs while manufacturing a low tech product in a state with one of the highest unemployment rates in the country. They achieved this by taking market share from their competition as the overall market for their products is down due to the current economic conditions. No wonder the employees are smiling.

Every lesson in this article can be used in your company no matter the industry, product, or service. That's the real leverage of great leadership. It is universal and completely transferrable.

The Real Key To Business Survival

The Recession’s Greatest Hits

Guess what the following all have in common:

• Price Reductions
• Headcount Reductions
• Lease Renegotiations
• Product Cost Reductions
• Vendor Term Reductions
• Salary and Benefit Reductions
• Reducing the Sales and Marketing Budget
• Reducing the R&D Budget
• Implementing a Hiring Freeze
• “Hunkering” Down

Answer: Not one of these will give your company a sustainable strategic competitive advantage.

Don’t believe me. Let’s take a look why.

Mastering the Obvious

Almost all companies when enjoying the benefits of a robust economy and an expanding market begin to introduce numerous operational inefficiencies during their often frantic quest to participate in this growth. These inefficiencies begin to significantly increase a company’s operating expenses but this is often masked and/or not deemed urgent due to the medicinal effect of ever rising top line revenue growth. When the top line suddenly stops growing, or in the case of a severe recession like the one we are experiencing, starts dropping dramatically, the bloated operating expenses can become a hemorrhage to a company’s cash flow and often its very survival. When this happens the company’s leadership often goes on autopilot and begins checking off the list above to quickly trim down the company’s operating expenses. Then many commit a version of potential corporate suicide. They stop! They hunker down to await the signs of the next upturn.

Why Mastering the Obvious Alone Doesn’t Help

Why can I make such a confident statement in the title above? Because there is not one item on the Greatest Hits list above that cannot be quickly copied by your competition. Once an item is effectively copied by your competition your strategic competitive advantage is nullified. Virtually every item on this list can be implemented in a time frame measured from weeks to months. This is not much of a competitive advantage window. Let’s take a look at a well known real world example…with a twist.

Over the last decade the global automotive industry has significantly matured and degenerated into a commodity based price and cost war. Every year body styles and features became less unique as manufacturers strove to achieve economies of scale by leveraging designs across several product lines. The result of this was 0% financing, special “employee” pricing for the public, autos selling at dealer cost, etc. The end result of this was massive and draconian cost reduction programs, excessive cash burn by all participants, and ultimately bankruptcy for some. There was one notable exception.

The Key Competitor

There was one of these competitors who employed another key component in their strategy however. Toyota Motor began development in the late 1990’s on a new fuel efficient power plant for their cars. It was called hybrid technology as it incorporated both fossil fuel and electric technology. When the price of gas hit $4.00 last summer there was only one company ready with a highly differentiated product able to capitalize at the expense of all its competitors, and was able to charge a premium for its efforts. That competitor was Toyota and the product was the Toyota Prius. Since then nearly all other competitors have been scrambling to develop and introduce their own version of hybrid and electric technology. The key advantage for Toyota however is that it will take years for these competitors to catch up. For some it is already too late. And of course Toyota now has leading technical expertise and market momentum to maintain or increase their lead. What was this secret weapon that Toyota employed at the expense of their competition? It was innovation. You see, the great strategic competitive advantage of innovation is that it is not easily copied by your competition. Even if they are able to successfully copy you it will often take years versus weeks or months unlike the items on the Greatest Hits list. This means that your company will have a sustainable competitive advantage for a meaningful time period. What made Toyota unique was that they began development of this technology before its strategic competitive advantage became obvious to others in the industry.

Still not convinced. Can you tell me who the most efficient manufacturers are of the following items?

• The pager
• The fax machine
• The pay phone
• The mainframe computer
• The tablet PC
  

Can you even remember? Does it even matter? The fact is that all of the above items were rendered obsolete by an innovative and competitive technology. The same will happen today as we emerge from this severe recession. By the way innovation is not just for hardware, it is also employed by competitors in the service sector. Many have used the Internet, for instance, to innovate new and efficient models to deliver services.

