A New Definition of a “Business” – How the Clarification in the New Accounting Standards Affects Your Next Real Estate Acquisition

The next time a real estate company acquires an operating property – for example, an apartment complex, industrial property or office building – the accounting for that acquisition could be different from the previous transactions. The Financial Accounting Standards Board (FASB) has clarified its more than a decade-old definition of a “business.” The clarification is included in Accounting Standards Update (ASU) 2017-01, which was meant to assist companies in applying the broadly interpreted FASB Statement No. 141(R), Business Combinations (codified in ASC 805). This clarification will probably result in more real estate acquisition transactions being accounted for as asset acquisitions rather than business combinations.

Prior to the clarification, when a real estate deal was made the buyer would pay a price for the operating real estate and an additional amount for the services required to close the transaction (think broker and attorney fees). Those fees and associated closing costs, which could add up to approximately 5 percent of the acquisition price or more, leave buyers of a $100 million real estate purchase with an automatic $5 million acquisition expense on their books at the date they close the transaction.

With the FASB’s new clarification, the full $105 million the buyer just spent could be capitalized as an asset, if the acquired assets were not considered a business in accordance with the clarified guidance. This is good news for anyone who has ever said: “I just spent $105 million to acquire the property; I want a $105 million asset on my balance sheet!

But while the FASB brings some clarity, the guidance isn’t necessarily black and white, so there are gray areas that should be analyzed. If the transaction was accounted for as an asset acquisition, the acquisition costs would be capitalized and allocated to the assets acquired on a relative fair value basis and no goodwill will be recognized.

The clarification takes effect for public companies for fiscal years beginning after Dec. 15, 2017, and all other entities for fiscal years beginning after Dec. 15, 2018. Many companies have been early-implementing this new guidance due to its benefits for financial reporting purposes and financial ratios.

There are many variables to consider, and this update might not apply to some real estate acquisitions. The application of the clarified definition of a business needs special consideration, and the results will be different for certain types of real estate acquisitions. With such a sweeping change to these critical accounting functions, it is imperative to consult your CPA when structuring your next real estate transaction.

Paul Louis, CPA is an Audit Principal at Haskell & White LLP, one of the largest independent middle-market CPA firms in Southern California. He can be reached at plouis@hwcpa.com or (949) 450-6200.

New Revenue Recognition Standard

Companies are in full swing of implementation, take note of challenges

As executives of companies start to update their revenue recognition procedures in light of the new revenue recognition standard, many have seen the requirement for proper planning and preparation to be necessary. Contract reviews appear to have topped the list of concerns by these companies. This is an important element of transition activities, and it becomes more time-consuming for companies as the number of individual and non-standard contracts increases. The volume of nonstandard contracts may be surprising to some CFOs.

If your business is not contract-based, you’re not out of the woods just yet. Even without contracts to review, there is plenty of documentation and analysis required to implement the new standard, and producing those documents could require more effort and energy than just reviewing them. Even the simplest business structure requires thorough and well documented analysis to determine how the new standard will impact the business, if any.
Revenue recognition is often a critical and complex accounting area that companies cannot afford to get wrong. Many stakeholders – both internal and external, including investors or bankers – will want to know what to expect and potentially see the supporting analysis behind it. As some would say: “document, document, and document!”

The updated guidance also enhances the related disclosure requirements, regardless of whether the new standard has any impact to your business. The objective of the disclosure requirements in the standard is for an entity to divulge sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Companies have noted that it is taking a significant amount of time to work through. Some of the new disclosures will include disaggregation of reported revenue and further information about the company’s specific performance obligations. In addition, significant judgments used to determine revenues will need to be explained, particularly those regarding:
• The timing of satisfaction of performance obligations
• The determination of transaction price and how it’s allocated

Consider yourself asking this question: “What are the new disclosure requirements for this business and are there systems and processes in place today to capture this data?”

A great deal is on the line, and the new standard could affect third parties’ (such as investors) perceptions of a company’s overall financial performance. Use this moment to unlock value from the required change by translating compliance into operational improvements.
The truth is that the difference between complying on time and falling behind could be razor thin. Now is the time to focus sharply on preparing for the implementation!

Better Late than Never – The New and Improved Nonprofit Financial Statements

While standard-setters have been focused primarily on public and private commercial enterprises (think revenue recognition and lease accounting), nonprofit organizations are finally about to join the party. Since 1993, nonprofit financial statements have been prepared under the same guidance. That will soon change with the introduction of FASB’s Accounting Standards Update (ASU) 2016-14, which is required for calendar year 2018 and for fiscal years ending in 2019.

So whether you are a nonprofit board member, a preparer of nonprofit financial statements, or someone who reads nonprofit financial statements prior to making a giving-decision, here are the most impactful changes you can expect from this new and improved financial reporting standard.

1. Focus on Liquidity – A significant change is the requirement for enhanced qualitative (narrative) and quantitative (numbers) reporting on financial resources. Financial assets available to meet expected cash needs for general expenditures within one year of the balance sheet date is now required. The ultimate goal here is to inform the reader of the financial statements about any limitations on the use of liquid assets (typically cash and investments).

2. Simplification of Net Asset Classification – Today’s practice of presenting net assets and annual operating activities into unrestricted/temporarily restricted/permanently restricted categories will be condensed into only two categories – “with donor restrictions” and “without donor restrictions.” Of course, nonprofits will need to continue to disclose the amount and purpose of board-designated net assets.

3. Transparent Expense Reporting – All nonprofit organizations will be required to disclose expenses by both function (that is, program services and supporting activities) and natural class (such as salaries). The standard permits you to report this expense information in a financial statement or in the accompanying notes.

4. Report Investment Return Net of Expenses – In another move to simplify reporting, investment returns are now required to be presented net of external investment expenses, such as management fees and the salary/benefits of certain employees directly involved in investment management.

5. Changes to the Statement of Cash Flows – The new standard makes it less burdensome to use the direct method of cash flow reporting, as a separate reconciliation to the indirect method is no longer required.
Of course, change is never easy; however, there are important steps you can take now to make the implementation of ASU 2016-14 as seamless as possible.

First, educate yourself and educate key leaders in your organization (including board members) about the new standard. Second, develop an implementation plan. Whether you have an accounting/finance department of one or many, you need a thoughtful plan that includes required actions, timelines and resources required. Lastly, this is great opportunity to revise (or even create) policies, such as those involving board designations or expense allocation methodologies.

Although the pace of change in nonprofit financial and tax reporting has not been particularly rapid, a new day is dawning. As we prepare for ASU 2016-14, the FASB is considering Phase Two of this financial reporting project and has also proposed rules to improve the accounting and reporting of grants and contributions. These are welcome improvements to nonprofit financial reporting, and as they say, better late than never.

Bloodlines and Bottom Lines

A family business can be a successful, profitable venture, but it takes a lot of planning and a willingness to work as a team

Most family businesses don’t start out as such. Instead, they begin as the vision of a single entrepreneur who serves as the sole driving force behind the company’s formation and growth.

The founder lays out the business plan, often invests the majority of the initial seed money, builds the customer base, makes the hires and decides how to grow the company once it passes the start-up stage.

It’s the template for the great American success story, that is, until the founder is no longer involved in the business, and leadership falls to the next of kin. That’s when things can get dicey if protocols aren’t in place and enforced.

Kim Huffman is well aware of the challenges a business faces when it transitions from a strong central leader to family leadership. She’s part of a triumvirate of Huffman family members who have run Neil Huffman Automotive Group in Louisville, Kentucky, for the past eight years.

“Neil was my father, and he passed away about eight years ago,” Huffman says. “My father had been the main person in charge of everything, so a lot changed when he was no longer here for us. We knew we needed to adapt and form a new leadership structure if the company was to keep going like it had been.”

On top of the transition from first to second generation, a third generation of the Huffman family was waiting in the wings and had to be brought on board in a way that maintained continuity and paved the way for eventual third-generation control of the company.

“Our concern through all of this was that we didn’t want to be in a situation where the first generation created it, the second generation built it and the third generation lost it,” Huffman says. “So that was also a factor in how we formulated and executed our plan.”

Building a successful family business isn’t an easy task, but the Huffman family — like many others — discovered that people and processes are key to ensuring that the founder’s original vision evolves and thrives for years to come.

Defining the structure

The Huffman family took the initial step of hiring a firm that specializes in the creation and implementation of succession plans. The firm performed a detailed analysis of the Huffman’s business, assessing what the company would need to reach its goals. From that assessment, Huffman decided that the company, which previously operated as nine separate franchises, should be reorganized under a single, centrally focused, family-run management team composed of Huffman, her brother, Dow Huffman, and her nephew, Shane Huffman.

“The firm we hired did personality profiles of each of us and our managers, and it really helped us to figure out how we could work together,” Huffman says. “It helped us decide how to divide the responsibilities and authority within the organization. For instance, I’m in charge of marketing and PR because I have the most experience there. My brother has a good deal of experience in legal, so that’s his area. My nephew is in charge of operations — he’s the one who works with all of our location managers on a daily basis.”

Stephanie Resnick, a partner at commercial law firm Fox Rothschild LLP, says that defining job descriptions within the family is a critical first step. Doing so helps ensure that boundaries of authority are established and that decision-making power is funneled to the person who should be making the decision in a given area.

“It’s very important to have clear roles and responsibilities established and in writing,” says Resnick, Fox Rothschild’s chair of the directors’ and officers’ Liability and Corporate Governance Practice Group.

“Roles, compensation, duration of employment — all of it should be specified. It’s good to have employment agreements written out, so they can be referred to in the event of a dispute, because any time you have family members working together, there’s that chance that family tension could bleed over into the business.”

It’s a risk that virtually all family businesses face, no matter how professional the culture. Personal affairs and biases can get in the way of good business practices. Without an organizational flow chart and job descriptions in writing, family members — particularly peers, such as siblings, in-laws and cousins — can find themselves involved in personal arguments that can undermine the goals of the company.

“There is no doubt family businesses are more informal,” says Michael Newton, managing partner of Fuller Landau, a business advisory services firm in Montreal. “Many businesses exist to be passed from one generation to another, and they are not always set up for involvement from the outside world. That means the dynamics within the family can complicate matters as the business grows.”

In some cases, family members make attempts to consolidate power. The attempt could be motivated by a number of factors — a belief that a sibling or extended family member is less capable of leading the portion of the company in question, or a sense of entitlement brought about by being raised in the company. Or, quite simply, it can be difficult to view your brother, sister, uncle or cousin as your boss when you’ve never related to them in that way before.

“I’ve seen it get pretty ugly, with family members filing lawsuits against one another,” Resnick says. “Often, it’s because one family member is busting their hump, working 12-hour days, while another shows up sporadically, goes home at 3 p.m., but still gets an equal share of the profits. When you don’t have responsibilities defined, you can’t really enforce things.”

Huffman says the new organizational structure at Neil Huffman Automotive Group has been an adjustment, but because her, her brother and her nephew have believed in the plan and stuck with it, it has made it much easier for the rest of the organization to follow suit.

“I was used to being involved in the day-to-day operational end of things,” Huffman says. “But I knew I needed to step away from that and let my nephew take over. It took three or four months for everyone in the organization to become conditioned that you go to him for operational things, you go to my brother for legal and you come to me for marketing and PR matters.

“We had to remain steadfast that you adhere to the chain of command — you don’t come to me for this, you go to Shane. But it worked, and the company is healthier for it. We now have a very firmly entrenched chain of command.”

