Month: November 2013

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Giving Thanks for Giving Companies

As the newspapers grow heavy with inserts and our inboxes fill up with email ads for shopping on Black Friday, it can seem that our country suffers from a massive case of rampant materialism. As I read recently, “Black Friday: Only in America, people trample others for sales exactly one day after being thankful for what they already have.”

We are a consumer society. No doubt about it. But we are also the most generous people in the world. In 2012, Americans gave $316.23 billion to charity, according to Charity Navigator, an increase of 3.5% over 2011.

Last Thanksgiving I wrote the column “Feeling Thankful for CEOs, Companies That Get it Right.” Following what I am now declaring a Thanksgiving tradition for my blog, I would like to give kudos to many of those generous businesses that spend millions to make their communities, and the world, a better place.

Every year the Chronicle of Philanthropy newspaper asks 300 of the top revenue-producing companies in the world about their charitable giving. For 2012, more than 100 companies responded.

One trend noted in corporate donations was the increase in product donation over cash, according to an article in Forbes.com, which reported that when cash and product donations are counted, the total from 2011 rose by 20.2% to $18.6 billion.

Here are a few of the more interesting initiatives and donations from corporations last year.

In an interesting twist to responding to the disaster in the Philippines caused by Typhoon Haiyan, Coca-Cola Philippines and its bottling partner, Coca-Cola FEMSA Philippines announced that they would suspend advertising there. That money budgeted for advertising the brand would instead be used to support relief efforts. Coca-Cola is donating more than $2.5 million in cash and in-kind contributions. My hometown soda company is generous, with donations through its Foundation and company of more than $690 million between 2002 and 2010.

Wells Fargo took the top position as the most charitable company in 2012 according the list in the Chronicle of Philanthropy, with cash donations of more than $315 million. The company leapt to the top with a $77 million donation to partner with NeighborWorks America to launch the NeighborhoodLIFT initiative to help educate and assist homebuyers in particularly hard-hit areas.

Target, which is number 9 on the list of top ten most charitable companies with donations of more than $223 million in cash and products, recently formed a partnership with Feeding America, the nation’s larges domestic hunger-relief charity. The company launched a collection of limited-time only FEED USA + Target products with 10% of sales from June through mid-October being donated to Feeding America. The goal is to provide more than 10 million meals to children and families.

Number five on the list, with more than $215 million in cash and product donations, is Exxon Mobil. One of the company’s initiatives is to fight malaria. Since 2000, the company has donated more than $110 million towards that effort. In 2012 alone, Exxon donated $12.4 million to 20 organizations for 24 different projects. Those projects benefitted 16.7 million people in 10 countries.

So while we may be a consumer society, I give thanks that we are also a generous one. And while I’m in the giving thanks mode, I will also give thanks that come Black Friday I’ll be far, far away from the nearest mall.

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Sales Were Up, Profits Were Down: What Happened?

In my last blog, “Big Sales Don’t Mean Big Profits,” I told the story of two companies I worked with that had increasing sales but declining profits. They both had problems with their product mix.

It was too late for one company — the owners didn’t want to make the investment needed to keep it running after we identified the problem so they closed it down after 30 years.

We were able to save the other company, although it shrunk from a $600 million company to a $350 million company.

What could both of these companies have done differently? What could have kept them out of this situation, which caused one of them to go out of business completely and the other to shrink to almost half its size?

Although the circumstances related to the issues with their product mixes were very different, the root cause of the problem in both cases was the same: a lack of communication.

Company A, which was a $2 million company that manufactured and distributed products, ran into trouble when their lower-profit sales to big box stores increased, pushing their margins down until they were no longer profitable. The operations and sales manager knew that the percentage of the lower profit sales to the big box companies was increasing — it went from 20% to 80% — yet no one discussed it.

The chief financial officer must have recognized the situation because the profitability of the company was severely impacted, but also didn’t raise the issue. Because no one talked about it, no one attempted to fix it. As Peter Drucker said, “The most important thing in communication is hearing what isn’t said.” You can’t fix what you don’t acknowledge. So the situation just got worse.

With Company B, whose management assured me they did not have a problem with their product mix, we found that even though the company had spent millions on computer systems to make sure they knew exactly what their costs were, there was still a breakdown in the system.

We found that there had been a lot of turnover in one of the key positions responsible for the accuracy of the data going into the computer systems. The new people taking over were not being properly trained. So the company had been selling products based on inaccurate cost structures. Again, there was a failure in communication.

