Trusting Your Gut More important Than Ever

Researchers at Northeastern University conducted an experiment that involved subjects flipping a coin to see which of two tasks they would be asked to perform. One was short and enjoyable. The other one took longer and was more tedious.

Guess what percentage answered honestly when asked which side of the coin they got? Only10 percent. Others didn’t bother flipping the coin at all or just kept flipping it until they got the side with the easy task.

That’s just one study of many studies that researchers have been conducting to understand business ethics and why people behave the way they do. The sad reality is that while many of us still value integrity and dealing with people honestly, we can’t always count on co-workers or others we are conducting business with to behave in an honest fashion.

That’s why it’s even more important than ever to trust your gut in business dealings. You know that feeling — when something is just off and doesn’t add up.

Maybe you’ve been presented with a proposal for your business and while all the numbers and testimonials about the new service seem legit, something about it just doesn’t feel right.

Or your sales manager is offering an explanation for why his salespeople aren’t meeting quotas. You listen to what he’s saying, and while it sounds plausible, your intuition is telling you something is off.

We are most likely unconsciously calling up past bits of information that together have led us to that conclusion.

Our brains are wired to retain these bits of information and link patterns into clusters of knowledge. I learned a new term for this process of gathering information into meaningful groups. In psychology it’s known as “chunking,” a term coined by the late social scientist Herbert Simon PhD.

“When you see a tiny detail of a familiar design, you instantly recognize the larger composition—and that’s what we regard as a flash of intuition,” according to the article “When to Listen to Your Gut … and When Not To.”

When you can’t really put your finger on why something doesn’t seem right, that’s your gut talking to you. And that’s something you need to pay attention to.

As Mario Cuomo said, “Every time I’ve done something that doesn’t feel right, it’s ended up not being right.”

Over my 30 plus years in my career as a turnaround authority, trusting my gut has worked to my advantage in so many situations. Sometimes it’s when I meet with prospective clients and I can tell they aren’t really committed to making the changes that will be necessary to meet the desired goals. If I worked with them, we’d both end up frustrated.

I also trust my gut when I sense there will be a personality conflict with someone and again, we won’t be able to meet our goals if we don’t have a smooth working relationship. Although I generally get along with everyone, every now and then I sense that won’t be the case.

I also have a fairly good sense of when someone is lying to me. My job involves talking and listening to a large number of people, at all levels of a company. It doesn’t matter what their position is at the business, I can often tell if they are lying to me or just not telling me the whole truth.

While we often can’t explain our intuition or instinct, we know it to be a powerful thing. As Ralph Waldo Emerson said, “Trust instinct to the end, even though you can give no reason.”

Tips to Embezzle-Proof Your Business

I like it when people make my job easy. During one of my stints as interim CEO I suspected the CFO was enriching himself at the expense of the company. Once when he was out of the office, I sat down and looked at his computer. He was so organized that he had a spreadsheet right in a folder on his desktop that listed all the money he had stolen. It was so nice to not have to track it all down.

The truth is it generally works the other way around. Companies make it far too easy for thieves to do their job and to steal from the company.

I’m never too surprised to read about another case of embezzlement, but here was one with a twist. After an auditor with the National Credit Union Association noticed discrepancies in the financials of a small credit union in Hawaii in 2012, it led to an internal investigation. That led to a FBI investigation. Turned out, three employees were embezzling money. But it was hardly a conspiracy — none of the three knew the others were embezzling as well.

They managed to steal half a million dollars, each operating independently of the others. Heck, if they’d known they could have had a friendly competition — you know, first one to steal $250,000 buys lunch for the others.

The fact is I know of many instances where businesses have made it too easy for embezzlers.

Here are a few of the tips on how to protect your company from theft that you’ll find in my book “How Not to Hire a Guy Like Me: Lessons Learned from CEOs Mistakes.”