Outside perspectives

Building a well-defined organizational structure isn’t just about developing rank and file within the family. A strong leadership team must be equipped with a wide-angle lens, bringing outside perspectives to the table in high-level strategic discussions. To achieve that diversity of perspectives, most family-run businesses need to recruit nonfamily members into the company’s uppermost ranks.

While building the company’s new management structure, the Huffman’s recognized the leadership areas their collective expertise didn’t cover and decided those would serve as ideal broach points for bringing in outside help.

“We’ve found having outsiders as part of the company’s management team can be a major benefit,” Huffman says. “We have a management team that serves directly under the three of us, and they’re all people not from the family. Our CFO, used car director and HR director are already on board, and we’re planning to add a new car director and service director soon.”

Bringing nonfamily members into the business and giving them high-level authority to advise and make decisions is a critical safeguard against family groupthink. Those from outside the family are often more apt to view decisions differently and question them.

“You want to put the best people in the best places, and when you hire those people, you want them to feel like they can tell you how they feel,” Huffman says. “They might see things differently because they’re not coming from the same place we are as family members. They can offer new ideas, or a new spin on an existing idea. You want to have those additional perspectives that make you think a little differently, think about a way to do something you hadn’t thought of before.”

Resnick says it’s important that outside hires comprise at least part of the management team. If outside hires enter the organization too far down the ladder, they won’t have the authority — or won’t think they have the authority — to challenge the family leadership’s thinking.

“Typically, the people from outside the family will occupy some of the top-tier roles in the company, such as COO or CFO,” Resnick says. “But the important thing is finding talented people from outside the family and getting them on board in a management capacity, no matter the role. They could even serve on the board, or on an advisory committee. But any way you do it, having outsiders on board is going to help insulate everyone from internal matters between family members.”

Sometimes even family members are capable of bringing an outsider’s perspective to the table if they’ve been exposed to outside influences during the formative years of their careers. Newton says it can be beneficial to the business if younger family members spend some post-college time employed outside the business, then bring that experience back to the family.

“I recommend, whenever possible, they send the children away for a few years once they leave college,” he says. “They get a more global understanding of business, so if and when they come back to the family business, they’re more able to step back and view things through an objective lens, not just the lens of how the family operates.”

Money matters

If a business is privately held within the family, it’s not just a day job for the family members involved. It can also be, in effect, part of the inheritance.

When the founder retires or dies, next of kin may harbor a belief that the company’s money is “family” money and can be spent at the discretion of anyone within the family.

If a company is privately held, there isn’t anything legally wrong with that, as there would be at a public company. But improper use of company funds can lead to further tension among family members, in addition to the balance-sheet problems arising from using company funds for personal expenses.

As with roles and responsibilities, proper management of family business funds must arise from well-defined checks and balances. Family members must understand what constitutes a business expense versus a personal expense, and the difference should be outlined in writing as part of the company’s governance. Also, outline firm consequences for improper usage of company funds, regardless of who the individual is.

“That’s where having a CFO from outside the family can become such an important factor in the success of the business” Resnick says. “You don’t want a family member to think, ‘This is mine anyway’ and just take money out of company accounts to pay for dinner. Having a nonfamily CFO and a well-defined reimbursement policy can help prevent that type of spending.”

The policy should identify examples of appropriate expenses and inappropriate expenses, particularly regarding travel, where the line between professional and personal expenses is often blurred.

“If you go out of town on business, the hotel, the rental car, the plane ticket, dinners or events where you’re entertaining clients — all of that is legitimate,” Resnick says. “If you have a birthday party for your brother at a ritzy golf club and write that off as an expense because you technically work together, that’s not advancing the business in any way, so that’s an inappropriate expense.”

It comes down to making sure everyone in the family understands the purpose of the business, why it exists and how it benefits the family.

“Outline the purpose of the business, and make sure everyone understands that the business exists to employ, protect and finance the family over the long term,” Newton says. “The money within a business should be respected and treated as the family’s life savings.”

Wages and salaries should be addressed in much the same way. Family members should draw the pay negotiated for their position — no more, no less — in exactly the same way nonfamily members are paid.

“You need a policy of fair, equal employment, regardless of who it is,” Resnick says. “Hours and compensation should be enforced fairly across the board, and that should be a part of your company’s governance, in writing.” If a family business is built on a structure of fairness, transparency and acting in the best interest of the company, it can be a rewarding experience for both family members and employees outside the family. But it takes hard work and a continual focus on maintaining sound ethical principles and operational standards.

“It took us about two and a half years to complete the transition, but it has been a fantastic success for us,” Huffman says. “By being organized the way we are, we’ve taken out a lot of the drama. We’re happier as a family, and I think our employees are happier working for our company.”

Team First

The ingredients for building and maintaining winning teams in business

By Erik Cassano

Business is never conducted in a vacuum.

No matter what industry you’re in or how your organization is set up, it takes a large amount of effort from a variety of people with different backgrounds and different areas of expertise, all engaged in and focused on a common set of goals to succeed.

That makes effective team-building among the most important skills that any manager or executive can possess.

“Unless you are a solo performer, like an artist, songwriter or stockbroker, work gets done in teams,” says Josh Leibner, founder and president of Strategic Commitment Group, a New Jersey-based business consulting firm.

“Manufacturing, design work, research and development, banking — all of it gets done in teams. The days of being a lone wolf are getting rarer and rarer. Any organization is going to have people who depend on each other, and coordinating that work is essential to building trust.”

There is no team-building method that is applicable in every situation. The essential components, skills and personalities necessary for success depend on the nature of the task, the size of the company, the motivating factors in play and a host of other variables. But there are common traits that virtually all successful teams — and all successful team-builders — share.

“You have to develop an understanding of what your team needs in order to be successful,” Leibner says. “You need to know what structure they need, what resources they need and what motivates the people on your team. It’s more complicated than it maybe sounds, because teams are comprised of individuals, and each person has different buttons to push. As the leader, you have to manipulate the controls to steer the team toward the overarching goal.”

Setting the ground rules

Leibner says every team has to answer three fundamental questions before the group can function as a team and any work gets done.

What are we here to accomplish? How will we measure success? How will we interact? The answers identify the goals, the standards and the player roles.

“You must have a reason for being,” Leibner says. “And it has to be a compelling reason that engages everyone on the team. You can be organized as a small management group working on a narrow-scope project, or leading an entire company. In all cases, having that bold, compelling mission is essential.”

On the second point, measuring success means developing clear, specific and measurable objectives.

“That might seem self-evident, but it’s remarkable how often you can ask members of a team what defines success and the wide range of responses you can get. And that’s not a good thing. The objectives have to help ensure understanding and alignment.”

The answers to the first two questions are mission statements that need to be clearly communicated. The third answer is less about mission statements and more about management tactics.

It’s an ongoing task to define and manage the interpersonal dynamics of a team. It involves defining roles, having a chain of command, identifying areas of expertise and continuing to ensure that the right questions and right decisions find their way to the right people.

“It’s an ongoing management task that includes prioritization, maintaining team focus and dealing with the inevitable setbacks that always seem to creep up,” Leibner says. “There is also what I’ll call a ‘spirit’ factor at work. How you manage the group tasks and individual work flow will go a long way toward determining the morale of your team.”

Hand in hand with that is the enforcement of accountability — ensuring that not only is the work getting done, but that the work is getting done by the people who are supposed to get it done. As important — or perhaps even more important — than making sure you have no slackers on your team, you have to make sure overly eager or overly aggressive team members aren’t overstepping the bounds of their authority.

“Task management and mood management are very much related,” Leibner says. “That falls on the manager to ask — Who owns a given task? Who has the authority to make decisions and who needs to be informed about something but might not have decision-making power in that area?”

Performing regular maintenance

Maintaining the focus and cohesion of a team should be done as part of regular meetings. Much as with the style of management, the form and frequency of team meetings depend on the type of team and the scope of the project.

“Some meetings are more about large-scale strategic updates, whereas some are more tactical or about removing roadblocks,” Leibner says.

He says he generally puts meetings into three buckets. Wide-angle meetings to discuss long-term strategic decisions are usually not necessary more than quarterly, or every six months. These meetings may involve executives above the team, such as members of top management who want to be briefed on the team’s progress and offer their input.

The next meeting tier is weekly or twice-monthly updates. These are less strategic, involving smaller-scale decisions on the direction of the project or task at hand, and smaller-scale resource allocation affecting the next few weeks or month.

The third meeting tier is the least formal — usually daily huddles. These meetings are almost entirely tactical, dealing with the removal of minor roadblocks to progress and individual concerns, and celebrating incremental accomplishments.

“That’s when you try to nip things in the bud,” Leibner says. “If there are communication breakdowns, if one person isn’t delivering what they promised and it’s creating tension, if someone feels undermined or like their work isn’t being recognized, that’s when you want to air those things out so they can be addressed before it festers and becomes a bigger problem.”

The role of company culture

The effectiveness of a team can be profoundly impacted by the environment in which it operates, and you can’t overlook the role of your company’s culture as a driving force in how effective your people operate in a group setting.

Every business has a culture, whether it’s by design, or something that simply developed over time. The companies with a designed culture built around set principles are generally healthier than those that just let a culture develop without structure.

“Having a productive atmosphere for team building is heavily dependent on the culture you create within your walls,” says Byron Hebert, director in charge of entrepreneurial advisory services at PKF Texas. “Best-laid plans can end up ruined if you don’t have a healthy operating environment — consultants like to say that culture eats strategy for breakfast — and if you just let your culture take root without cultivation, it can develop in ways you don’t want.”

Culture plays a key role in defining organizational goals and organizational structure, as well as the type of people you bring aboard to operate in that structure.

“Culture determines whether you’re going to be a flat organization that values collaboration and will put processes in place to enable those things to happen,” Hebert says. “Teams flourish when roadblocks are removed and collaboration is encouraged, but that doesn’t just happen. It’s something that has to be mandated and overseen by management.”

If you know what type of organization you want to have and are taking steps to make sure it exists, laying that groundwork helps ensure that you’re hiring people who can thrive in that type of environment and who can fit together to form operational and project teams that are greater than the sum of their parts.

“If, for instance, you’re hiring someone who thrives in an organization that has a lot of structure, who needs a strong authority figure, you don’t want to put them in an environment where there is low structure,” Hebert says. “That’s how culture creates a cascading effect that influences the effectiveness of team-building. You have to know the type of organization you are building before you decide who best fits within it.”

A sense of purpose

Culture lays the foundation of a great team, and talented people form the engine that drives the team toward a successful conclusion. But every engine needs fuel, which comes in the form of motivation.

As Leibner said, teams need defined goals and accountability, both of which are central to strong morale. Apart from that, the leaders within an organization need to know what motivates individual members of a team to perform at their best. Those motivating factors can vary depending on an individual’s personality, life situation and career goals, among other factors. But there are some universal rewards that nearly every team member considers motivating.

Money and material rewards are not necessarily high on the list, particularly for younger employees.

“I subscribe to the three primary motivators as outlined by business author Daniel Pink,” Leibner says. “Some people are motivated by autonomy, or a desire to have more control over their lives. Some are motivated by mastery, or a desire to continuously improve. And some people are motivated by a sense of purpose, that they’re serving a cause greater than themselves. I think a lot of motivation comes down to determining who on your team is motivated by which of those three factors.”

Younger employees, those between 20 and 40, were raised in a world that has become increasingly global and socially conscious, and as such, are often motivated by the above factors even more than their older counterparts.