In this case, I was reminded of a quote by George Bernard Shaw, “The single biggest problem in communication is the illusion that it has taken place.”

Communication is one of the keys to the success of any business. In my book, “How Not to Hire a Guy Like Me: Lessons Learned from CEOs’ Mistakes” I discuss the value of honest and open communication. In the case of Company A, the management of the company should have noticed the drastic change that was taking place in their product mix and discussed the situation. Together they could have determined what the effect on the business would be and taken steps to deal with the inevitable decline in profits.

As for Company B, it had a breakdown in the quality of training new staff. The duties of people in a key position were not being adequately communicated so the job was not being performed as it should have been.

Good communication at all levels of an organization can alert you to ways to improve your company while also providing early warning signs if things are starting to go wrong. Open communication will not only help steer your company through hard times, it can prevent them from occurring in the first place.

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Big Sales Don’t Mean Big Profits

I want to share a story about two companies that I worked with, one with $2 million dollar of revenue and the other with $600 million per year. Although they were vastly different in size, they both shared the same problem. I was able to help save one, although it shrunk to almost half its size. The other one liquidated after being in business for 30 years.

Both companies had increasing sales volume over the years. So what happened? It’s all about the product mix.

Company A, the smaller one, manufactured and distributed products, selling those products at a 50% gross margin for many years. Then they began selling to big box companies, which negotiated to a 20% gross margin. But with 80% of their business still at the 50% gross margin, the company was still profitable. Life was good for many years for the owners.

The big box customers then drove the margin down further, from 20% to 12%. Again, because of the increased volume, it remained profitable because 80% of their sales were at the higher margin.

Sales are up - great! But profits are down. What happened?

Sales are up – great! But profits are down. What happened? Here is the story of two companies that experienced that situation.

However, gradually over a three-year period, their product mix changed to 80% at the lower gross margin for the big boxes, which left just 20% at the 50% margin. Management didn’t notice the affect that this change in the product mix was having, as management tended to focus on increasing sales and became dependent on increasing bank financing. Large sales volumes frequently cover up a deeper problem.

In year three, the company had a healthy loss, ie red ink, and the banks didn’t want to lend money to this entity. I was called in and identified the mix problem. We came up with a 2-3 year turnaround plan that was reviewed with the ownership. The owners decided not to invest the money it would take to turn around the company and decided to shut the doors.

When I went to Company B, it had been borrowing more and more money from the bank, because the bankers liked the company and considered it prestigious. The bankers should have asked questions sooner but in any event, I was called in when they realized the company was in trouble.

The management first denied they had any issues with the pricing of their bill of materials, the BOM, or their product mix. They had spent millions on computer systems and software to track it and felt confident that they knew their costs. Because the company was in a low margin industry, they had realized that keeping track of the BOM was critical to making a profit and had made the investment to do so.

What I was able to determine, however, is that there had been a lot of turnover in a key position when it came to ensuring that the numbers management were receiving were accurate. The new people coming in had not been property trained, and had not been giving those fancy computers the right information for the correct cost structure. As a result, the company had been selling based on the wrong cost structure for years.

After identifying the problem, we were able to get an accurate view of the cost structure and change the product mix. Because of the severe losses it had suffered, the company shrunk from a $600 million in annual revenue to a $350 million; the owners came up with millions in new equity and the company survived.

Both companies suffered from a failure to recognize what was happening with their product mix. While management saw increasing sales, what they didn’t deal with was that profitability was going down.

Next column: What could they have done differently?

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Boots to Business: Veterans Succeed as Small Business Owners

As our country celebrates Veterans Day in recognition for those who have served in the military, there is good news about their unemployment rate. It has been going down in 2013 and in October was at 6.8%, compared to 7.4% in October 2012.

In honor of Veterans Day, I wanted to highlight a government program that is helping put more veterans to work and can actually benefit business by teaching veterans to use the skills they learned while serving in the military to start their own business. Operation Boots to Business is a U.S. Small Business Administration-sponsored training program to help transition service members to business ownership.

Studies conducted by the SBA concluded that veterans are more than twice as likely as the general population to start their own businesses and have those businesses succeed.

Operation-Boots-to-Business-Logo“Being in the military and being an army vet or a veteran, I have been built and trained to run my own business I think it’s a perfect fit and a perfect fit for veterans,” said Jenna Bazaric, Owner & Operator of a Tropical Smoothie Café in a video about the program. “We have the ability to react to change and to talk to and interact with all different types of people.”