Innovation - The Only Real Sustainable Competitive Advantage

So, after you’ve checked off some or all of the items on the Greatest Hits list don’t stop there. Analyze your industry. Analyze your customers buying behavior. Analyze trends and emerging technologies and how they might be employed to deliver your products and services. Make innovation part of your recession strategy. If you don’t all the cost reduction in the world may not keep you off the next list of Most Efficient Manufacturers of Obsolete Products and Services.

October 2009 - The Pain

Poor Charley

Charley woke up that morning like any other. He rolled out of bed and then it hit him. Zap. A sharp pain in his side. Ouch, Charley thought, I need to get this fixed as soon as possible.

Charley was a smart guy, and a self made man. He dove right in and starting researching what would cause a pain like this in his side. Bingo, he realized, it is my appendix. Charley booked an appointment with a surgeon and had his appendix removed. The surgery went well and Charley felt better. When he tried to get out of bed however, the pain returned in full force.

Charley dove back in and did more research. Got it, he exclaimed, it has to be my gall bladder. Charley called and booked an appointment with another surgeon to have his gall bladder removed to eliminate the pain once and for all. Again, the surgery went very smoothly. But again the pain returned.

Of course the above story is fictional. No surgeon in his right mind would operate on a patient, let alone remove an organ, based on a simple phone call and a description of a symptom…a pain in my side.

But amazingly this happens every day in the business world. A business owner or manager wakes up one morning and realizes his business is in pain. Because he is smart and more than a bit independent minded he self diagnoses the problem and calls in an expert to treat the specific condition he self diagnosed. As the saying goes “to a hammer everything looks like a nail” so the well meaning consultant dives in to help. Often the result, like in poor Charley’s case above, is that a lot of money and precious time is lost but the pain remains.

So is there a better way? Let’s revisit poor Charley and see.

The Doctor’s Visit

Charley wakes up in the morning with a sharp pain in his side. Ouch, this hurts badly. I need to get this fixed as soon as possible because I have lots to do and cannot afford to lose any time being distracted with this. Charley calls his doctor, a wise general practitioner (GP), and books an appointment for that afternoon. During the appointment the GP asks Charley lots of questions, especially about what and how he eats. He examines Charley. He orders an X-ray of Charley’s side and some blood work. The next day Charley’s doctor calls him and tells him that the diagnosis of his pain is cramping caused by eating too much processed food especially late at night. He sends Charley an instruction sheet on how to correct his diet and a prescription to help with the pain in the mean time. Within a week the pain is gone for good and Charley has more energy and feels better than he has in years. If the diagnosis was different and surgery was required Charley’s GP could have referred him to the appropriate specialist, but this turned out to be unnecessary.

Obviously, the above example was made a bit extreme to illustrate the point. What is not extreme is the amount of money, lost time, and in some cases damage that I see companies experience by skipping the all important diagnosis step.

The Key Step – The Diagnosis

So what key attributes does an advisor have that allows him to accurately diagnose the root cause of a company’s pain?

• Objectivity – It is extremely difficult to accurately diagnose the root cause of an issue if you are not completely objective. What if Charley was sensitive about his weight and his eating habits? Do you think this might affect his ability to diagnose his pain as related to eating? What if a business owner or manager considers himself an innovative product developer? Do you think he could objectively assess his company’s challenges in this area? What if he thought of himself as a marketing guru? Or a strong leader?

• Clarity – As the saying goes, “he couldn’t see the forest for the trees”. When you are intimately involved and enmeshed in a situation daily it is very difficult to clear your mind of preconceptions and look at the situation from a fresh viewpoint. The same goes for all your other key employees and in some cases your board. You are all literally too close to the situation. A fresh set of eyes can “see” patterns or issues that are right in front of you but blend in due to your familiarity with them. Ever struggle with a puzzle piece and have your six year old walk over and just put the piece in the right place?