“They’re used to fast-changing environments where there are many opportunities to learn, grow and achieve that sense of purpose,” Hebert says. “If you want to hire, groom and keep younger employees, you have to give them what they’re looking for — a challenging environment and a path to growth. That’s the only way they’re going to flourish at your company.”

That means an ability to quickly ascend from team member to team leader. That’s not to say you should automatically promote younger employees just to keep them, but the pathway should be there for young associates who show the promise and work ethic you’re looking for.

“If you challenge them, and they trust you to keep challenging them, you’re not giving them a reason to leave,” Hebert says. “You have to give them something to climb. Maybe some climb it and others can’t cut it, but the hill has to be there.”

As for money’s role in team-member motivation, it’s certainly a factor. But dollar signs aren’t the make or break that will determine whether you can construct and maintain great teams that produce great results.

You should view monetary compensation as a basic need. If you’re not paying competitive salaries, you’re not attracting qualified interview candidates. But it’s a long jump from there to a great organization with a team-first culture — and money isn’t going to help you make that jump.

“If you’re paying the market rate, I’d say an increase in pay is probably about third or fourth on the list of why people leave for another job,” Hebert says. “More important is the work environment you provide and the question of whether you adequately challenge your people. If you’re not providing that, then money might come into play a bit more.”

Other traps

In addition to individual motivating factors, other stumbling blocks can arise, and leadership has to remain vigilant about removing them. Hebert identifies out-of-touch leadership and inconsistent workload among the other issues that can undermine the success of a team.

“If leadership isn’t advancing with the pace and abilities of the staff, that can be disheartening in a team dynamic,” Hebert says. “That can certainly cause poor attitudes to creep in.”

Workload is difficult to get right all the time. Workflow is often dependent on external factors, including resource availability and the cooperation of customers and clients. But it still requires as much sanding and polishing as possible.

“It’s like any other problem you might encounter within a team,” Hebert says. “Maybe you can’t fix it outright, but your team wants to see that you acknowledge the problem and are working on it. If they see a path to fixing the problem, they’ll be a lot more understanding. If they don’t see a path, or don’t see any empathy from management, it will, in turn, pave their path out of the company.”

The Next Generation

How to identify, train and empower your company’s future leaders

You run a successful business. Your years of growth and profitability have given you the one thing that all businesses crave — stability. People like working for your company. Your management and executive teams are full of people who have been on board for 10 years, 20 years or longer.

You’re the envy of your industry, and everything keeps grooving along until one morning, you wake up and realize that time has a way of slowing down even the most well-oiled machines.

Now, a couple of people have retired, taking a career’s worth of experience and knowledge with them. A few others have found better opportunities elsewhere. Another few have left the work force to focus on raising families.

Suddenly, that all-star team you once had is now a roster pockmarked with holes, in desperate need of a rebuild. And your company is suffering because of it.

Where is that talent going to come from?

In professional sports, teams spend millions of dollars scouting the college ranks in advance of their sport’s draft for this very reason. They’re always in need of new talent to replace players who retire, get injured or move on to another team. And the world of business isn’t much different.

If you’re not keeping your pipeline filled with leadership talent, your business will find itself on a steady decline. That makes identifying and grooming the next generation of leaders one of the most important tasks on any business leader’s plate.

Leaders are both born and made. They have natural talents that lend themselves to leadership roles, but if those talents aren’t cultivated, and the person isn’t empowered to lead, that talent will never be maximized.

How are you to create your next generation of leaders? Now is the time to start thinking about it — before your hand is forced.

A cultural matter

The alternative to grooming leaders from within is to hire externally. Many businesses do that, and it can have the benefit of bringing fresh perspectives into the organization. But doing so is also risky; by rebuilding your leadership or management teams from external hires, you bring in people who haven’t been groomed in the organizational culture, and that can have long-term adverse effects for your business.

“All organizations have a culture,” says Lorraine Moore, president of Calgary-based Accelerate Success Group. “A culture can be cultivated or it can evolve, but every organization has a set of values it needs to live by. If you groom leaders from within, you take steps to strengthen and perpetuate that culture.”

The long-term health of a culture is dependent on the development of leaders — not just managers. Many businesses fail to recognize the difference between the two and develop people who are good at managing subordinates but who lack the vision and initiative to truly lead.

“Lots of people are good at taking a predetermined set of responsibilities and managing those who carry them out,” says Debbie Good, an assistant professor of business administration at the University of Pittsburgh’s Joseph M. Katz Graduate School of Business. “As a leader, by contrast, you have to have a vision and communicate it in a way that gets people to want to follow you. The communication aspect is very big, especially in this era where we have a lot of issues with face-to-face communication.”

Good says the dearth of quality leaders is due, in part, to a lack of emphasis on developing good leadership skills, both during formal schooling and as young workers matriculate into the workforce.

Over the past few decades, there has been more of an emphasis on developing team players who can flourish in a flat organizational structure. And while collaboration and peer relationships can be very productive, companies still need those with vision and initiative to fashion the big-picture direction and strategy for the future.

“For a long time, I think leaders got a bad rap,” Good says. “They weren’t recognized for altruistic things, only that they did what was good for themselves and their careers, so there was this focus on the negative view of leadership. Instead, we should have been focusing on the positive attributes of good leadership — the idea that great leaders can move an organization forward.

“It’s great to be a team player, but leadership is the ingredient that reinforces your culture and makes a business successful in the long run.”

What makes a leader?

A leader can’t be defined by a specific set of personality traits. Some leaders are extremely extroverted, while some lead with quiet confidence. Some are brilliant orators, and some can make their message heard with a few well-placed words. But apart from personality type, every leader has a certain set of qualities — and they’re qualities you should be on the lookout for among your own people. They indicate the raw materials of a future leader.

“Great leaders will show initiative and have integrity,” says John Murphy, founder and president of Venture Management Consultants, based in Palm Beach, Fla. “Those are two of the most foundational qualities any leader can have — that you’re willing to step up and take the reins of something and follow through on it, doing what you said you were going to do.”

Leaders also demonstrate a high level of self-awareness. Much like an actor on stage, they’re aware of their words and actions and how they’re being interpreted.

“In short, those with leadership qualities are going to demonstrate emotional intelligence,” Moore says. “They’re going to understand how they impact others. It’s something that factors heavily into the communication skills that are so critical for good leadership. Leaders understand that words are only one element of communication. Your actions, your mannerisms, even your facial expressions — all of it is a form of communication.”

Emotional intelligence also means having an awareness of the verbal and nonverbal cues of others. Good leaders are able to pick up on the signals of others and react to them. It’s a skill that goes a long way toward establishing a trust factor, which is essential to leadership. Without trust, you can’t lead.

“Are they good listeners?” Murphy says. “Are they observant? Do they pick up on the body language of others? Are they aware of not just their own capabilities but the capabilities of those around them? Great leaders develop a high level of understanding, which makes them trustworthy and believable. Leaders have credibility. If you have people on your staff with that level of awareness, you have people who are demonstrating leadership qualities.”

Technical knowledge is also a part of leadership, but a leader doesn’t necessarily have to have a granular knowledge of the work being performed by everyone on the team. What a leader needs is an ability to utilize data as an accountability and quality-control tool.

“Obviously, technical knowledge of the work is necessary, because you can’t have the blind leading the blind,” Murphy says. “Leaders need to have a head for data and use that as the basis for decision-making, because shooting from the hip is one of the worst things you can do in a position of authority. You must be able to do your due diligence on a matter and come to patient and thoughtful resolutions.”

The ability to analyze data plays into the trust factor, especially when reconciling disputes or conflicting viewpoints within a team.

“It means you’re striving for fairness,” Murphy says. “You’re not skewing your viewpoint, you’re trying to see the situation from all possible points of view. If you are fair, but with a sense of empathy, that all ties back to others and their willingness to have confidence in you.”

Training for the top

Finding those who possess leadership potential is only the first step in the grooming of future leaders. To form raw materials into a finished product, you need to take a multipronged approach to training that encompasses both real-world and classroom settings.

Good works with companies on the development of formal leadership training programs, and a fundamental part of her classroom training programs centers on the honing of communication skills. Even if a person is self-aware and empathetic, there is still a need to refine those qualities in leadership training.

“We really push the idea that you need to become an expert on learning how to read people,” Good says. “It’s something that I think the younger generations, in particular, need training with if they’re going to become effective leaders. Younger members of the workforce have become very tethered to their cell phone for communication, and that tends to cause the face-to-face communication skills to take a back seat.”

A person’s educational background upon entering the workforce can also play a role in the level of interpersonal skill development.

“Sometimes, if your area of study in college was very technical, like engineers, you didn’t put a lot of time or effort into developing the softer skills,” Good says. “That’s something we have to watch for. Someone might have natural leadership qualities, but they were never developed due to other factors.”

Outside of the classroom, mentoring — either one-on-one or in a small-group setting — is one of the most effective ways to educate associates on the essentials of good leadership. Mentors can provide individualized attention and can serve in a tutor role as a young associate is given increasing levels of responsibility.

“If you have particularly strong and knowledgeable members of your senior leadership team, and if they’re willing to mentor, take advantage of that,” Murphy says. “Let them learn from the masters, so to speak, and see great leadership qualities in action. Let them observe how you interact, how you get your message across, how you listen and learn.”

Murphy also recommends setting up projects that allow younger associates with leadership aspirations to contribute to an initiative in a meaningful way, but still under the watchful eye of superiors who can step in, correct mistakes and offer advice.

“I’ve consulted with companies where we’ve constructed projects that send younger leaders on fact-finding missions,” Murphy says. “They perform the research and bring the data to senior management. It’s a win-win, because it gives the established senior leadership a window into the company and how their people are performing, and it gives younger associates a chance to show what they can do. The ones who take the opportunity and run with it are the ones who are going to get noticed.”

Keeping leaders

Team members with leadership potential can be among the most difficult to retain. They’re high achievers who constantly seek out new challenges, and if you don’t provide those challenges, would-be leaders quickly get restless and start searching for other opportunities elsewhere.

A competitive salary is an ingredient in keeping a high achiever happy and engaged. But just about every data point that researchers can come up with suggests money is not the deciding factor in a high-achieving employee’s happiness.

“Money doesn’t keep people, but it can lose people,” Moore says. “What that means is, a lack of adequate pay is a demotivator, but adequate pay is a basic expectation. Challenging work and recognition of achievement are what really keep people. And that goes hand-in-hand with an organization’s ability to create a career path for a promising employee.”

The high achievers who will become your future leaders are seeking avenues for career advancement. They want to know that the company is a partner in helping them realize their potential.

“The satisfaction is going to come from self development,” Moore says. “The company can help with that through mentorship programs, or the opportunity to develop skills in an off-site setting, perhaps something like an allowance to take a course or attend a seminar in their field, or the opportunity to change roles with an eye toward developing new skills.”

Retention of future leaders is every bit as important as identifying and grooming them, particularly as baby boomers age out of the workforce in the coming years.

“It’s going to be particularly important over the next 10 years or so,” Moore says. “Due in large part to business owners retiring or selling, there is an estimate that says 50 to 65 percent of businesses will change hands over the next decade. If your business doesn’t have good people to take over those leadership roles, it is going to lag behind.

“And now is the time to start doing something about it, because it can take years to develop those new leaders.”

Venturing In

What you need to know about venture capital before you seek funding

Venture capital is a viable form of funding, particularly for companies in high-growth spaces such as technology, energy and biotech. And for some companies, recruiting venture capital makes sense.

But the funding method is not right for everyone. Although there are countless VC firms looking to invest money in up-and-coming companies, that doesn’t mean you should pursue VC funding at all costs.

