Do You Know Who Your Stakeholders Are?

Recently, I was asked to conduct some interviews of “stakeholders” for a non-profit organization. When I began to make the list of people to speak with, it grew well beyond the usual suspects.

I began to think…in the for-profit world, do we really know who all of the “stakeholders” are?

What exactly is a stakeholder, anyway? 

BusinessDictionary.com defines stakeholder as "a person or group who has an interest or concern in an organization."

If we accept this definition, then stakeholders are definitely more than just the owners and/or investors. Think about it. You have a number of other important groups who may well be considered stakeholders, such as:

• Employees - Are employee interests truly a focus of your business operations? Treat employees as your most valued assets, by promoting a safe and nondiscriminatory work environment, and encouraging their participation in the business’ direction. In return, you get quality work and purposeful customer service.
• Customers – Are customers a primary influence for your company? Long-term relationships with satisfied customers are key to building sustainable financial success over time. Most organizations collect data on customers, in order to focus on more targeted and efficient marketing and sales efforts.
• Suppliers/Vendors - Supply Chain Management involves close collaboration between suppliers and business buyers, working together to deliver value to end customers. These relationships are essential, especially in logistics and distribution, as companies look to trim costs, increase customer value, conserve energy and natural resources, etc.
• Bankers – Does your business use some form of debt in its capital structure? If so, your company benefits its creditor by giving it a means to earn a return on the financing it provides. On the other hand, companies going through financial difficulties can negatively impact creditors through delaying interest or principal payments, or in worst cases, defaulting on the loan.
• Neighbors/Community - Many businesses view all those around them - locally or globally - as primary stakeholders, because important corporate decisions/actions can have either a positive or negative impact on many people, regardless of whether they ever engage in business with your company.
• Your Local Municipality - How significant is your business' location? Are the taxes you pay to local and state governments substantiated by the quality of infrastructure serving your business and your customers?
• Politicians – If your business is large, having a visible politician on your side can be helpful in getting some of your business concerns addressed. If your business is small, knowing which of your local and state representatives support small and medium-sized businesses can be helpful can be helpful in the same way. And the business success of their constituents is something that politicians can always use to reflect positively on their own leadership!

As you can see, there are a number of possible stakeholders for any business – and I’m sure there are others that are relevant to specific industries. It is imperative to consider your business’ impact on all of them when creating your business strategy and your strategic plan.

Adjustment Agent, Not a Change Agent

In my experience, when beginning a new assignment I see a lot of fear and uncertainty in the eyes of the employees.

On my first day of an assignment, I am being introduced by the “Organization's Stakeholder(s)” as a Consultant/Advisor who will “assist in making adjustments in the way we do business to set the stage for the growth we all know we can accomplish, but are not quite sure how to get there.”


UH-OH.

With that introduction, I must start my assignment by convincing the employee population that I am not here to “clean house,” take anyone’s place, or turn the place upside down. This - in and of itself - is not an easy task!


I begin by interviewing every manager in the organization individually, from the COO on down, asking each to share their thoughts as to how the company can be adjusted to run better and more profitably. In a small business or a family business, this question may not have ever been asked of them before.  Some are hesitant to answer, uncertain of how it would be received. I assure them that all responses are held in the strictest of confidence, with no attribution at any time.

This is how I gain their confidence, so that the management group will speak their minds. For the most part, the interview is very enlightening for them. Once that word gets out, the entire process to get the information I need for the future becomes much easier. 

From these interviews emerge “themes” concerning what people think the organization needs to remedy, in order to sustain future success. These themes can be:

• Lack of communications both up and down
• No Vision Statement or Mission Statement
• No Organization Chart or Job Descriptions 
• “I am not sure to whom I report!!” is never a good thing.
• Reliable and timely financial statement
• Budgeting “we never know how well are project is doing”
• Recognizing both the Strengths and Weaknesses of the company

After the interviewing process has been completed and an interim report has been made, it’s amazing how much the staff has bought into the process!
The operative word is “ADJUSTMENT,” not change.

It works. Give me a call to discuss.

Hiring a CFO

Do You Need to Hire a CFO?

In most successful small businesses, there comes a time when circumstances dictate a necessary change in the Finance department. The tell-tale signs include:

• The realization that your bookkeeper is not growing and developing as your company continues to grow and develop
• The financial reporting is inconsistent, concerning accuracy and/or timeliness
• The size of your company (revenue, number of employees, complexity of organization) will determine your need for a CFO
• When a company, especially a small to mid-sized company, has grown large enough to require accounting, treasury, and tax functions, as well as when strategic planning is needed for an organization
• When your top-line revenue grows quickly - hitting more than $5 million in revenue -  you start to have more complexity in your financial management
• When you have more than 30 employees. The larger your business, the more complex your financial operation.
• When you need a formal audit
• Whether to satisfy your business' stakeholders or a third party, such as a taxing authority or bank or venture capital investors, if you need to undertake a financial audit it's best to have a CFO in place
• Audits are required by regulators and exchanges if a company wants to hold an initial public offering (IPOs), or be involved in a mergers or acquisitions

OK, So Who Do I Hire?