• Wisdom – It is critical that whoever you bring in have wisdom not just knowledge. Knowledgeable experts tend to be very tactical in their thinking and typically follow a clearly defined one size fits all process, without regard to the specific situation. They often fall victim to the weakness of jumping to a conclusion and then collecting data to support it. Advisors with wisdom have learned (typically the hard way) to first look at the context and personal dynamics involved in the situation (like Charley’s long time battle with eating right). They are fluid in their approach and have learned that although many issues have similarities they affect each company uniquely. They can also reflect on experiences from different industries and company cultures. There is no shortcut to achieving wisdom. It comes from personally experiencing many differing situations and seeing lots of mistakes. It is invaluable in critical situations. Just ask the US Air passengers who safely landed in the Hudson River last January.

• Courage – Often times as least part of the issue may reside with the business owner or manager. I find it really does start at the top. How many people have you met in your life who would sit down with a CEO and tell him face to face that their behavior is inhibiting the growth of the company? Tell them straight out that this is correctable but without addressing it everything else will have limited effectiveness. Do you know many CEO’s or managers who could do this for themselves? Do you think anyone on their management team would feel comfortable doing this? Do you think they would listen? My experience is that very few board members will actually do this. One of the key roles that the right advisor can play is addressing this issue. It is probably one of the key leverage points to energize a company’s growth. How do you think the company’s key customers, employees, and suppliers would react if the CEO started managing in a more proactive and empowering way?

One of the rarest and most valuable types of advisors available to a business owner or manager is the wise and experienced general practitioner (GP). So if you wake up one morning and your company is experiencing a severe pain, you may want to find out what is really causing it before you start spending lots of money and time based on a self diagnosis. Otherwise, like Charley, you may just be employing a very painful (and potentially dangerous) process of elimination approach.

The Dangers Of Going It Alone

The Environment

One of my favorite "leisure time" activities is hiking. More specifically, mountain backpacking. My favorite destination for this fun and challenging sport is the White Mountains of New Hampshire. The White Mountains are not the tallest in the US but they have the dubious distinction of being one of the most dangerous places to hike. They earned this reputation by having one of the most rapidly changing weather patterns of any mountain range in the world. The reason is that three major storm tracks converge at the peak of Mount Washington and are constantly jockeying for position. I have hiked in weather conditions that went from sunny and 70 degrees to 30 degrees with ice crystal laden fog and 10 foot visibility in less than 1/2 hour. More than 135 people have perished hiking these mountains since 1849. Even though I have been hiking these mountains since the early 1970's (yes, I'm that old) and have a full complement of high quality gear there is one thing that I almost never do in the White Mountains...hike alone.

The Winter Hike

When my youngest son was around 16 years old I took him for a winter hike to try and ascend Mount Washington which is 6,288 feet tall. It was late November and there was about 16 inches of snow on the trail at the start of our hike at the base of Tuckerman's Ravine. I knew from watching the weather from the previous two weeks we could expect several feet as we neared the summit. I also knew that we would only have about 8 hours of daylight as the sunset that time of year is around 4:00 PM. Based on that I set a strict turnaround time of 12:30 PM in order to return to base camp mostly in daylight.

The weather as we left base camp at 7:00 AM was partly cloudy with light wind and a temperature of 22 degrees. The sun was just coming up. The forecast called for partly cloudy skies with some light snow squalls and a daytime temperature of 28 degrees. The hike started uneventfully as the early portion of the trail is fairly wide and gradual. The ascent up Tuckerman's Ravine was very steep with lots of ice and snow drifts. Avalanches are always a threat so it is important to always scan the terrain before proceeding and adjust your path accordingly. Another danger is fast running water under what appears to be solid snow. If you plunge through the wrong spot you can wind up soaked up to your thighs which can quickly result in hypothermia. As we hiked up to around 5,000 feet rapidly moving snow squalls started to drop some noticeable snow and reduced visibility at times to less than 100 feet. Then minutes later the sun would shine and you could see for miles.