How can you determine if VC funding is right for your company? You must first develop a crystal-clear picture of your company, where you want to take it and the circumstances that surround it, and do so before seeking any funding.

“The most essential thing to understand is what type of capital you should be seeking,” says Jennifer Hill, who was a venture capital attorney before co-founding foreign language vocabulary tool Sixty Vocab. “Are you in a high-growth space? Are you willing to sell off part of your company in exchange for venture capital? Can you get funding from other sources? You should be able to answer all of those questions before you go after venture capital.”

Some venture capital firms fund startups, some fund smaller companies that are past the startup phase, and some only play with the big kids, funding later-stage companies worth $30 million or more.

In any case, finding venture capital funding can be difficult, with lots of dead ends staring you in the face before you find the right match. It can be a lucrative path for companies positioned properly but a frustrating and fruitless road for companies that would have been better off taking another route. Determining which category defines your company can have a profound effect on its long-term health and survival.

The essentials

Businesses looking to the venture capital space for funding need to know one thing: When you bring a VC firm aboard, you are selling part of your company, and thus selling part of the control of your company.

If you run a smaller company that has been primarily funded by family and friends who are willing to let you run the show, this is a critical thing to remember. Selling to a VC firm isn’t all that different from offering public stock, in that you’re giving up part — or all — of your control in exchange for the security provided by a powerful new funding stream.

When you secure the funding of a VC firm, a representative of that firm will sit on your board and help direct high-level decision-making in a way that is in the best interest of the VC firm. If its goals are divergent from your goals for the company, that can create some serious problems that aren’t easy to resolve.

“That is probably the biggest downside that can come out of courting venture capital funding,” Hill says. “You’re losing some control when you sell to a VC firm. You’re involving another entity in shaping your company. That’s why it’s imperative you find a firm that is a good cultural fit for your company.”

If you’re going to pursue VC funding, it’s essential to find a firm that is enthusiastic about the space you’re in and that wants to advance the mission of your business, not just make money from it. Don’t partner with a firm with a dissenting viewpoint on how you run your business, or even a neutral one. Instead, partner with a firm that is active in guiding your business to expansion and further profitability.

“If losing total control is the biggest downside of VC for an entrepreneur, the guidance and partnership of an experienced, enthusiastic venture capitalist is the biggest upside,” Hill says. “It needs to be about more than just the investment dollars. You want a firm that’s jazzed about your business and about what your business could become. You want to partner with folks who can help guide you. If you can find that kind of alignment, the partnership can become something really special.”

And how do you do that? Through lots of research and conversations. Meet representatives from various venture capital firms face to face and gain a thorough understanding of their goals and objectives as a firm. Learn about the firms’ portfolio of companies and why they’ve invested where they have.

In addition, talk to other companies that have partnered with the firms you’re considering — and, if possible, companies that ultimately turned down investment opportunities from those firms.

“Entrepreneurs tend to be the most honest with each other, I’ve found,” Hill says. “So if possible, seek out companies that have turned down investment from the firm you’re considering and see why. That’s not to say you should turn down opportunities based simply on what they say, but the more people you talk to, the more realistic picture you’ll be able to paint.”

Understand what you need

A significant amount of prestige is attached to successfully recruiting venture capital funding. If VC firms are interested in your business, that means you’re an appealing target for big-time investors.

That allure can make it extremely tempting for companies to pursue partnerships with VC firms, even if doing so isn’t necessarily the right path. But if you chase VC funding without really needing it, the negative consequences can outweigh the prestige many times over.

Many companies — particularly startups or those early in their life cycle — simply don’t need the type of funding provided by the venture capital space. In most cases, the simplest and most straightforward path to funding is the best one.

“Part of understanding your company is understanding the amount of funding you need,” Hill says. “It’s one of the first questions you should answer, and be able to answer truthfully.”

If you need $25,000 in funding to get a business or project off the ground, you don’t need the help of a venture capital firm. There are many other, more readily available sources of funding for that amount of money.

“For $25,000, you can go to a bank,” Hill says. “You might be able to raise that amount through friends and family. If you’re looking to raise $20 million, you’ll more than likely need professional investors. But if you honestly don’t need that type of money, you don’t need to involve that caliber of an investor that will take a portion of your company from you. Be honest and take the temperature of your company to see what you really need in terms of funding.”

Hill says entrepreneurs in start-up mode or early in their company’s life cycle should look inward first to determine if it’s possible to self-fund via bootstrapping methods. If you have to look outside the business for additional funding, friends and family should be the next source. Beyond that, numerous government and private programs offer grant money and loans, or you might be able to secure that amount via a bank loan.

“It’s kind of a scaling process,” Hill says. “By the time you need to seek venture capital, you’re likely well established in your business, or at least well established as an entrepreneur with a number of successful ventures under your belt. That’s when you start looking for the firms that have open checkbooks and expertise in the industry you’re in.”

It takes time

If you decide that venture capital is the way to go, don’t expect to have a stampede of would-be investors beating a path to your door. In much the same way that you should be selective about who you partner with, VC firms are extremely selective about where their money goes. Even if you develop a positive initial relationship with a VC firm, it could take months or years before that relationship involves dollars and cents.

“Being totally honest, it takes lots and lots of meetings to make something like this happen,” says Bob Lentz, entrepreneur-in-residence at Northeastern University’s Center for Entrepreneurship Education in Boston. “You usually have to have hundreds of meetings with many different potential venture capital firms or angel investors before you find one that is interested in your product and niche, and that is ready to commit money to it.”

But if you can find the right venture-capital match for your business, the benefits can be significant and long-lasting. If your venture capital partner brings a set of skills and competencies to the table that you or your team don’t possess, it can make the company much stronger, positioning it for levels of growth that it couldn’t have attained otherwise.

“Entrepreneurs often get focused on the end goal and might not realize when a strategic shift is needed to stay on path to reach that goal,” Lentz says. “If you partner with a good investor, they’re going to be able to see the signs that a strategy shift is necessary. If they’re experienced, and particularly experienced at dealing with companies in your industry, they’re going to be much more astute when it comes to identifying the signs that a strategic shift is needed.”

Even though it might be your idea, your company or your product, don’t hesitate to bring people aboard who are more knowledgeable about your space than you are.

“Every person running a business needs people on board who bring different strengths to the table,” Lentz says. “It doesn’t mean they’re smarter than you, it means they have more experience and can serve as an extra set of eyes to help you watch for certain situations that could develop. If you find the right investor match, it can benefit your company in many different ways, and you should embrace that.”

But you can’t force-feed that type of relationship into existence. Lentz echoes Hill’s words: If you don’t have the time to invest in finding and developing a strong relationship with the right kind of VC firm, or you don’t have the capital investment needs to warrant the involvement of a VC firm, look at other options first.

“Bottom line, you need cash to grow your business,” Lentz says. “And there are often many different ways to get that cash. If you don’t want to give up a portion of control in your business, or you don’t need the type of capital that a professional investor normally provides, don’t look at venture capital. It’s not going to be worth it, for you or them.”

Ultimately, you should pursue venture capital investment because it’s practical, not prestigious. Always follow the path of least resistance first.

“It’s very hard to raise money in the world of business,” Lentz says. “It takes a lot of time, no matter the route you go.”

Things to remember

  • Venture capital firms are usually attracted to businesses in high-growth sectors, such as technology and biotech.
  • Different VC firms will fund at different levels, from startups to tens and hundreds of millions of dollars.
  • In order to find the right match, you’ll need to do extensive research on many firms.
  • Developing investor relationships can be a long and difficult process. You might wait months or years before finding an investment firm that believes in your company enough to invest money in it.
  • The simplest resolution is often the best, so if you can more readily solicit investment dollars from friends and family, or via a traditional bank loan, consider that before pursuing venture capital investment.
  • When you bring a VC firm aboard, you are selling a portion of your company in exchange for financial backing. That means the firm will have a seat on your board of directors and be able to exert influence on the direction of your company, which makes finding a philosophically aligned VC firm of critical importance.

Finding Hidden Profits

Are you maximizing your business’ profit potential? Here are some common ways businesses miss out — and how to fix them

On the surface, business is guided by some fairly simple principles. You produce a product or service at a cost, and sell that product or service at a markup that is sufficiently large enough to turn a profit without pricing you out of your target market.

But underneath that Economics 101 definition is a host of other factors that invariably come into play when managing a business made up of numerous moving parts. And if you’re in growth mode, you’re likely adding parts every year.

If those factors aren’t managed correctly, you could be leaving money on the table. Those who consult businesses on lean and efficient practices call it hidden profits, and it is made up of the sum total of money lost when items aren’t priced correctly and wasteful practices lead to unnecessary financial drain.

“Broadly, we can define hidden profits as any opportunity where your profit potential isn’t being maximized,” says Steve Wilkinghoff, the Calgary-based author of “Found Money: Simple Strategies to Uncover the Hidden Profit and Cash Flow in Your Business.” “For example, if you have a whole bunch of customers, you might have a decent rate of average profitability, but when you segment your customers, you might find that certain types of customers are making you far less money than other types of customers, and you might need to take a look at why that is.”

Ultimately, it comes down to the efficiency and effectiveness of your business practices, and often, that means streamlining your practices so they’re easy to understand and control.

“I’ve owned 11 companies in my career, and, for me, simplicity has always been the key,” says Troy Hazard, a Florida-based entrepreneur and author whose latest book is “Future-Proofing Your Business: Real-Life Strategies to Prepare Your Business for Tomorrow, Today.” “How can you always be looking to make your business more efficient and effective?”

The task of maximizing your profits is a large-scale one that requires constant vigilance. But it’s also rooted in common-sense principles that are central to good business.

Look at the numbers

Profit and loss statements can tell you a lot, but they really only tell a part of the story when it comes to your company’s money. Gross profit numbers are aggregate numbers, and they don’t tell you where your profits are strong and where they’re weak. The areas where your margins are weak are the ones where you could be losing out on the chance to maximize profits.

“Lots of business owners look at their profit and loss statements and see a gross profit of 40 percent,” Wilkinghoff says. “But they might not realize that percent is just an aggregate number. Some products might make 20 percent, some might make 70 or 80 percent, and it doesn’t always correlate to sales volume.”

Some of your best-selling products may be yielding the thinnest profit margins. If that’s the case, you may have made an error in pricing to the market, or internal inefficiencies are leading to cost overruns in the process of bringing the product to market. Analyzing every step of the process for needless steps or poorly defined steps and redundancies can help you eradicate waste. In addition, compare your prices to those of the competition. You want to price competitively, and below the competition, when possible, but not so far below that it’s eating into your margins.

“Know the value of what you offer,” says Jonathan Smith, head of the Washington, D.C.-based business strategy firm ChiefOptimizer. “For example, your pricing on a service might be 10 percent below the market, but the quality of the service dictates you should be about 20 percent above the market. Know what you are offering and how it stacks up to what’s out there in the marketplace.”

Maximize selling opportunities

Many products and services lend themselves to add-on sales opportunities. If you don’t offer those add-ons, or your sales staff doesn’t do an effective job of selling them, you’re missing out on one of the most basic forms of profit maximization.

The little things add up. If you run a manufacturing company, you can sell a service agreement on a big-ticket product, which is a time-tested way to increase profits without much committed in the way of resources or manpower. However, if you bundle multiple services as part of the plan and charge a nominal but mandatory convenience fee for the bundling, it’s additional money attached to each sale.