1. Give Your CFO or Corporate Controller a Break

I tell all my clients to give their CFO or corporate controller two consecutive weeks off every year. During that time, nose around a bit. Review deposits, talk to his assistant, check his mail. Banks have been doing this for years for good reason. If anything fraudulent is going on, this is a good time to detect it.

Once I was sitting at a CFO’s desk and took a peek at his mail. And there were his account statements from the bank in the Cayman Islands where he was depositing the money he was embezzling. Guess he was trying to save himself the cost of a PO Box.

Yes, most CFOs are trustworthy people. But I’ve dealt with enough who are not, and have cost their companies dearly, to know that it’s good policy to always verify your finances.

2. Tighten Up your Checks and Balances

Here are two things to remember: First, any place money or goods exist or move is a place that fraud or theft could occur. Second, no one is above suspicion.

Make sure to review expense reports even at levels lower than are generally reviewed. Make sure every expense-related check has two signatures and that the second co-signor takes the job seriously. Make sure all your checks and balances are in place throughout your company and working as designed.

3. Always Poke Around Your Books

Do spot checks of your ledger or QuickBooks to see where your money is going. Ask questions about vendors. Get a list of them and call a few of them to make sure they really exist.

Remember the $1.48 million embezzlement from Woodruff Arts Center? That was done by an employee who set up a bogus vendor. Guess who was cashing those checks?

Whether it’s one employee or three, don’t let embezzlement happen in your company.

A Hackathon: Not Just for the Software Industry

This is a two-part series on hackathons. In the last column of my recent series on Innovation, I mentioned hosting a hackathon as a way to create an environment of innovation. In this series, I’ll cover what a hackathon is and how to host one at your company.

So what is a hackathon and why do you want to host one? Basically, a hackathon is an event that pulls together people from different departments into small teams for a limited time, generally with a specific purpose in mind.

Although hackathons originated in the software world, their purpose can be anything you’d like, and as large or small as you’d like. Maybe you’re looking for a new slogan or angle for a marketing campaign.

Shutterstock, a website for stock photos and music tracks, hosts a company-wide 24-hour hackathon ever year “to imagine, design and implement an idea they think can provide value to the company.” It awards prizes to employees for best ideas in categories like Biggest Customer Impact and Game Changer. According to the website, “the real prize is the passion and excitement that hackathons themselves evoke.”

Winners also get the opportunity to work on their hacks, perhaps developing it into a product for the company.

In a larger version of the event, AT&T is hosting its first hackathon at CTIA’s Super Mobility Week in Las Vegas next week. The theme of the two-day event is Code for Car and the Home. The purpose of the hackathon is to match developers with technical experts and give them access to a roster of sponsors.

As an incentive, the company is giving away $100,000 in cash and prizes. For example, Volvo is giving away $5,000 for the best app focused on car safety and Samsung is also giving away $5,000 for the best use of Samsung gear. Finalists are invited to stay an extra night and have the opportunity to show their app to industry professionals.

Many companies open up their hackathons to the public to encourage outside opinions and ideas. Having outside participants can also be beneficial for recruiting future employees.

Paypal is hosting a global competition in a series of “BattleHacks” this year held in 14 cities across the world. The challenge is to create code that solves a local problem and become the “Ultimate Hacker for Good.” The World Finals will be in November in San Jose, CA and finalists will compete for $100,000 grand prize and an awesome looking axe trophy.

In addition to creating excitement and possibly new products, campaigns or solutions to problems for your company, hackathons give people from different departments the chance to interact in ways their day-to-day jobs don’t provide.

One of the biggest benefits is that it allows employees the time to focus solely on one thing, harnessing the collection brainpower of several of your employees at once.

In my next column, I’ll cover the basics of how to host a hackathon to benefit your company and generate excitement among your employees. Oh, and no need to award large cash prizes either. Many hackathons are fueled solely with pizza and caffeine.