Determine which qualifications you believe to be most important to that role. Traditionally, a CFO was simply the senior financial manager, the person responsible for preparing the financial statements, dealing with banks and investors, planning corporate tax strategy, and developing budget forecasts.

But nowadays, business is more complex. A CFO must be a strategic thinker, an excellent communicator, an organized manager, have a strong business sense, and have exceptional finance skills. He or she must be able to lead the Finance Department, but also the wherewithal to speak frankly and convincingly to the CEO, especially when aggressive or radical change clashes with fiscal responsibility.

Here are some traits, characteristics, and experience that CEOs should carefully consider in hiring (or promoting) a CFO. The priority of these traits will vary from company to company, but all of them should be weighted significantly when making this very important hiring decision.

• Accounting and Financial Competence: This is a no-brainer, in terms of the first priority. Many CFOs are certified public accountants (CPAs) and/or MBAs. The ability to put numbers accurately in a business context is absolutely essential to what every business needs to be successful.
• Integrity and Ethical Standards: Again, another no-brainer. While these traits are important for any member of senior management, it is absolutely imperative for the CFO. The proper handling of an organization’s finances can make or break the business.
• Financial Vision and Foresight: A CFO must be in tune with the business’ market, enabling him or her to create and implement business plans, and to anticipate financial management issues.
• Deep Understanding of Business: This may be important to your business, although a CEO may want to broaden these criteria to include hiring someone in a similar, yet different industry. In Finance, best practices can often transcend industry lines, but a fundamental knowledge of business is always necessary for the CFO.
• Excellent Communication Skills: The CFO needs to be able to communicate the financial health of the company to all stakeholders, and present complex information in a way that can be understood by non-financial people. This becomes even more crucial if your business is going public, as the CFO will be presenting information to analysts, potential investors, and the public.
• Confidence: A CFO needs the ability to make decisions on behalf of the company with confidence and assertiveness. People can sense fear and trepidation. As much as the CEO, the CFO needs to be able to “walk the talk.”
• Leadership: It is all well and good for CFOs to have confidence in themselves, but they must also inspire that confidence in others. This requires demonstrating emotional intelligence, self-awareness, self-regulation, motivation, empathy, and social skills. This executive will lead teams and manage people, not just be immersed in numbers.
• Perspective on Risk: The CFO should show a willingness to try new things and take calculated risks to grow the business and improve the financial position of the company.
• Results- Driven: The CFO needs to set goals that are specific, measurable, achievable, relevant, and logical.

Now, if you find a candidate with all of the traits listed above, my suggestion is to hire him or her immediately! But most candidates will have some, several, many, but maybe not all of these traits. As the hiring manager for this position, you need to assign a weight to each of the traits, and decide which are imperative for your business now, and which can be coached over time. As a CEO and business owner, this is one of the most important hires you will make. So take your time, and do it right!  If you're unsure about anything, let's talk.

The Importance of Job Descriptions and Organization Charts

Organizations must be flexible to be competitive. Many times employees are expected to do more than one task in a smaller company.  Having a multitude of responsibilities thrown at him can be overwhelming for a person who was hired to handle one specific job.  But on the other hand, multi-tasking is part of the fun for someone hired for a position that carries a variety of responsibilities. 

The important thing to understand is that, typically, the problem is not in the asking of an employee or group of employees to take on some additional tasks.  Most people do want to help, within reason.  The problem is that quite often, these extra tasks are for “when you get a minute,” or to do “on a slow day.”  And so these tasks get absorbed into an existing job that someone is already getting paid to do.  And let’s be honest, the assignment of additional job tasks may have more to do with the individuals involved than the jobs themselves.

This is where the water can get muddy.  What you need is to clearly and transparently document the responsibilities of each position within the company - not the people right now, just the positions that they fill.  Then chart how these positions are, or should be, grouped and stacked within the organization.

This type of graphic illustration can assist management and employees in understanding their roles and how they impact one another. 

Job Descriptions

Job Descriptions are the bricks that are used to build an organization’s structure.  Each full-time position should have one, and frankly, part-time positions and internships should have them, too. A thorough Job Description should:

• Clearly and factually state the functions and objectives of each position within the organization
• Include the boundaries of the position’s responsibilities and authority, including the job title, department, tasks, required experience and skill level 
• Be permanent enough for inclusion in an Organization Chart, but must be reviewed and updated regularly to ensure its relevance
• Provide an overall understanding of the position for the job holder and the immediate superior
• Provide a basis for the hiring manager to match an applicant to the job requirements
• Provide a basis for performance evaluation, improvement, potential promotion
• List the salary range or job grade level for the position

Organization Chart

Once Job Descriptions have been completed, the Organization Chart may be created or re-worked. The chart provides a visual map of all of the employees in a particular business, and clearly identifies direct reporting lines within a department as well as an entire organization.