Brian Iglesias served 13 years in the Marine Corps and is now President & CEO of Veterans Expeditionary Media. He credits his success to the training and education he got through the program and agrees that veterans have the skills to become successful.

“There are a lot of transferable skills that you can take from the Marine Corps and apply to your own business,” he said. “We have this take-the-hill mentality where we’re goal oriented. We don’t make comfort-based decisions. I have a dream and a vision to own my own business and my comfort comes second. And I’ll push myself and drive myself. That will to win, that will to succeed and to not surrender, to not give up has really helped me. Because it’s tough. Things go wrong. The best part about being a marine and having the military service is that we have the ability to thrive in chaos. Small business ownership is chaos. Things happen all the time and you have to be fast, smart and flexible to overcome those and continue to drive forward and succeed.”

Active duty military members and their partners or spouses are eligible for the program, which includes an intensive two-day intro at a local military installation, followed by an eight-week online course offered by the Institute for Veterans and Military Families, Syracuse University.

I’m in favor of any program that successfully helps those who served our country acquire the skills they need to succeed on their own in the world of business. I wish all the participants in this program the best of luck in their new endeavors.

Happy Veterans Day weekend to all of you and to all the veterans, thank you for your service.

 

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The Value of the Low-Tech Whiteboard in a High-Tech World

I had to chuckle when I saw an article last week in the Wall Street Journal, “High Tech’s Secret Weapon: The White Board.” Even though I am a fast adopter of technology, I am a major supporter of using the whiteboard in my work as the Turnaround Authority. In fact, I even devoted a whole subchapter of my book, “How Not to Hire a Guy Like Me: Lessons Learned from CEOs’ Mistakes,” to the whiteboard, touting it as one of the keys to success.

So I found it humorous to see this old-fashioned tool referred to as a secret weapon. What was even more interesting is that the article is about the company that developed the note-taking app Evernote. I use Evernote every day, making notes in my iPad that are automatically synced to my computer so I have them with me wherever I go. I can take photos and create to-do lists as well. And the best thing is that these notes are totally searchable so I never waste time tracking down information I need.

I loved learning that almost every surface of the offices of Evernote in Silicon Valley are covered with IdeaPaint, which allows the employees to write on the walls with dry-erase markers. Evernote relies on this low-tech way to engage employees in focusing on developing their high tech products. And it seems many other high tech firms do the same.

As the author, Farhad Manjoo, noted, “Whiteboards are to Silicon Valley what legal pads are to lawyers, what Excel is to accountants, and what long sleeves are to magicians.”

Here are just a few things to love about the use of a whiteboard for business.

1. Anyone can use it

We can all pick up a marker and draw on a whiteboard. I can’t say the same for the ability for everyone to master collaborative software or being able to share documents digitally.

2. It allows people to focus

I would argue that we focus better when looking at the large canvas of the whiteboard than staring at the small screen of a computer, having been conditioned since we were children by the teacher diagramming sentences and doing math problems on a large chalkboard.

3. It points out gaps in logic

One of my favorite ways to use a whiteboard is to draw timelines. I find that drawing on a whiteboard helps a group to clarify complex situations and analyze the issues involved in a particular situation.

For example, I once worked with a racetrack that took 18 months and $100 million to build, and just 30 days to run out of cash. We created a 12-month timeline to get the racetrack out of bankruptcy. It was ambitious, as we had a lot to accomplish for the company to make that goal. But by putting everything that needed to be done on the whiteboard, each person could visualize their own responsibilities and how crucial it was that they each complete their jobs on time so we could make the deadline.

4. It enables collaboration and buy-in

When people participate in the whiteboard process they can clearly visualize their roles and how they all need to work together to accomplish the set goal. And if everyone is allowed to participate and share their ideas freely, you generally achieve automatic buy-in of the steps to achieve that goal.

I’ll continue to incorporate the latest technology into my business. But I will forever be a fan of the good old whiteboard. It’s nice to know all the whiz kids in Silicon Valley agree with me.

Look for me November 10 at 4:30 at the Book Festival of the Marcus Jewish Community Center of Atlanta. I’ll be discussing my book,  ”How Not to Hire a Guy Like Me: Lessons Learned from CEOs’ Mistakes.” The event is free and open to the public. Click here for more information.