My son was extremely excited to summit Mount Washington in winter and his excitement increased as it came into view. He was driven to reach the top. At about 11:30 AM we approached the rim of the summit. As often happens the high winds caused the snow to drift deeply into the large boulders that make up the mountain. We found ourselves "swimming" through drifts that were up to our armpits. Snow shoes do not work in this type of terrain so we had no choice. This dramatically slowed our progress and used lots of energy. Finally, we were less than 1/8 of a mile from the summit. I looked at my watch. It was 12:25 PM. I yelled to my son, stop. Let's have a quick snack, drink some water and start down. "What"?, he yelled. "We're almost to the top". "We'll summit another time", I said. "You can't take foolish chances up here. We set a strict turnaround time of 12:30 PM and it is here. Now let's go".

The Descent

The descent was tricky as I knew it would be. The snow squalls continued off and on and as the sun started to set it got cold quick. We kept moving. As we reached the bottom of Tuckerman's Ravine the sun burst out and the sky was completely clear. "You see" my son said, "we would have been fine". "Maybe", was all I replied. For the last hour we hiked in semi darkness. The trail was again wide with a relatively gradual slope but was now almost solid ice as the snow had melted in the sun and immediately froze when the sun set. We were tired but not tired enough to risk injury. We finally reached base camp at 5:15 PM. I could tell by the look on my sons face that he had expended the maximum amount of energy before entering a high risk state. The hike was just enough.

Lessons Learned

So what does this have to do with running a business? Let's see:

• Environment - The White Mountains like the economy and the marketplace view you as an intruder. These systems will continue on as they will with little regard for your safety or security. If you are smart you may survive. If you are smart and wise, you may thrive. If you are neither, you may perish. You see it around you every day.

• Wisdom - My son was very smart. He was very driven. He was reasonably knowledgeable for his age. However, he had not hiked the Tuckerman Ravine trail in the winter before. He did not know what to expect given the much more challenging winter environment. He had not yet achieved the wisdom that comes from having performed an activity over and over until you can anticipate almost all the unknowns. After our winter hike he began to obtain wisdom. The wisest leaders in the world always seek expert guidance to navigate unfamiliar terrain.

• Objectivity - My son wanted to reach the peak of Mount Washington that winter day. He was totally focused on achieving that goal. I was also totally focused that day. I was totally focused on making sure I brought my son up and down that mountain safely. Whether we reached the summit or not was secondary. When we were 1/8 of a mile from the summit I was thinking objectively about our safety. My son was thinking emotionally about reaching the peak. People die up there that way. Companies die down here that way.

• Self Sufficiency - If I continued to make my son reliant on me to safely hike the White Mountains I would be doing him and I a great disservice. Rather, I instilled in him the wisdom and knowledge to not only achieve on his own (with hiking buddies) the goals we reached together, but to surpass them. That 16 year old kid is now 22 and just finished hiking the 2178 mile Appalachian Trail from Georgia to Maine. It took him 5 months. When an advisor works with you are you becoming dependent or self sufficient?

So, like the story of my winter hike you are on a high risk journey in very unique and unfamiliar terrain. So I ask you the question. Are you going it alone?

The Credit Crunch is Dead, Long Live the Credit Crunch

A Little History

As you most certainly recall, last fall we had an almost complete meltdown of the financial infrastructure in the US as well as globally. Banks and investment institutions, some founded over 150 years ago either failed or were on the verge of failure. One hundred year old automotive companies followed suit. Millions of individuals watched a decade of stock market gains evaporate in the span of less than three months. Then came the wave of residential mortgage and credit card defaults as millions of overextended individuals began losing their jobs. Banks reacted by immediately choking off credit to millions of individuals and businesses across the country, effectively grinding the economy to a halt.