The Org Chart is typically arranged in a pyramid shape -- hierarchically -- with the head of the organization at the top, and lines connecting each position to the one above him to whom he reports, and to any below him that he directly supervises.  Keep in mind that an Org Chart is a graphic illustration of the jobs that make up your company, not of the people who work at your company.  Not to sound cold or impersonal, but you are trying to build an organizational structure that will have a longer shelf life than any individual employee. Therefore, the Org Chart must be practical for any qualified individual, not just the person currently holding down the job.

That said, a clear Org Chart will

• Identify roles and design an organization structure to meet the business' long term objectives
• Clarify the chain of command, and functions, of each department
• Identify organizational imbalances and overloads
• Provide appropriate level of contact information
• Orient new employees as to who does what within the organization

Oftentimes in business, we get too busy with the day-to-day challenges of running a smooth operation and addressing customer matters that we lose sight of the importance of building a sound structure for our own company.  Let me tell you, this is a serious oversight.  Don’t wait for things to get too loose and disconnected before you document and organize your company.  Do it now, and then maybe things don’t get too loose and disconnected.  I have had first-hand experience with the benefits that clarity in job and organizational structure can bring.   Sometimes, it’s the one ingredient that pulls the whole thing together.

Back-of-the-House

Despite quality products, courteous service, and a spotless reputation, the ultimate success or failure of a business often lies in how well its “Back-of-the-House” functions. The Back-of-the-House is not sexy. It’s not glamorous. It's what the public doesn't see.  But it is vital to the success (or lack of same) of any business, like a strong foundation is to any new structure being built.

The Back-of-the-House is where data becomes information, and information becomes an essential business tool for every part of your business. The accurate and timely gathering, processing, analyzing, and reporting of business information creates a solid foundation on which the rest of your company thrives. On the other hand, weak or non-existent Back-of-the-House functionality will leave your business flapping in the wind.


Allow me to share a story about a recent client engagement. A few weeks ago, I completed an assignment for a wonderful small company. The owner wanted to grow his company, but soon realized the “Back-of-the-House” was not functioning properly.

We identified five things that needed to be addressed immediately, in order to facilitate the kind of growth that the owner was envisioning.

1. Financial controls and reporting were extremely deficient. They did not have the financial information to determine gross margin and profitability. They did not have controls for reporting cost of work in progress in terms of Actual vs. Budget.
2. There was no Organization Chart. No one was sure to whom they reported, or who reported to them. Employees frequently “served many masters.”
3. There were no Job Descriptions. The breadth and scope of each employee’s job was based on what they've been doing, and how long they've been doing it.
4. Responsibility and accountability were not delegated; only tasks. Not only did this slow the pace of business, it also prevented many employees from developing their own business judgment and acumen because they were only doing part of the job.
5. Owner felt the need to make all business decisions. All the time. While he thought he was taking extra special care and responsibility for everything in his company, he was, in fact, causing delays in production, losses in profit, and more than a few angry customers. Not to mention, he was also stunting his management team’s growth.

With these issues identified, they were prioritized and addressed directly. The following actions took place in the subsequent six months, which resolved a great many organizational problem areas, and made for a clearer path to success:

• A well-qualified, experienced Chief Financial Officer was hired, to provide timely and reliable reports on the business’ numbers and finances. The company will benefit greatly by having both up-to-date and historical numbers that they can use to chart their growth.
• An Organization Chart, based on specific job functions more than individuals, was created and approved. This will bring planning and order to company’s organizational structure, as it continues to grow.
• Job Descriptions were created for every position within the company, and every employee now had a written description of their duties.
• A Mission Statement and Vision Statement were created and presented to employees and customers. The reason for the company’s existence, and the goals it strives to achieve, need to be articulated to everyone who interacts with the company. And the company needs to be held to the standard of these statements.
• The position of Chief Operating Officer was created and filled, to run all facets of the day-to-day operations. The company’s owner is well-known within the industry, but the company’s reputation, as well as his own, was in danger of being tarnished because of his insistence of running, as well as representing, his company. With a dedicated COO, projects will be delivered on time and within budget, and customers will receive the level of quality they have come to expect. And the owner gets to do what he loves to do the most, and is best at - being the face of his company.

Keep the Back-of-the-House in good working order, and your business will be in a much better position to achieve the level of growth you seek.

What Have I Been Up to Lately?