“In manufacturing companies, for example, a service contract sold on the back end of the purchase can help drive revenue,” Wilkinghoff says. “But I’ve also worked with a printing company that packaged certain services along with their products and sold them to clients. I proposed a slight shift — bundle the services, but charge a $5 convenience fee to the package as an add-on. It seems like a little thing, a small amount of money, but it was small enough that the customers didn’t complain. You multiply that $5 fee over thousands of customers, and it’s a big profit point.”

You can also find additional sales opportunities by understanding the pain points of your customers. If your company can solve problems, you’ll develop a loyal customer base of grateful clients who view money spent with your company as money spent wisely. And loyal customers equal repeat customers, which not only means increased profits but increased profits on a steady basis moving forward, as those clients funnel regular business through your door.

“You have to be willing to step back and take a look at the whole picture of where your business stands and where you have the strongest relationships with customers,” Smith says. “You have to think beyond the sales contract that is sitting in front of your face to how you can develop relationships with customers and leverage those relationships to drive profits.”

Eliminate wasteful practices

Wasteful practices are one of the biggest profit swallowers in any type of business. If processes contain too many steps that delay results, if there are tasks that don’t fall under anyone’s job description and are subsequently piecemealed out, those things can affect your efficiency and, by extension, your bottom line.

Accounts receivable is one area that demands efficient operations and accountability, or you almost certainly will find yourself losing dollars. If you are able to sell add-on services, or find other ways to use additional services and options as a means of driving revenue, it doesn’t mean as much to your financial standing if that money fails to arrive in your office in a timely fashion.

“That’s one of the main questions you can be asking yourself — how many days out are your accounts receivable?” Smith says. “And are you collecting in a timely fashion?”

Good organization can cure a lot of problems in your accounts receivable process. Define roles in your accounts receivable department, including who is in charge of follow-up calls on delinquent payments, and how many days you are giving customers to send the check.

Keep track of all of your accounts receivable data in a single location. Smaller businesses might be able to keep track of everything with a basic spreadsheet. As businesses grow, however, the need arises for more sophisticated software built specifically for managing receivables.

There are many other areas to address with an eye toward eliminating waste and making your business leaner. Do you have the right amount of salary committed to the right areas? Sometimes eliminating positions isn’t the only way to cut costs. An employee, or group of employees, might be performing tasks that should be categorized under another department, which can take overhead away from an underperforming department and place it in a department that is better suited to operate with the additional overhead.

“I’ve seen homebuilders hire warranty people and treat that as project overhead, but is that really overhead?” Wilkinghoff says. “Should that be allocated to another part of the business? Those are the types of questions I like to bring up.”

In addition, be reluctant to take on additional overhead costs. You might think you are careful with regard to adding overhead costs, but it’s very easy to spend money when you have a good month or quarter.

“A lot of business owners treat extra overhead almost like a reward for themselves,” Wilkinghoff says. “You have a good month, come in over sales projections, and you hire an assistant, or add on to the office. That’s great, until you have a bad month and still have to pay those bills. When you spend your money, make sure it’s on a valid need. Otherwise, it’s more wasteful spending that’s eating into your profit margin.”

Wasteful practices equate to dollars tied up in resources, dollars that could otherwise be added to your bottom line. It’s not just about making money, it’s about how you spend it.

Don’t get caught up in the drama

Every company leader has to have the ability to pull back and look for undeveloped lines of business and ways to improve internal efficiency. But you’ll never be able to take those profit-maximizing steps if you’re working in the business instead of on it.

Hazard calls it “getting caught in the drama.” If you feel the need to involve yourself in every email, phone call and general distraction that you encounter, you’re not leading in a way that’s going to allow you to find the unexplored areas that could boost your profits.

“Those distractions can prevent you from analyzing what’s ahead,” Hazard says. “You should be looking at leading indicators and reacting to those in a way that allows you to maximize your profits. But many business owners don’t take that time. They get caught up in the day-to-day stuff and end up looking at lagging indicators of sales and financial performance.”

He says that, by then, it’s too late.

“All you can do then is look back at the end of the month, quarter or year, and see how much money you wasted,” he says.

Hazard recommends setting goals — on a daily basis, if necessary — to ensure that you maintain the proper outlook with regard to profits and performance, and don’t get bogged down in things that should be delegated.

“In my own businesses, I’ll take stock every morning,” he says. “I’ll look at what I accomplished yesterday and what I can get done today. I look at what I can do to maximize efficiency and continually improve the performance of the business.”

Hazard divides the items on his desk into three buckets: the things he can change today, the things he’s involved with but can’t change today and the things that he can’t change or that should not be on his desk.

“It’s about what you can do to be effective today,” he says. “If you’ve sent out a proposal but can’t take any action on it for a couple of days, make a note not to think about it for that timespan. Beyond that, if you can’t influence something at all, it’s simply taking up space in your head. If you didn’t register to vote, don’t watch the polls. It’s the same principle in business.”

It’s as much a matter of culture as it is a matter of dollars and cents: An efficient CEO tends to run an efficient business that maximizes its money-making opportunities by capitalizing on business opportunities and eliminating wasteful practices.

“There is a correlation between the effectiveness of the person in charge and the effectiveness of the business,” Hazard says. “Efficiency and effectiveness help cash flow, and that’s key if you have plans to grow. Simplicity, in general, leads to more profitability. If you make your job simpler, you can make it easier for your business to make money.”

Powering Up

What does the future of the energy industry look like, and how will it affect your business?

No other industry impacts society the way energy does, as the ebbs and flows of the energy industry have cascading effects on transportation, food production, home construction and other vital sectors of business.

The impact of energy is so complete that, if you run a business — any type of business — the energy market will impact you in some way. As a result, it is imperative that you stay current with what’s happening in the energy industry, and where it might be headed in the coming months and years.

The energy industry is volatile for a variety of reasons. There are frequent headlines about the geopolitical strife that causes gas prices to spike, or the domestic instability that leads to higher home heating prices during the winter. But the industry itself is inherently volatile, with numerous energy resources battling for market share, and it is one such internal struggle that is changing the face of energy on a large scale.

Natural gas

Hydraulic fracturing, commonly known as fracking, has changed the face of the energy industry. Although the concept of fracking has been around for decades, technological advancements have made it a financially viable method for accessing the natural gas contained in the vast shale fields located throughout North America.

The result is a windfall of natural gas, which is replacing older energy sources such as coal.

“It has really been a game changer,” says Gary Voth, a CPA and energy industry specialist at the Houston office of accounting firm Pannell Kerr Forster of Texas, P.C., a member of the Leading Edge Alliance. “Natural gas is replacing coal as a main energy source, and that will likely impact our economy for at least the next several generations.”

Specifically, the high availability of natural gas is having a profound impact on how electricity is produced.

“First off, it’s a cleaner product than coal,” Voth says. “But its availability has also caused the cost of electricity generation to be cut in half over the past five years, and that’s having a ripple effect down to everything that’s made with electricity, which, in turn, will have a huge impact on our economy. The consumer is and will continue to see the benefits of that.”

Natural gas isn’t just competing with coal. Its availability, and subsequent low cost point, is turning it into an alternative to oil. It hasn’t yet reached a point where natural-gas vehicles are commonplace, but Brian Baumler, also a CPA and energy specialist at PKF Texas, foresees a day when that could be the case.

“The question is going to become, how do we best utilize natural gas when it is in direct competition with oil?” he says. “The biggest issue that has to be overcome regarding natural gas as an oil alternative is the fact that it is just that — a gas. You have to compress it and store it in order to use it, which means there are a lot of questions to be answered as far as finding a convenient and workable refueling process for vehicles. At this point, natural gas refueling has to be supervised by a professional because it is a compressed gas.”

Although natural gas has been pumped to the surface and used in applications such as home heating for many years, its full potential as an energy source is only now being explored, and it is still years away from full realization. However, its abundance will have an increasing impact on our nation’s economy, and the business climate, in the years and decades to come.

Political matters

One of America’s greatest strengths as a country has always been our access to natural resources. The U.S. has some of the most abundant supplies of natural resources on Earth, and it has supplied the fuel — both figuratively and literally — to turn our economy into the world’s largest.

But with those resources comes the responsibility to manage them properly, which includes ethical usage and access. Mining the ground for energy resources, whether it be natural gas, coal or oil, comes with its fair share of controversy as environmental agencies and activists both inside and outside of the government play the role of watchdog, attempting to ensure that other natural resources, such as trees, livestock and water, aren’t harmed by the pursuit of new energy sources.

The result is an ongoing dance between the need for energy resources, and regulations aimed at ensuring that the drilling, mining and fracking needed to extract those resources is done in an ethical manner, with a minimal environmental footprint.

“It’s always the white elephant in the room,” says Scott Soles, a CPA and energy specialist at PKF Texas. “Whether it’s fracking, offshore drilling or domestic drilling for oil and gas, the one big thing any drilling company will have to overcome is the changing regulatory climate as it pertains to environmental standards.”

Fracking in particular has become a hot-button issue that has garnered a large amount of media coverage in recent years. The volatility surrounding environmental regulations can often add extra layers of oversight and regulatory hoops for drilling companies, which affects the industry as a whole and, by extension, society in general.

“Many companies in this space have their hands full dealing with governmental regulations and oversight,” Soles says. “A lot of it has its roots in media coverage, which drives regulators to get involved due to public outcry. The fact is simply that this industry has a very high profile, and every time someone raises the flag for something, it’s an issue. It could be something environmental, something economy-related, or something else. But it does make this industry a lot more interesting to follow than some others.”

Disasters such as the 2010 Deepwater Horizon oil spill in the Gulf of Mexico and 1989 Exxon Valdez oil spill in the Gulf of Alaska have become defining events in the energy industry in the public eye. But the amount of attention paid to the most negative events to impact the industry overshadows the unified efforts that both the government and the industry have made to harvest energy sources in an environmentally responsible way.

“Everything is converging now,” Baumler says. “We’re seeing an effort to find an energy policy and environmental policy that work together. We’re seeing energy companies responding and developing strategies to address EPA concerns.”

Education is also part of the effort. In particular, the industry is attempting to educate lawmakers, and the public in general, about how fracking is conducted, and paint an accurate picture of the risk level to other resources, such as groundwater, that fracking actually poses.

“The reality is, fracking takes place 8,000 to 10,000 feet below any aquifer that is suitable for consumption,” Baumler says.

Business impact

The impact of the energy industry touches virtually every aspect of our society, and that includes every corner of the business sector. If you run a business, it’s important for you to understand how the energy industry affects you and what you can expect to see in the coming years.

That starts with understanding your company’s unique relationship with energy — how you use it, where you get it and in what ways that could potentially make your business vulnerable.

“Peel back the onion layers and figure out where your business is dependent on energy,” Voth says. “Figure out where your risks are, and on top of that, what factors could cause those risk factors to move up or down.”

Those factors could include transportation and logistics, building utilities such as electricity and gas, and capital expenses. Even employee costs and health care costs could be impacted by the peaks and valleys in the energy industry.

“If you run a business that is highly dependent on electricity, start to look at your electricity suppliers and figure out ways to get the best price,” Voth says. “Or if you run a manufacturing company and buy tons of equipment overseas, pay attention to what is going on in the countries where your suppliers are based. Political and economic upheaval can affect the supply chain, which has significant ripple effects as far as pricing.”

A good rule of thumb is to always look ahead. Gather data and formulate strategic plans that take into account the most likely scenarios for where your business and your industry could be headed and how emerging trends in energy could affect your industry.