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Enter the Federal Reserve. The largest of the now crumbling financial and automotive corporations were immediately deemed "too big to fail". Congress rammed through the $780bn Troubled Asset Relief Program (TARP) to immediately begin injecting massive amounts of capital into the crippled financial institutions so they could begin lending again. Through several other monetary tools the Fed further injected trillions of dollars into the financial system to jump start the economy. Since the US is no longer on the gold standard all of this "printed" currency is nothing more than IOU's backed only by the taxing authority of the Federal government. Don't believe me? Prior to 1963 all US currency was printed with the words "This certifies that there has been deposited in the Treasury of the United States $1.00 ($5.00, $10.00) of gold (or silver)". It further stated that this note is "Payable to the bearer on demand". Go ahead check your wallet and see what today's currency says. Well thanks for the finance lesson Bill. What does this have to do with me? Lots.

The Dirty Little Secret

You see the dirty little secret of the economy is that the credit crunch is alive and well and living in millions of households and small businesses across the US. The TARP money was largely used to rebuild the balance sheets of the large financial institutions and almost none of it is flowing through the small businesses and households that drive the economy. It would be great if you bought stock in Bank of America back in March at $2.53 per share. It is now at $17.85 (+705%). Citigroup was at $.97 in March. It is now at $4.81 (+496%). Why do you think these stocks have rebounded so sharply? Do you think it is because these institutions are out lending to small businesses and individuals to help drive the economy? Or do you think they are using the TARP money to boost their capital ratios by covering write downs of impending commercial loan and credit card losses? Has your business rebounded like this? Has your family situation? Unfortunately, sector driven stock rebounds will do very little to drive an economic recovery which has historically been powered by small businesses and consumers.

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You see the real dirty little secret of the economy is that other than spreading huge amounts of liquidity across the financial landscape almost nothing has been done to address the systemic issues that caused this crisis in the first place. Lest you think this is a political diatribe these systemic issues have been building and worsening for over ten years under the regimes of both Alan Greenspan and Ben Bernanke.

View From the Trenches

So as a consulting firm that works specifically with small and medium sized privately held business what am I seeing to back up my claims?

Credit Cards - Rightly or wrongly many private business owners utilize credit card lines as an emergency fund for unexpected business issues. Unfortunately, over the past several months banks have been reducing credit limits and/or raising interest rates on millions of credit worthy customers. I have seen small business owners with a $25,000 limit, who are carrying a small monthly balance to keep the card active, and never missing a payment, suddenly have their limit dropped to $5,000. The explanation by the bank is that they are reviewing their risk portfolio on all accounts and have decided to reduce the line. End of discussion. This eliminates a valuable safety net for many business owners who may have used that line to bridge a short term cash flow issue. In addition, this has an immediate negative impact on their FICO score (see below). Much of this is being driven to beat the new regulations coming out of Congress regarding credit card consumer rights. It is choking off the consumption ability of millions of individuals and businesses.

FICO Scoring - A FICO score is the nationally recognized numeric scoring standard of an individuals overall creditworthiness. The score ranges from 300 to 900 and is affected by making late payments, the percentage of total credit being currently utilized, and the number of credit inquiries. A new version of this system called FICO 08 has been implemented which offers some forgiveness for small late payments but is much more punitive in the other areas. For many individuals their FICO score has dropped with the introduction of the new standard. A privately held business owner's personal financial status is increasingly being evaluated by banks when determining businesses creditworthiness. Many banks are now requiring personal guarantees by business owners rather than accepting the backing of assets of the business alone. With the personal FICO scores of millions of business owners dropping due to the above situations many are now effectively locked out of acquiring capital for investment. Oh, and by the way, if you do apply for a loan and are rejected, your FICO score will typically be negatively affected, effectively putting you in a death spiral as your existing creditors react to the newly dropped score.

Existing Loans - Many businesses with existing loans in good standing are being inundated with calls and requests for updated business and personal information from the lending institutions. Much of this is due to the weakened status of the lender and has nothing to do with the business owner. However, the business owner now has to spend much of his valuable time to generate and report this extra information to try and maintain a reasonable working relationship. Of course, the same business owner knows that his chances of securing additional credit from this lender is now zero. This is a scary position to be in.