Creating an Environment of Innovation

This is the third in a three-part series on Innovation. The first part discussed the need for innovation, with examples of companies like 3M that have achieved success by continually innovating. The second part was on encouraging innovation in the workplace by hiring Idea Generators.

I’ve written about the need for innovation in the workplace and provided some tips on how to hire Idea Generators. In this post, I’ll discuss how to create an environment in your business that encourages innovation and creative thinking.

In some businesses, employees are blatantly or subtly encouraged to keep their thinking squarely inside the box. The most creative they are allowed to be is when it comes time to order lunch.

If you want innovation in your workplace, and trust me, you do, you need to actively encourage it by following these suggestions.

Plan your space to allow for easy collaboration

As Margaret Heffernan, a former CEO of five businesses said, “For good ideas and true innovation, you need human interaction, conflict, argument, debate.”

If you’ve read anything about the history of Pixar, you know that Steve Jobs influenced the design of the building to encourage interaction and unplanned collaborations among departments. He went so far as to suggest that the large campus only have one set of bathrooms in the atrium so employees would be forced to go there several times a day. (That idea was quickly vetoed.)

“If a building doesn’t encourage [collaboration], you’ll lose a lot of innovation and the magic that’s sparked by serendipity,” Jobs said. “So we designed the building to make people get out of their offices and mingle in the central atrium with people they might not otherwise see.”

Give employees time during the week to explore their passion projects

In my first post on Innovation, I wrote about 3M and how it’s grown into a multi-billion dollar company through developing innovative products. The company has done this by implementing their 15 percent time rule, one it has had since 1948. 3M allows its people the time to investigate their ideas. That time has resulted in products such as Scotch tape and the Post-it note.

They also reward the best of these. Twice a year, six to eight ideas are awarded Genesis Grants, and the employees receive from $30,000 to $75,000 in seed money for 12 months of research.

Host a Hackathon

Started in the software industry, a hackathon is an event that pulls together people from different departments. It may last from one day to a week, generally with a specific purpose in mind.

Hootsuite hosts Hoot-Hackathons, two-day casual events for employees to meet new people and pitch ideas. “These events foster a culture of innovation and gets people enthusiastic about new ideas. Plus, it doesn’t cost a lot,” wrote Ryan Holmes in the article “Innovate or Die: 3 Ways to Stay Ahead of the Curve.”

Don’t punish failure and mistakes

Failure and mistakes are the steppingstones to mistakes. The Japanese engineer Soichiro Honda said, “Success is 99% failure.” I’m not sure I’d agree with that high of a percentage, but you get the idea. If some ideas don’t pan out, you’ve learned something. Remember what Albert Einstein said, “If at first the idea is not absurd, then there will be no hope for it.”

Have your employees on board with the concept

Even those employees who may not be your most creative can take pride in working for a company that encourages and embraces it. And besides, you never know where that next great idea will come from. Let your employees know that you are looking for creative thinking.

The American astrophysicist Neil deGrasse Tyson said, “Once you have an innovation culture, even those who are not scientists or engineers – poets, actors, journalists – they, as communities, embrace the meaning of what it is to be scientifically literate. They embrace the concept of an innovation culture. They vote in ways that promote it. They don’t fight science and they don’t fight technology.”

Management Consultant Peter Drucker said, “Business has only two basic function – marketing and innovation.”

Companies tend to spend a lot of time and attention on marketing. How is your company handling the function of innovation?

How to Encourage Innovation in the Workplace

This is the second in a three-part series on Innovation. The first in the series, “Innovation Distinguishes Between a Leader and a Follower,” provided some examples of companies like 3M that have stayed successful for decades by continuing to innovate. These next two parts focus on the steps to encouraging innovation.

In my last post, I wrote about the need for businesses to continually innovate. As Steve Jobs said, “Innovation distinguishes between a leader and a follower.”

But innovation isn’t something you can just mandate, like telling your employees they need to schedule their lunch hours at certain times. And it’s not just adding a line item to your budget under the column “Innovation.”