In the professional life of a Business/Management Consultant, some assignments are better than others, for different and various reasons:

• The level of challenge
• The people with whom you work
• Cooperation or lack of same
• The amount of buy-in from the stakeholders

My last assignment had just about all the good things one could hope for.

In the beginning, ownership was skeptical as to what I could accomplish. Long term employees viewed me as a threat to their jobs and to the status quo, neither of which was true.

Instead, I represented myself not as an “Agent of Change” but as an “Agent of Adjustment”.

I interviewed the employee population. Asked them lots of questions. I assured them that all answers would be kept in the strictest of confidence, and no attribution given when I made my report to ownership. I kept that promise, and it worked out so well!

With the cooperation of ownership, we installed good financial reporting and controls by hiring an excellent CFO. We created an organization chart with job descriptions for every employee.  We hired a COO, so that the owner could do what he loves best and not have to worry about the day-to-day problems of running a business. We created budgets, something the organization had never done before! Each quarter we gave a report of the financial results to the department heads. The employees were thrilled to be included. Lots of questions were asked, and good answers were given.

At the end of the assignment (10 months duration), they had a farewell party for me. I felt very good about myself, knowing the company is going to become far more successful with all of these “ADJUSTMENTS.”

The moral of this story is that change does not have to be scary, threatening, or require a total upheaval to be successful. Effecting change by adding a few well-placed business adjustments really can make a significant impact on an organization.

8 Tips for Small Business Owners - Part 2

Last week, we discussed four tips for small business owners that will help lead their companies to success.  I hope you were able to step back, and take stock of how well you are applying those principles to your business, because I've got four more for you.

5. Know Your Competition

Yes, you have competition. Every business does. Don’t be stupid. Don’t be arrogant. No one “owns” a market. At the very least, each of your customers has the choice between buying what you sell, and buying NOTHING.

If you acknowledge that you do have competitors, then study them. Don’t copy them, don’t imitate them, but know them well. Not just their products and prices, but how they go about doing their business. The Art of War taught us to “keep your friends close, but keep your enemies closer.” The better you know your competition, the better you can fill a need that they are not currently filling.

And for you hardheads who still think you have no competition, consider this: you still have to be able to articulate to customers why buying your product is better for them than standing pat. Don’t laugh – “doing nothing” is one very serious competitor!

6. Business Planning

It is still amazing to me, after being in the business world for decades, that some small businesses and family businesses operate year after year without a business plan. It’s like trying to drive to someone’s house, and not having a map or GPS, and not even knowing the person’s address, or town or state! You just figure you’ll get in the car and figure it out on the way. Because you’re smart that way. Yeah, right.

Business planning is a complicated matter, depending on the depth and breadth of your business and your market. There are few generalities (other than to create a plan!) that can be offered in a short article like this, but here are two that go hand-in-hand.

One, always overestimate your expenses. And two, always underestimate your revenues. These two things, while they may not look pretty on paper when you write them, will make most end-of-the-year “surprises” be pleasant ones. It’s one thing to be ambitious with your business planning, but being realistic to the point of slight pessimism may make running your business a bit less stressful on you and your managers

7. Value Beats Cost

As stated above, sales are what keeps your business alive. The more sales you make, the better off your business will be. But sometimes, those sales plateau or decline, and you need to figure out why. Oftentimes, the knee-jerk reaction to declining sales is to lower your prices. Who can resist a good deal, right? Wrong. Assuming that you did your homework when you initially created your pricing, chances are very good that the cost of your product or service is not the reason people are not buying.

Lowering your prices does several things, none of them good. It devalues your product when the world knows that what you are selling is below the market norm. And think of those people who did pay the full price for your product. These should be your best customers, but now you run the risk of pissing them off when they see that you selling the same thing to others for less money. The same principal applies to those “New Customer” special deals. You’re going to give a better price to someone who has never used your product or service than you give to someone who is an existing customer? Really? Go back to point #1, and get your priorities straight.

Instead of fretting over pricing, concentrate on the value of what you offer. You can increase value in many ways, through innovation, upgrades, bundling with other products, or penetrating other markets. Concentrate on these things, and don’t become a discounter.

8. You’re Not Superman or Wonder Woman

Finally, the thing I have to constantly remind small business owners is that you don’t have to do it all yourself.   You don’t have all the answers. You don’t have all the skills. Hire intelligently, and surround yourself with smart, hard-working people with skills and experience that you do not have. Don’t look for clones of yourself; look for complementary pieces. When you find them, treat them well, give them the tools they need, and then get the hell out of their way. They’re going to help you be successful.

These tips, and those presented last week, are not silver bullets to bring you instant business success.  No such thing exists, you know that.  But these fundamentals are the foundation of a business built to succeed.  The rest is up to you and your team!