What I am seeing on this topic could easily fill a book. In respect of your time let me try an quickly summarize.

• Many business owners would like to hire or make small capital investments but feel they are under constant financial attack and are therefore reticent to even seek funds. These same business owners also feel the same way on a personal level and are not making home improvements or buying cars because of it. Some no longer even qualify for college loans for their kids.
  

• Many business owners are finding their personal and business creditworthiness more intertwined and are leery of the personal risk this entails.
  

• There is growing feeling of helplessness as many do not feel they are in control of their own destiny. This is largely driven by the perceived arbitrary and random nature of credit line reductions, interest rate increases, and information requirements. Worse, there is no end in sight.

The pendulum was clearly too far in the lenient direction over the last ten plus years. That is what produced the bubble that made that loud popping noise last fall. However, the answer is not to swing the pendulum to the other extreme but to land somewhere in the middle. It is time for the financial institutions to really end the credit crunch and stop covering their ass-ets. That is what are TARP tax dollars were allocated for. More importantly, it is time to address the systemic issues that caused this situation in the first place.

The key to survive and even thrive in the mean time is to work creatively and innovatively to navigate through this boulder strewn economic and financial terrain. The standard methods such as bank loans and lines of credit aren't working right now and probably won't for at least another year. However, there are assets that both you and your company possess that can still give you maximum competitive leverage. Couple these with the right trusted navigator and you can leverage this situation as an incredible competitive advantage.

* If you are a private business owner or manager who is struggling to navigate today's economic climate contact us for a no obligation, initial consultation on how we can help.

* If you know of someone who may benefit from this newsletter please feel free to forward a copy. If you would like to receive your own copy visit www.rockland-group.com to sign up.

Bill Gately - Principal

Where Have All The Leaders Gone?

Last summer I picked up a book written by one of my favorite business leaders, Lee Iacocca. The name of the book was Where Have All The Leaders Gone? It was written in the trademark gruff, no-nonsense language that Lee was known for during his decades of leadership at Ford and Chrysler.
Not surprisingly, the book received very little press and never made any best seller list. After all, who cares what a retired 80 year old auto executive thinks. But as I watched the debacle late last year put on by the current "leaders" of the automotive and banking industries I went back and read the book again. The contrast couldn't have been more stark.

I think Lee Iacocca has a very valid question. Where the hell have all the leaders gone? Read on.

Where Have All The Leaders Gone?

What Happened?

I don't know about you, but I grew up absolutely enthralled with learning how to run a business. I would devour biographies of all the great business leaders to learn about their backgrounds, their families, their education, and more importantly how they developed their leadership traits and skills.

My heroes were business leaders like Andrew Carnegie (US Steel), Alfred Sloan (General Motors), Thomas Watson (IBM), and Henry Ford (Ford Motor). While I was gaining my own experience during the 70's, 80's, and 90's there were still leaders who possessed the type of courage and skill that allowed them to successfully build their companies as well as the country. These included leaders like Jack Welch (GE), Warren Buffet (Berkshire Hathaway), Lee Iacocca (Chrysler), Lou Gerstner (IBM), Bill Gates (Microsoft), and Gordon Moore (Intel). I admired and studied them all. Today, I look around and wonder where they all went. More importantly, I look and look and look but I cannot find this caliber of business leader today. What happened?

Leadership by Example

On September 7, 1979, The Chrysler Corporation petitioned the United States government for $1.5 billion in loan guarantees to avoid bankruptcy. At the same time former Ford executive Lee Iacocca was brought in as CEO. After securing the loan, Lee Iacocca immediately hit the airwaves rallying every American with the phrase "If you can find a better car, buy it". He was personally featured in Chrysler's commercials so people could see and get to know who was running the company. This had never been done before. He worked non-stop to build confidence in the future of Chrysler, primarily through their newly introduced K-car series. To combat the perception of Japanese manufacturing superiority articulated by Sony CEO Akio Morita in his book "Made in Japan", Iacocca countered with his own book "Talking Straight". By 1983, the loans were fully repaid, several years ahead of time, resulting in a profit of $350 million to the U.S. government. This was true leadership by example and the result was impressive.