Ironically, results from innovation and creative thinking are often not related to the amount of money spent. As Steve Jobs also said, “Innovation has nothing to do with how many R & D dollars you have. When Apple came up with the Mac, IBM was spending at least 100 times more on R & D. It’s not about money.”

So what did he say it is about? “It’s about the people you have, how you’re led, and how much you get it.”

After reading my last post, I hope you get the need for innovation. So let’s talk about how to hire people that will help you innovate.

Hiring the Idea Generators

Any manager knows there are differences between the people who excel at coming up with ideas and those that excel at execution of those ideas. A successful company will have a combination of both at all levels. And never has it been more important to find those idea people.

As Richard Florida, an American urban studies theorist, said, “Access to talented and creative people is to modern business what access to coal and iron ore was to steel-making.”

Consider Walt and Roy Disney, co-founders of Walt Disney Productions. Walt was the big idea guy, while Roy’s expertise was in finance. “Walt had this idea [for Walt Disney World]. My job all along was to help Walt do the things he wanted to do. He did the dreaming. I did the building,” he once told reporters.

But it’s a lot easier to review a resume and determine if someone can handle the financial area of your company. How can you scout for people good at generating ideas?

There’s no particular college degree that would indicate a person’s creativity. Some of our generation’s best innovators famously didn’t finish college — I bet you can name three right away. (Think Facebook, Apple and Microsoft.)

And the people who did come up with great ideas aren’t always recognized for them. Ironically, the person who invented the fire hydrant remains unknown because the patent was lost in a fire at the patent office in D.C. in 1836.

Here are a few tips to find and hire these Idea Generators:

Ask your current employees

The people you have on staff, particularly the more creative ones, probably already know some people they admire as idea generators and would like as co-workers. Let your staff know of your efforts, recruit among their recommendations and offer a referral bonus

Tailor your interview questions to identify them

Ask questions that will reveal a candidate’s creative past. Ask for ideas they have come up with and implemented at previous workplaces or any organizations with which they have been involved. You may find someone who volunteers at an organization who came up with a killer fundraising idea.

Add innovative features to the interview process

A friend’s son recently underwent an hour-long interview exclusively devoted to brainteasers. In a previous post, “Tips on Hiring from the Corner Office,” I wrote about a company that leaves a candidate with a calculator, pencil and a sandwich and returns in two hours. That’s for analysts positions at a $2 billion hedge fund, but you get the idea. Just as you are judging your candidate, they are judging the innovation of your company starting with the way in which you hire people.

Present an environment that encourages creativity

Idea generators want to know they will be in an environment that will foster their creativity, not stifle it. For tips on how to create such an environment, read the third part of this series.

Innovation Distinguishes Between a Leader and a Follower

That’s a quote from the most famous innovator in recent history — Steve Jobs. To be successful, a company has to continually innovate. Here are just a few examples of companies that did and are thriving.

Will Housh was a member of the third generation of a family-owned HVAC business. While it was successful, he saw that e-commerce was coming to the HVAC industry while others in the business were unwilling to embrace the new technology. “Even though our family business was generating sales of more than $12 million in a good year, just how sustainable are mom-and-pop businesses in the age of the Internet?” he wrote in the article “How to Make an Unpopular Decision.”

He saw the industry changing. Customers were starting to use the Internet to connect with contractors and get lower prices. So he started an online and retail business, eventually selling his grandfather’s company to focus on his new business, Housh Inc.

“Whereas our old school HVAC business never made more than $12 million in annual revenue, Housh, Inc. has doubled revenue annually in the past three years and expects $20 million in revenue for 2014. In 2011, our business had three employees–it now has more than 20,” he wrote.

In 1909, James McGraw, a former schoolteacher and founder of The McGraw Publishing Company, and John Hill, founder of The Hill Publishing Company, merged their companies to form McGraw-Hill Publishing Company. Despite being primarily known as a textbook company, it was always at the forefront of changes in technology in education.