“The global economy is complex, and business owners can certainly benefit from being more futuristic with their thinking,” Soles says. “If you’re not planning for what’s ahead and where the market could go, if you keep your head down and assume you can keep doing what you’ve always done, you run the risk of having some unpleasant surprises. Don’t assume your energy needs and how you purchase and use energy will stay the same.”

Voth says the energy industry itself could stand to improve on its efforts to educate the business community, and the public in general, on the daily impact of energy. Although there have been increasing efforts to educate the public on hot-button issues such as fracking, the everyday side of the energy industry has received less attention.

“I think the energy industry has honestly done a really poor job of PR the past few years to let people know the impact of the industry in their daily lives,” Voth says. “The negative stuff, like increasing prices and brownouts, get the media’s attention, but we don’t see enough about the things that impact the industry. When the current administration in Washington wants to cut back on tax incentives to energy companies, that is going to impact consumers. It’s going to impact 401(k)s, because where do those get invested? In energy stocks.”

In Houston, which has a larger energy industry presence than any other city in the country, the PR tide has started to shift as energy companies are beginning to purchase air time for public service announcements and undertake other forms of grass-roots marketing to educate residents and businesses about the impact the energy industry has, and will continue to have.

“I can’t speak for what they’re doing in other parts of the country, but at least here in Houston, they’re starting to take steps to debunk some of the Hollywood myths about the industry,” Voth says.

Education is essential to America’s future relationship with the energy industry. From the politically charged topics of fracking and oil drilling, to the basic need to understand how energy is used in everyday life, an informed population is necessary to arrive at the best decisions that will impact our ability to harvest energy sources, our ability to make sound environmental decisions as it pertains to energy and our dependence on foreign energy.

“The energy industry will be the same in five years as it is now, which is to say, we’ll still be having the same conversations,” Soles says. “The one constant in the energy industry is that it’s always changing, it’s always politically charged, and everyone feels the ripple effects. It’s just a matter of what issues we’ll have. It’s always going to be a worldwide powerhouse industry that will be important for a long time to come.”

Your Company’s Productivity Problem

The dos and don’ts for improving employee engagement, and your bottom line

You may have heard the term “employee engagement” a lot recently, whether it’s a webinar discussing employee engagement strategies, a company touting its engagement statistics or an article citing those organizations with the most engaged workers.

Why is employee engagement on everyone’s radar? The simple answer is, it’s good for business.

Numerous studies show that high employee engagement correlates with outcomes such as higher profitability, productivity and customer engagement for companies that achieve it. Alternatively, when people are unhappy with their jobs, they tend to contribute less, produce less and are less motivated than their peers.

In addition, according to a recent Gallup poll, just 30 percent of the 100 million Americans who work full time are actively engaged at work. As a result, disengaged employees are currently costing the U.S. an estimated $550 billion in lost productivity per year. With these kinds of numbers, it’s no wonder so many companies are making a bigger push toward employee engagement.

Here are six dos and don’ts for building an engaged workforce.

Do find your baseline

Most company leaders know if they have a highly disengaged workforce. But if you don’t know, it’s important to watch for signs of disengagement. Are people underperforming? Do you have attendance issues? Behavioral or attitude problems? Has your company had a decrease in the number of employee referrals? Any of these trends could indicate the need to perform an employee engagement survey, says Bob Kelleher, CEO of The Employee Engagement Group and author of Louder than Words – 10 Practical Employee Engagement Steps.

A companywide employee engagement survey helps organizations understand how engaged or disengaged employees are by comparing their results against internal and external benchmarks. This includes other companies in your industry — a third-party consultant can assist with this — or different offices and divisions within your organization.

“Many companies are afraid to do an employee survey based on fear that their employees actually are disengaged,” Kelleher says. “But determining where there is disengagement will tell you how to designate your efforts.”

Once you compile your survey results, form a cross-sectional task team of business units or departments to create an action plan, focusing on pockets of disengaged employees, starting at the bottom 20th percentile of engagement. Finally, measure your progress with a follow-up survey in 18 to 24 months, when your action plan has had time to gain traction.

“You will have great benchmarks because you now have a historical data point,” Kelleher says.

Don’t just reward with money

Ask any of your colleagues if they would take a salary bump, and you’d be hard pressed to find someone who says no. That’s because most people consider money to be an important factor in job satisfaction. The problem is that some employers treat it like it is the only factor.

“We have a tendency in the Western world to focus on one aspect as the measure of success: making money and other means of exchange,” says Marilyn Tam, a leadership coach, consultant and the author of The Happiness Choice. “That’s where we fall down.”

The reality is that a wide range of factors contribute to a person’s happiness, including money, but also relationships, community, body and spirit. The companies with high levels of engagement are the ones that build all of these factors into their culture, Tam says.

If money has been your primary way to compensate employees, for example, try implementing policies or programs that target other life factors. Offering flexible work hours, encouraging people to use their vacation days, supporting volunteerism and promoting employee wellness are all examples that contribute to employee happiness. By structuring the workplace in a way that keeps happiness factors in a dynamic balance, you increase employee happiness and, consequently, productivity.

“When a business only rewards and compensates people on one thing — money — you are not taking into account the whole human being,” Tam says. “Companies need to realize that employees are people, with consequences, with emotions, with relationships, with spiritual beliefs, perspectives and physical issues who connect to a bigger community.”

Do select the right managers

An employee survey can help you determine where there is disengagement in your company. But just as important, it can reveal if your organization has a leadership problem.

“In every study I’ve ever seen, the No. 1 driver of engagement or disengagement is an employee’s relationship with his/her boss,” Kelleher says. “If you have 10 business units in your company and one is significantly less engaged than the others, you probably have a leadership issue in that business unit.”

According to George Bradt, managing director of executive onboarding company PrimeGenesis, you can generally break engagement down into four levels: disengaged, compliant, contributing or committed. Companies whose managers aren’t doing a good job managing or leading tend to have more disengaged employees, or employees who are engaged in the wrong things. Good managers will get you compliance, but not much else. To engage people at the highest levels, you need managers who can both lead and manage.

“Strong managers will get what they ask for,” Bradt says. “But if you want somebody to contribute or commit, you need to pull them in and get them to belong. You need to boost their self-esteem so they see you value what they are doing. Strong leaders engage people.”

How do you know if you have a leadership issue? Study the people in management roles and see where their direct reports fall in the engagement hierarchy. Low levels of engagement in one area will highlight an isolated issue. But if disengagement is widespread, you may need to modify your leadership selection and training processes.

Oftentimes, companies promote the best employees into management roles. But just because someone is a good accountant doesn’t mean he or she has the behaviors and traits to successfully manage and engage a workforce, Kelleher says. Do your due diligence to ensure you’re promoting and hiring right people and then training them with the soft people skills they need to lead your workforce.

“The people who manage your people are on the front lines of engagement,” Kelleher says. “If you do a crummy job selecting and promoting people to manage others, you are going to have an engagement issue.”

Don’t neglect face time

Today’s digital and online technologies have many positive benefits in the workplace, not only giving companies more ways to communicate with employees but making that communication mobile and immediate. However, employers also need to be careful that, as digital communication becomes more widespread, they don’t forget the value of face time.

“Technology is double-edged sword,” Tam says. “We have the ability to be more connected, but a lot of times we have very superficial connections. When we send an email or a text or a tweet, so many things are not considered.”

Companies with global offices may have employees who never meet face to face with colleagues or customers. But there can be a lot of nuance and meaning lost when you are communicating solely through emails, texting and social media, and this breakdown in communication can eventually impact how employees engage each other and engage with their work.

“Ultimately, we are still social beings, and we can’t forget that,” Tam says. “When you are dealing with certain matters, you need to look people in the eye, even if that’s hosting a video conference or getting face to face occasionally to bring people back together.”

For leaders, face-to-face communication with employees is also critical to getting buy-in for your initiatives, strategies or goals. Although sending an email is fine for day-to-day business, engaging people in your mission and vision requires emotional, direct communication — something you can’t get from a computer.

“People need to understand how you want them to contribute,” Bradt says. “This requires direct communication, looking them in the eye and saying, ‘I value you, we value you, you are important.’ You need to do that face to face.”

Do build an employer brand

Think about which behaviors and traits define you as an employer. Is it die-hard customer service? Community involvement? Creativity? Innovation? Now list the ways that you communicate those traits and values to employees. If you are at a loss, you may have a weak employer value proposition.

“Most companies spend a lot of time, money and resources on marketing products and services but undervalue the need to engage employees in their brand,” Kelleher says. “Often what I conclude is that you don’t have an engagement issue, you have a hiring issue. You’re hiring the wrong people to succeed in your culture.”

In addition to having a strong business value proposition, you need to decide which values you represent as an employer and make them part of your corporate DNA. Build your employer values into your hiring processes and training, then reward and compensate people around those values.

“Customers of Southwest Airlines experience a fun work environment, and that’s not by accident,” Kelleher says. “At Southwest, fun is part of the company’s employer value proposition. They have behavioral-based interviewing to ensure who they hire is a fun personality type that will fit with their culture.”

Nordstrom, Harley Davidson, Apply, T.J. Maxx and The Four Seasons are other examples of companies that practice what Kelleher calls co-branding, this process of aligning your business brand with your employment brand. By co-branding, you bring consistency to the values you embrace and live as a company, which allows you to do a better job of hiring people who fit with and can excel in your culture.

“If you have a very healthy employer value proposition, you are making that employment deal very clear,” Kelleher says. “In exchange for you being a high-performing employee and helping the company be successful, we’re going to do everything we can to help you be successful.”

Eventually, you will have employees who are more successful and more engaged in their jobs, leading to a third level of branding called tri-branding — when employees get customers to brand on your behalf by sharing their customer experiences. Social platforms such as Yelp, YouTube and TripAdvisor are common examples of tri-branding.

“The engaged workforce leads to a riveting customer experience, which leads to the customer creating free advertising for your brand,” Kelleher says. “It all starts with an engaged workforce.”

Don’t shoot for satisfaction

In your efforts to improve employee engagement, you may be looking to employees for ideas about what would make them satisfied at work. But before you add more vacation days and company happy hours, consider the fact that not all disengaged employees are actively disengaged.

According to Gallup data, 52 percent of disengaged employees are simply checked out and going through the motions, which means they may be satisfied at work but are just doing the bare minimum.

“The goal should not be employee satisfaction, because you can have a satisfied but underperforming employee,” Kelleher says. “That’s not a good business model.”

Instead of focusing your efforts on employee satisfaction, ask people what they need to be successful and to help your company be successful.

“You need to get employees engaged in the business in a way that they are aligned with the leadership team, the customers and stakeholders, so they will engage your product or business for you,” Kelleher says.

Think of it as the golden rule of business: How you engage with employees will determine how they engage with you. Thus, the best results come when you show people how their jobs impact the overall success of your company’s mission, vision and goals. Examples include tying employee compensation to contributions to organizational objectives, clearly sharing your mission, and training and developing people for future leadership roles.

“Sometimes in our quest of measuring everything by productivity, we often forget that meaning has to come into play,” Tam says. “All of the factors that influence people globally play in our lives and in our businesses at all levels. We need to recognize that and engage accordingly.”

Under Lock and Key

How to plan, assess and respond to data security breaches

You’re a modern, 21st century business owner. You’re up on the latest technology. You’ve forked over a nice sum of cash to improve your technology infrastructure. You have bright people in your IT department overseeing your cloud platform, your website and the mounds of data stored on your servers.

And you know all about keeping that information safe, too. You know there are people out there who would love to steal your sensitive data, or inject a virus into your system just for kicks. So you’ve invested in security. You have the latest and greatest when it comes to antivirus software and firewall protection, and it’s all password-protected. You sleep well at night.