Fast forward to November, 2008. The CEO's of Ford, General Motors, and Chrysler sit in front of the House Financial Services Committee and are brow beat for 3 hours for flying to Washington instead of driving. All three sit there with their heads down and say virtually nothing save for a weak apology. For the next set of hearings before the Senate Banking Committee they all drive. Does anyone even know the names of these CEO's? Maybe you remember the name of Rick Wagoner, the former CEO of GM because he was publicly fired by the President. Did this public display instill confidence in the future of these companies? Did this make you want to go out and buy a vehicle from one of these companies? How do you think the employees felt as they watched their CEO get publicly flogged and not even put up a fight? Do you think that engenders respect and inspires motivation? Have you heard from any of these "leaders" since last November? Why?

Ditto for the "leaders" of the major banking institutions.

So What's Missing?

So what's missing in these modern "leaders"? Here are some of the key ingredients I believe that go into making a great business leader.

Integrity - Start with honest and worthwhile motivations. Leaders with integrity are not motivated by lofty titles and building personal wealth. They are motivated by building a high quality organization that provides real and lasting value to its customers, its employees, and its community. The title and wealth are a bi-product of this not the goal.

Vision - True leaders are creative and innovative. They are not P&L jockeys. They create new businesses and new ways of doing business. They accomplish this by outlining and articulating a clear vision of where the company is heading. Then they allow their talented employees to execute, making sure they have the resources, and running block on distractions that will derail progress. The leader identifies the destination point. The employees decide the actual path to get there.

Courage - Arrogance is selfish and unsubstantiated confidence. Courage is doing what is right, when it is right, and personally absorbing the repercussions. Courage is taking a calculated risk because it is necessary to make your company great. Courage is telling the Senate Banking Committee that you will be flying to Washington because your time is extremely valuable especially now and that you don't have time for meaningless displays of public apology.

Communication - Leaders must communicate clearly, honestly, and often. Forget the sound bites and mumbo jumbo. Real leaders don't need scripts and TelePrompTers. Speak clearly and honestly up and down the food chain. If something is broken, identify it, own up to it, and fix it. This is doubly important regarding bad hires. Keep everyone updated and do it often. Good news or bad lay out the facts. When people have to guess everyone loses productivity.

Passion - You must have passion and conviction for what you do, and more importantly for what you believe in. Passion is infectious. It allows people to believe they can accomplish what others think is impossible. Don't even try to fake this. You won't have the stamina to fake it for long and everyone will know. All great company builders had passion. Leaders without passion are incredibly uninspiring.
So look at the list above and then look around. I don't see too many leaders today that are strong, courageous, visible leaders of their companies. We have numerous templates that successful leaders have created for us to emulate.

But there is one more key ingredient that may be missing. Desire.

Bill Gately - Principal

Watch Out For The Bogeymen

Here at The Rockland Group we are refining our focus.

We are dedicated to being a relentless and trusted ally for the owners of privately held small to medium size companies. Our goal is to help owners build their businesses and eventually successfully exit them to reap the rewards of their years of effort. Hence, our newly introduced service mark, Building Better Businesses (SM).

This months newsletter is targeted toward exposing some potential threats lurking in today's economy that get little attention in the daily press but we feel pose one of the greatest potential dangers to our clients future. These are the Bogeymen. Read on.

Watch Out For The Bogeymen

The Realist

Some of my clients are optimists. Some of my clients are pessimists. Me, I am a realist. Two of the most valuable assets I bring to the table are objectivity and realism. Although I tend to be optimistic by nature I am always on the lookout for economic, political, and business forces that can quickly and/or dramatically change the landscape. The ones I watch the closest are the ones that my clients and I have no inherent control over but must be prepared to react to immediately should they occur. This can only successfully be accomplished if there is a rehearsed contingency plan in place. What I never do is deny their existence or adopt a "what can you do?" attitude toward them. These forces are much too dangerous for that. I call them the Bogeymen.