In 1989, it introduced the first computerized publishing system to instructors who could use it to customize their textbooks. In 2006 it became the first to offer online assessments and in 2009, it created a Center for Digital Innovation, launching McGraw-Hill Connect, an all-digital teaching and learning exchange for higher education. In 2013, McGraw-Hill completed a sale of its education division to Apollo Global Management for $2.5 billion. It’s doubtful a textbook company could have generated that kind of sale.

3M started as the Minnesota Mining and Manufacturing Company to mine a mineral deposit for grinding-wheel adhesives. It struggled in its early years but then invested in technical innovations, such as the world’s first waterproof sander. In 1925, a lab technician invented masking tape, followed years later by cellophane tape, both with the brand name Scotch. (Fun fact: the story goes that the lab technician asked a painter to test an early version of the masking tape and it fell off. He told the lab technician “Take this back to your stingy Scotch bosses and tell them to put more adhesive on it.”)

Ensuing years brought new electro-mechanical products, with the pharmaceutical, radiology and energy control markets added in the 1970s and 1980s. Last quarter, 3M set a record with $8.1 billion in reported sales.

Continued innovation is vital to the success and growth of a company. As the physicist William Pollard said, “Learning and innovation go hand in hand. The arrogance of success is to think that what you did yesterday will be sufficient for tomorrow.”

In the next column, I’ll discuss ways to encourage innovation at your company.

The Professional Advisors Your Business Needs to Hire

Welcome to part three of my three-part series on working with advisors. In week one, I discussed How to Find the Best Advisors for Your Business. Last week I shared tips on Getting the Most Out of Your Advisors. Today, I’ll talk about the professional advisors you should consider hiring.

Advisory boards can add a lot of value to your company when the members share their wisdom and experience with you. But to give your business its best chance for success, you’ll need to hire professional advisors as well. Here are just three that your business will need.

Accountant and/or Financial Advisor

You need a numbers person to work with you on your budget and determine tax implications of decisions for growth. A good accountant or financial advisor can also provide analysis of how your company is doing and ways to improve your financial situation.

A good CPA or accountant should also be on the lookout for fraud and ensure you have proper controls on how your accounts are handled. The accountant should also have a good relationship with your banker or lenders and can inspire confidence in them that your funds are being handled correctly.

Lawyer

Business owners and CEOs can, and do, run into potentially damaging legal issues all the time. A good lawyer can advise you on how to handle these situations and set up policies and procedures to prevent problems in the first place.

You will also need to consult an attorney to draft any partnership agreements you may enter into, file a patent, handle real estate transactions and advise you if you plan on buying or selling a business. Of course, if you are threatened with any lawsuits you need to hire an attorney immediately. It’s best to find one that specializes in the particular area where you need help.

Management Advisors

A good advisory firm can supplement your skill set and provide solutions to complex business problems. I recently joined the team at GlassRatner, which helps businesses manage through a business crisis or bankruptcy, plans and executes a major acquisition or divestiture and addresses any other difficult business situation. The firm also provides forensic accounting services and litigation support.

Other advisors you may consider include sales consultants, business development consultants and public relations professionals.

My final tip is to hire advisors sooner rather than later if your business is running into trouble. One of my more distressing clients was one whose business could have been saved, if only I had been hired earlier. I talk about this sports bar in the Midwest in my book, “How Not to Hire a Guy Like Me: Lessons Learned from CEOs’ Mistakes.”

This company had a large discrimination issue and filed bankruptcy without proper planning. If I had been involved earlier, I could have negotiated the discrimination issue, negated its demoralizing impact on the employees and advised against filing bankruptcy. We could have salvaged part of the company. Instead, they contacted me too late and they lost it.

Hiring the right advisors is worth the investment. They have the knowledge and experience to handle whatever issues your company is facing. And they are able to see solutions more clearly as they are not emotionally involved in the outcome.