That is, until someone sidesteps the software and scales the firewall. Then, you have a problem. And no matter how sophisticated your security measures are, you run the risk of encountering a hacker who is even more sophisticated.

“I’ve been in this business for a long time, and I’ve talked to a lot of longtime security professionals who think they have it all figured out,” says John Bruce, CEO of Co3 Group Inc., a Cambridge, Mass.-based provider of incident response technology for data systems. “But what they’ve really figured out is the prevention and detection aspects of protection, keeping intruders out and detecting them if they break in. But what happens once they get in? Not a lot of businesses focus on their response plan.”

If your company possesses any type of sensitive personal data regarding your customers, you are a potential target for hackers. Even if you don’t possess data that could be compromised, you still run the risk of Internet vandalism, which can often result from opportunity.

“That’s why we encourage our clients not to spend all of their resources on prevention,” says Ted Julian, Co3’s chief marketing officer. “Firewalls and intrusion detection systems can be compromised. You need to balance your investments among prevention, detection and response.”

Building a response plan

Responding to a data breach is no different from responding to a catastrophe in the physical world.

“You respond, remediate and educate,” Bruce says. “It’s no different than what police, fire or EMS might do in an emergency situation. You just emulate it and apply it to cyber security.”

In responding, develop a detailed plan of action and which parties within your organization hold what responsibilities. Remediation involves carrying out those responsibilities. In the education phase, you use what you’ve learned to teach your people how to prevent a similar situation from happening again.

Responding to a data breach should involve representatives from every area of your company. No matter the size of your work force or the nature of the work you do, every department will have a hand in the immediate response, remediation process and aftermath.

“It’s a good idea for any business to have a breach response team,” says Lori Nugent, chair of the National Data Security and Privacy practice at Wilson Elser Moskowitz Edelson & Dicker LLP. “It should involve someone from legal, someone from HR, someone from IT and PR, risk management — any operating unit that uses sensitive data. Not every department will need to be involved in every aspect of the response process, but it is necessary to have an enterprisewide approach.”

Don’t just dump everything on IT. While those people are your resident tech experts, your IT specialists often cannot bring a comprehensive view to data security because that’s not their job.

“IT’s job isn’t to respond to a breach,” Nugent says. “Their job is to keep your computer system functional. They’re often not up to snuff on regulations that state governments might have regarding notification to affected parties if a breach takes places. Many states have regulations requiring you to notify your customers if their data has potentially been stolen from your system. IT probably isn’t going to know that.”

In addition, it’s wise to involve a third-party forensic specialist in the event of a data breach — and it’s important that the forensic specialist be a third party with no ties to your company or IT department to sidestep any potential conflicts of interest.

A computer forensic specialist can take virtual snapshots of your system as it looked in the immediate aftermath of a breach, which becomes a critical step should your company face litigation.

“Forensic specialists are often not brought in until it’s too late, until after the cleanup and repair has begun and critical data has been altered or destroyed,” Nugent says. “And that can be a major problem if it becomes a litigation situation.”

Communicating with employees

Since the proliferation of wireless Internet devices — and particularly, since the widespread adoption of cloud-based data services — the concept of “going to the office” has changed.

Employees now take their work with them wherever they go. Your team members are capable of fielding an email at lunch, reviewing a report at the park and accessing records at their child’s game or dance recital.

But for all the convenience and flexibility that mobile devices, tablet computers and cloud-based services provide, they also create many access points for sensitive data — access points that can make easy targets for thieves. As such, you need to educate your employees about how to properly handle sensitive data and the devices that provide the gateway.

“You have to explain the expectations of the company with regard to keeping data secure,” Nugent says. “If you take a bunch of steps to beef up your security software but you don’t educate your employees on properly securing data, you’re missing the largest cause of data breaches that we see.”

All the data security measures in the world won’t matter if an employee leaves a laptop on an airplane, or leaves a backpack with a device that contains sensitive material on a bus or subway platform.

“That’s where the expectations come in,” she says. “Make sure you are clear about what can or can’t leave the office. If you don’t want an employee to take a sensitive spreadsheet home in the evening, make that clear. Give your employees well-defined instructions regarding what they can and can’t do as it pertains to handling sensitive data.”

Deliver those instructions during the employee’s initial training, in the form of a written security plan that the employee can access as a quick-reference guide.

“Any company that handles customer data, such as medical records or credit card information, should have a written data security plan,” Nugent says. “It should be a basic training document, and a lot of government regulators will expect a company to have that type of document on file. It should outline employee procedures, your breach response procedure and your procedure for complying with any notification requirements for customers.”

If you allow your employees to set their own passwords to your servers and cloud-based networks, make sure they’re difficult to guess. The names of children, pets, sports teams and alma maters might be easy to remember, but they’re also easy to crack.

“Utilize numbers and nonletter characters,” Nugent says. “If you’re going to use a pet’s name, for example, use the name plus a number plus a character. Any password can be cracked. They don’t stop hackers, they merely slow them down, but don’t make it easier on them by using an easy-to-solve password.”

Ultimately, the goal of the steps you take is to make sure your management and your employees are all on the same page regarding data security.

Here are some other tips to keep you data safe.

  • Use encryption. Any customer data in your system should be disguised through encryption software. It won’t prevent breaches, but it will make the data virtually useless if it falls into the wrong hands.

“In many jurisdictions, you don’t face notification requirements if the data is encrypted,” Nugent says. “The cost of encryption has gone way down, so it’s a good investment, considering the devastating price you could pay if you don’t use encryption.”

  • Perform regular data purges. If you no longer service a customer, that data doesn’t need to be in your system anymore.

“If you have unencrypted data and it’s stolen in a breach, you often have to notify every single one of the customers involved, even if you haven’t done business with them in years,” Nugent says. “This isn’t just a matter of protecting the data of current customers.”

  • Know where your valuable data is stored. It seems like common sense, but many business leaders couldn’t tell you the location of some of their company’s most sensitive data.

“With the proliferation of cloud applications and third-party data storage services that store your information offsite, a lot of companies have no idea exactly where their data is housed,” Julian says. “That can really complicate matters in the event of a breach.”

  • Consider cyber insurance. It’s affordable, and it can make a huge difference in the financial damages you suffer in the event of a data breach.

“In many of the situations I’ve seen, having that coverage has meant the difference between a company emerging from a breach just fine, and a company suffering so much cash flow damage, it barely survives,” Nugent says. “It can cost up to $15,000 to respond to a data breach, even in the smallest scenario.”

How to Get People to Connect With Your Brand

The power of branding is a powerful tool for your business

A few years ago, Rob Frankel was working with a venture capital company that was dying on the vine.

The company had created a product that allowed companies to contain their Internet signal to their building rather than extending outward where others could use it for free. When Frankel, founder of branding companies i-legions and PeerMailing, met with the company’s leaders, the business was losing money and was unable to sell its product.

“It had a horrible name: Blackstorm Technologies,” Frankel says. “I changed the name to Airespace, and when I presented it to the client, they asked about the ‘e,’ which was exactly what I wanted them to do. I told them the ‘e’ was because they are the only product and service that provides enterprise-level security. The media picked up on that, and 20 months later, they were sold to Cisco for $500 million.”

Branding can be as simple as choosing a name that garners awareness and places your product or service in the customer’s mind. This is a critical component of a business and can often determine its success or failure.

“Try to remember the last time you bought something and weren’t aware of the brand or watched a movie that didn’t have a name,” says Kiran Mohan, director of marketing for Mindtree, an Indian global IT solutions company that went through a rebranding process about a year ago. “Today, there is so much information that we didn’t have 25, 20 or even 15 years ago. But the brand is not just the name of the company or the product, although that is certainly part of it. People buy a brand because they connect with it. And that’s the fundamental of branding.”

Branding basics

Everyone has a different definition of branding, Frankel says. Some people describe it as an identity, awareness, culture or feeling. However, Frankel defines it in the true business sense.

“Branding is getting your prospects to perceive you as the only solution to their problem,” he says. “If you’re perceived as the only solution, price goes out the window because you’re the only game in town and your customers will pay the price you demand. That’s how a brand makes a business more profitable.”

Branding is important because it creates repeat customers, builds trust and grows your customer base, says Laurie Morse-Dell, who works for the Center for Technology & Business in Bismarck, N.D., providing business development and counseling services for the North Dakota Women’s Business Center and coordinating the North Dakota Young Professionals Network.

“A good brand creates repeat customers,” she says. “Customers are creatures of habit and don’t like to be surprised. They want to know what they’re getting into when they go into a business. It’s one of the reasons that chains do so well — people know what to expect.

“A good brand also builds trust with your audience. When you build a brand that speaks to what your target audience wants, they believe they will get the experience they want when they do business with you. If they don’t believe their experience matches the brand message, they probably won’t return.”

A good brand should also take every opportunity to influence how its target audience thinks about it, says Scott Scaggs, creative director at Clean Design, an advertising and branding agency in Raleigh, N.C.

“Your brand lives in the customer’s mind,” he says. “It will exist whether you manage it or not. So why not do it right and guide it in a way that you can affect what the perception is?”

Building your brand

When creating a brand, think through what is true about your company and what is true about your target audience, Scaggs says. This intersection is where your message needs to live.

From there, you need to determine your brand’s voice, which includes its character or personality and what it communicates to your customers.

“We have brand discovery workshops designed to figure that out,” Scaggs says. “We go through descriptor words to help capture the right tone and personality of the brand, and the idea is to go beyond the obvious choices. Everybody says they want their brand to be bold or confident, but it needs to be more interesting than that.

“We have decks of cards with descriptor words and conduct an exercise where we eliminate the ones that don’t belong. What you’re left with, in most cases, is a more interesting set of words to describe the brand.”

One of the questions Morse-Dell often asks clients as she’s helping them develop a brand is, “If your business was a person, what would its personality be?” She also asks what types of clothes it would wear, how it would speak, what it would look like and who its friends would be.

“These are all ways to help determine a characterization of your business, which helps in brand development,” she says. “When you take these traits and start applying them to the personality of your company in everything from advertising to the way employees answer the phone, you’ll develop a strong brand.”

However, choose your descriptors carefully because your claims need to be defensible to resonate with customers, Frankel says.

“One of the biggest mistakes I see is people making claims that can be made by anybody, such as the largest, the cheapest or the best,” he says. “It is better to find a concrete, defensible claim that has legs and can last for generations. A good brand accumulates more value over time and includes attributes no other brand can co-opt.”

Frankel recommends hiring a brand strategist who can evaluate your brand from an outside perspective and create a clear and concise strategy. Too many people skip over creating the strategy and go straight to raising awareness, which almost always fails, he says.

“Ten to 15 years ago, British Petroleum commissioned a major branding agency to redo its brand,” he says. “All it ended up doing was changing the name from British Petroleum to BP and coming up with a yellow and green sunflower, and they were paid millions. But there was no strategy for the change, and to this day, people still refer to the company as British Petroleum, even though it is now supposed to mean Beyond Petroleum. It didn’t take and only served to confuse customers.”

A brand should also focus not only on the present but on the future, Mohan says.

“The common pitfall is that a company thinks about yesterday and feels it needs to make a change for today,” he says. “But today is too late. The best way to look at branding is to determine what you want your branding to say in the years ahead, which depends on your company and its market. If you create for the future, you have a good possibility of being successful.”

In addition, a brand needs to be authentic, clearly demonstrating the message it seeks to portray, Morse-Dell says.