As I write this we are heading toward the end of Q2 with the economy seeming to have bottomed with an expected upturn beginning in the second half of the year. I, like many, believe this is the most probable path to recovery. However, I am also watching several Bogeymen lurking that could dramatically alter this timeline. Let's take a look at some of the most dangerous and influential.

Terrorism

Without question the most dangerous and influential Bogeyman today is terrorism. In the 1960's and 70's a terrorist act consisted of some person or group who would hijack an airplane and hold hostages or demand to be flown to some foreign country. Other than for the unfortunate people directly involved these acts had little lasting impact on the world economic and political scene.

As we all know since September 11, 2001 modern terrorism can have a much greater global impact. Even though the global economy in 2001 was in much stronger condition than it is currently this one terrorist event set it back for two years.

Fast forward to 2009. We are now facing imminent potential threats from North Korea, Iran, and Pakistan that could all include the use of nuclear weapons. What do you think the impact on today's fragile global economy would be if even a limited nuclear crisis occurred? What about another 9/11 like incident, particularly on American soil? Today, these are very real and imminent dangers that you must monitor and be constantly prepared to weather.

US National Debt

As a business owner how would you feel if the total amount of debt your business owed was over 80% of your annual revenues? How would you feel if a large portion of this debt was held by your main competitors? How would you feel if your main competitors had the option on a monthly basis to purchase or not purchase your debt obligations, and this affected the interest rate you had to pay? That is the situation the United States government is in right now.

The Bogeyman here is that the US government is no longer in control of many key interest rates. The Fed can still set internal rates such as the prime rate and the discount rate but as evidenced by rising mortgage rates they can no longer directly control many key rates that affect the economy. One of the reasons the Fed drastically reduced the prime and discount rates was to drive down mortgage rates to revive the housing market. Although these rates are near zero mortgage rates have been rising as these rates are now being driven more by external forces such as the purchase of our debt by countries like China and Russia. It will be very difficult to manage and predict the economy if key interest rates are subject to the actions of outside interests. Hence, the Bogeyman.

The US Dollar

The value, and hence the exchange rate, of the US dollar has always been somewhat subject to outside influence and perception. This is particularly true as the dollar has historically been looked at as a safe haven in times of crisis. However, this is not so true today.

First, the national debt as outlined above has increased the perceived risk of the dollar by some countries which has resulted in a decrease of the dollar vs. foreign currencies. Second, and more ominously the dollars value can be deliberately moved by the purchase (or not) of our securities used to fund the growing national debt. This means that the ability of the US government to maintain or manipulate the value of the dollar versus foreign currencies, particularly that of China and Russia, are greatly diminished. In addition, both of these countries are now calling for a review of the use of the US dollar as the standard global currency. Our negotiation strength on currency valuation with these countries is at an all time low. Hence, the Bogeyman.

What To Do

The first step you need to take as a business owner or manager is to become aware and at least basically educated on these issues. It is easy, especially in difficult economic times to adopt a tunnel vision mentality and only concentrate on your local business or industry issues. However, we are now truly in a global interdependent economy and you can no longer allow yourself this luxury. All of the Bogeymen outlined in the above paragraphs share a common trait. Both you and the US government have very little to no control over their direction. This is historically new ground for our country. This gives rise to other potential Bogeymen such as oil prices and inflation in general.

All of the above issues can have a dramatic affect on both your business and personal future. You need to recognize that you have almost no direct control over any of them but you do have direct and total control over how you prepare and react to them. In many cases this may determine your very financial and business survival.

* If you are a small to medium size business owner who could use some objective and realistic advice to help navigating this challenging terrain visit The Rockland Group. If you know of someone who would benefit from this newsletter please feel free to forward a copy to them.