“For instance, if a company wants to portray itself as eco-friendly, but its branding is bright neon colors and it has flashing fluorescent signs on the building, it probably isn’t going to be seen as very authentic,” she says. “Your branding should be a natural extension of your company’s values and core beliefs.”

Growing your company while maintaining your brand

Maintaining your brand is all about staying true to its inherent promise, Mohan says. Especially today, customers want the answer to one simple question: “What’s in it for me?”

“If you have a promise that is relevant to the customer, the brand will be successful and memorable in the customer’s mind,” Mohan says. “The ability of any company to stick to its promise and turn it into an executable deliverable for the customer is the best way to both build and maintain a brand. It’s all about making a solid promise and having consistent messaging, then delivering on that promise.”

During times of growth and expansion, it is critical that you not lose site of your original branding strategy, Frankel says.

“An excellent example is Disney,” Frankel says. “Michael Eisner decided Disney was a cash cow and thinned the brand out to the point where the quality and the standards were low. Roy Disney, Walt Disney’s nephew, launched a fight to kick Eisner out because he saw the theme parks and the merchandise were shoddy. He understood the brand, while Eisner did not. He knew it was about family and magic, not the money.”

Consistency is also key when growing and maintaining a brand, Scaggs says. The brand doesn’t need to be static and can certainly adapt over time, but the customer needs to be able to identify with its core and what it stands for.

“Over the past century, the idea of branding and what is important has changed,” he says. “Many decades ago, it was enough to say what a brand does. Then it evolved in the ’50s and ’60s into advertising that talks about how the brand makes you feel. That lasted into the digital realm of communication.

“Now a brand has to interact with its customers, who demand more depth and facets. You can no longer take a single message and beat your audience over the head with it. A brand needs to be more well rounded and have a defined personality.”

While social media is a big part of customer interaction, it’s also about the brand experience, including how you interact with customers who walk through your door. Interaction encompasses everything from the way your company operates down to the smell of the store when the customer walks in, Scaggs says, as every detail has a chance to influence how the customer regards the brand.


Despite the importance of consistency, if your company has changed significantly, it may be time to rebrand. However, if the changes to the company are minor, avoid tweaking a brand just for the sake of change, as customers can become confused about the reason behind the change and what it means for your company, Mohan says.

“We have large aspirations to be a truly global company and continue to grow,” he says of the Indian company Mindtree. “We realized the brand that helped us the last 12 years was not the brand that would allow us to take the next 20 years head on. So we came up with a new brand that focuses more on our differentiated approach to sophisticated global customers while also appealing to younger audiences that form the global talent pool of the future.”

In the end, a strong brand attracts a loyal following, allowing a company to grow.

“If you build your brand properly, you can say, ‘From the folks that brought you Product A, here is Product B.’ And you’re done,” he says. “Or you can acquire weak or underperforming entities and rebadge them with your brand, and they will turn around in a heartbeat. That’s because your customers accept and are loyal to your brand.”

A strong brand will also help grow your customer base, Morse-Dell says.

“When you develop a strong brand that creates an experience for the customer and has something catchy or memorable, like a fun jingle or great customer service, you’ll create buzz about your business,” she says. “Your current customers will want to tell their friends, and soon, word will spread and your brand will be recognizable to more than just your immediate client base — think viral.”

Frankel agrees, saying the right branding strategy will decrease your customer acquisition and advertising costs as your return on investment and customer satisfaction increase.

“If somebody walks into a store with their buddy to buy a can of hairspray, and their buddy asks why he’s buying that hairspray when it’s 30 percent more expensive, the customer will say, ‘I know the other brand is cheaper, but I use this brand, and here’s why.’ That’s how branding works.”

Who’s Mentoring The Boss?

Why continuous education is just as important for the boss as it is for employees

It took every ounce of willpower that Beth Kieffer Leonard had to not immediately gather her employees together at Lurie Besikof Lapidus & Company, LLP and share everything she had just learned.

Leonard, the Minneapolis accounting firm’s managing partner, had spent a week participating in the Harvard Business School Executive Education program. Leaders who took part in this exclusive opportunity were not allowed to answer emails or phone calls during that time and spent full days reviewing case studies and discussing the principles of effective leadership.

“You are totally energized,” Leonard says. “It allows you to think differently.”

Leonard heard about the program from a colleague and decided it would be a great opportunity to work on her skills as a leader. She approached her executive committee and explained why it was something she really needed to do.

“Taking a week out and being unavailable is a big commitment of time and resources,” Leonard says. “So I had to make the decision that it was important enough to do it.”

Leonard told the committee that the program would benefit the company as well as her.

The Harvard program is just one of many opportunities available to help leaders hone their skills. You need to go into a program with the idea that you will come out with valuable new perspective on how to lead your organization. In order to do that, you first have to accept that you don’t know everything there is to know about leadership.

“If, at the end of the day, you are trying to be the best business leader that you can be, it really isn’t an effort,” Leonard says. “You have to do it. If you do not, it is going to preclude you from accomplishing what you want with the organization as its leader.”

Make the effort

One reason that some leaders struggle with personal development is they don’t believe they have the time to pursue it.

“Too many top leaders get in the trenches of management and lose sight of the big picture,” says Jay Colker, core faculty for the master’s in counseling and organizational psychology program at the Adler School of Professional Psychology. “Many leaders say they value leadership, but then they don’t take the time or ask the right questions. Or they ignore other people. If they are too in the trenches of management day to day, and they aren’t thinking about practicing critical principles, it’s going to inhibit or prevent their own development.”

Other leaders believe that, even if they have time, they don’t need to grow their leadership skills because they have already figured out enough to be successful. However, if you have the attitude that you cannot reveal any development needs, or believe that doing so is a show of weakness, you create an atmosphere of like-minded individuals, Colker says. The result is an organization full of people who are risk averse and walking on eggshells out of fear of revealing mistakes.

“If you are feeling that way, you are probably reinforcing those values throughout the organization,” he says. “Is that the culture you really want?”

Personal development should be an ongoing requirement for everyone at every level of an organization, including the president, CEO or managing partner, says Leonard.

“It is not a matter of whether you identify that you need to improve your skills, or whether you can learn something more, because I think that is a given,” Leonard says.

The important thing is to identify where to expend your energy and then carve out the time to do that. Take the time to sift through all the available programs to determine what will help accelerate and enhance your skill set in the best way.

A leader who ignores such opportunities puts the well-being of the organization at risk.

“I hope those leaders have someone who is close enough to them who can tell them that should never be the case,” Leonard says. “If you are not a lifelong learner, and you are not always trying to improve, that is an indication of the culture you are setting for your organization. If someone thinks they have learned it all, their organization will suffer for that.”

Ask for help

Leaders who decide to pursue personal growth and development often turn first to the people who know them best. There are advantages to working with a peer on getting better at your job, Leonard says. Doing so creates an environment of familiarity that allows you to express your doubts and faults, resulting in the opportunity to expose a tremendous amount of information.

The person you turn to does not have to be a peer in the sense that you are both senior leaders in the corporate world. If you become humble and start asking for help, mentors can be anyone at any level.

“A mentor could be a young up-and-comer who is switching roles,” Leonard says. “It could be a wonderful development opportunity for a young person to be coaching a CEO on critical aspects of the business. In a learning organization, you don’t have to be constrained by role or process. If you are humble, you can create the mindset that we all can develop and learn from each other.”

When you branch out and eliminate the perceived barriers of rank, you open the door to some potentially great sources of knowledge. Approach your own growth as you would the growth of your business and work on both tasks together.

“The best CEOs are always aware that they have weaknesses,” says Andy Kanefield, founder of Dialect Inc. and co-author of “Uncommon Sense: One CEO’s Tale of Getting in Sync.” “They surround themselves with people who are better than they are in those areas. They just try not to do harm in those areas. The goal is not to become so strong that you are leading those areas.”

Instead, the goal should be to make sure you are well rounded enough to speak intelligently on everything that is happening in your organization, and also to be strong and confident enough to allow your people to do their jobs and even help you do your job better. For example, a truly visionary CEO might have a great COO who helps figure out how much the organization can bite off at this time, and help plan that transformation. Or an operationally focused CEO might need a head of strategy or marketing who can bring it all together and say, “If you want to do these things, this is what it might look like and this is the benefit we might be able to bring to our customers,” Kanefield says.

Leaders often struggle with certain aspects of leading their business simply because it’s very hard to be good at everything; it’s not about finding weaknesses and trying to become world-class in those areas.

“True strategic thinking takes several different mindsets that most people don’t possess by themselves,” Kanefield says. “Managing a company is a group exercise. We have a misconception that one person can do it all. The goal is to understand your own strengths in terms of how you’re going to manage the company and then make sure you have those other perspectives by you as you are managing the future trajectory of the company.

That is critical. You see the side effect of one-dimensional thinking when leaders run their companies into the ground. They are overly ambitious or overly cautious. They are not open to change or they change too much. There are a lot of reasons why it doesn’t work.”

Get others in your organization at all levels involved in the effort to continuously search for ways to do it better. For example, best-practice companies in human capital devote two full days every quarter to talent discussion, identifying high-potential leadership and discussing what they are doing to work on themselves.

“It really becomes a development mindset that starts at the top,” he says.

Get a coach

In addition to working with peers or colleagues, a coach can be another effective option to help leaders identify weaknesses in their personal repertoire. These can be longer-term relationships to continue growing, or short term to address a specific need.

Most one-on-one coaching opportunities don’t require a commitment of time on a monthly basis. It may be one issue you’re trying to deal with, or several. It’s a matter of getting better at something and obtaining the tools you don’t currently have.

In most cases, going into the coaching session you will learn more than you expected. “There is a great deal of self awareness that comes with introspection,” Leonard says. “A lot of times with coaching, you get 360 feedback so you can understand how you are perceived. That 360 feedback is a huge part of coaching. Any time you are getting unfiltered feedback about how you interact with your organization, that’s a good thing. In some cases, you may say, ‘OK, that is exactly how I want to interact with it, so it’s fine.’ You can also find, ‘Hey, I thought I was doing something and I’m not.’ That is a benefit for everybody.”

One of the keys to making a good match between coach and pupil is to focus on the connection and the relationship rather than on the ability to fit the time into your schedule. Find a coach who is right for you, one who has the right mindset or skill set for your needs, who will push you and challenge you, and who will be strong enough to help you.

However, coaching doesn’t always have to be one on one. A group setting has the advantage of bringing together people with common interests and experiences. Colker, of the Adler School of Professional Psychology, is preparing to embark on an assignment to work with eight leaders over the course of a year in a program that will allow them to coach each other.

“I believe this approach is in line with networking, social media, an open perspective and being willing to recognize that you really learn by doing,” he says.

If you demonstrate to your people that you have flaws and that you appreciate opportunities to get better, your organization will be much better for it from top to bottom. You have to take the first step and be willing to open yourself up to both praise and criticism in an effort to improve.

“I have certain skills and you have others,” Colker says. “It’s a process of learning together and putting people in a confidential and trusting environment and getting them to be willing to share, ‘This is what I’m doing and this is how I’m doing it,’ and somebody else saying, ‘That’s going to create some problems for you. Have you thought about this? Why are you doing it that way?’ It’s recalibrating the entire group through the diversity of opinion and solutions that are in the room.”

Leonard has one more piece of advice that is useful no matter what type of leadership training you pursue.

“You cannot overwhelm your organization with all that you have learned, because you have gone through it and they have not,” Leonard says. “When you come back, try to figure out how to implement slowly.”