Align Board and Company Goals

           Are the goals of the leadership of your company in alignment?  Does the Board of Directors and Advisors communicate effectively with the C-suite?  Screening and selecting the proper advisors/board of directors is critical in developing a well-balanced leadership team.  

The company does not want a homogenous team of “yes” men/women.  Rather, it is important to have a variety of skill sets and experiences that complement one another.  You are building a “Dream Team” to lead the organization, don’t you want the best players available in each role?  Founders typically have a defined set of skills that led them to start the company in the beginning.  Whether it is subject matter expertise (SME), or finance skills (typically a co-founder with the SME), or simply a desire to fill a specific need. (In which case both SME and finance may need to be hired). The point of the advisors and the board of directors is to fill the gaps in leadership and create a strong team with which to guide the organization.  Having many varied personalities is not always easy to harness though.  Sometimes it can be like trying to herd kittens or trying to get a room full of small children to sit quietly without a distraction.  How does one handle conflict when it arises?

Potential conflicts should be identified and dealt with immediately before they have an effect on the leadership of the organization.  I have found that the earlier a potential conflict can be identified, the more likely a quick resolution.  

In the early 2000s, I was working with a small family-owned company.  The third generation of the family was running the organization, but because they had grown up “in the business”, they had little practical experience with dealing with the problems they were encountering.  Namely, the short-term vision of the previous generation of leaders was now jeopardizing the very existence of the company.  I was asked to come in and guide them through setting up a sustainable operation for future generations.  

After the initial consultation, it was clear that this was going to be a multi-year project, as they not only needed a “quick-fix” to stop the bleeding, but also an education in corporate governance and a plan to pass along the skills to the future generations.  I created a plan that encompassed a buyout of investors that were not a part of the family (stopping the bleeding), and reduced dividends for a period of time to pay for it (That was not a popular decision), and then partnered with SME’s that had the needed skill sets to sustain the company going forward.  One of the requirements for the SME’s was an educational component to bring the family to a conversational level on each subject.  No need to become experts as they planned on continuing the outsource the process, but understanding what is being said will help to keep them out of trouble later on.

Finally, the family needed to create a Board of Advisors and a Board of Directors that would help to guide the C-suite with strategic decisions.  Because it was a small family-owned company, I didn’t want to scare them with a huge board and dozens of advisors, they simply didn’t require that formality.  

We decided on two family members (each representing half of the family as defined by lineage) and one outside director (the “tie-breaker”). Typically when assembling a Board of Directors, major investors should be represented (They were) and outside experts should be brought in as needed.  The larger the organization, the more experts needed.  (Always creating a board with an odd number to avoid a potential stalemate situation)  Additionally, the terms of the board members should be staggered to maintain continuity during a transition. 

The family members were an obvious choice for them, each “side” had a clear leader that none of the others questioned.  The obstacle was that they didn’t necessarily get along with each other.  Taking that into consideration, the third director needed to be a strong leader experienced in conflict resolution.  After interviewing a dozen candidates, they asked me if I would consider the role.  I accepted and worked with them in that capacity for over 10 years.  The advisors consisted of a representative of their legal firm, their CPA, and the owner of a strategic partner company.  These positions were easily filled as the family had good working relationships with all.

The company had weathered the immediate storm and now had a structure that was sustainable, in alignment, and poised to grow for the benefit of future generations.

Use "OPM", Other Peoples Money

Developing a network of financial backers that have liquidity is critical in the growth of any business.  Whether you are planning to have investors or not, cash flow is crucial to every business.  Formal (investors) or informal (Uncle Joe) sources of cash will allow you to take advantage of opportunities at the speed of business.

In the Private Equity world, we call it the “Capital Stack”.  What are the sources of your funding and will they be available when you need them?  If you are building a retail facility, do you have enough money to complete the build-out of the store?  Maybe the landlord is contributing, some will come from your savings, and you have a loan for some.  If there are construction overruns (inevitably there will be), where does that money come from?  Another scenario could be that one of your competitors is going out of business and is offering to sell you their inventory (that you know you can sell quickly) at 90% off the wholesale price.  Do you have the cash to put that profit in your pocket?

The best time to establish these sources is before you need them!  Waiting until you need them will almost assuredly cause you to miss the opportunity.  Your soon-to-be former competitor will be in a hurry to purge his inventory and will be offering it to everyone just to get quick cash.  In the case of the build-out, lenders will quickly identify that you didn’t plan well enough, a red flag for them, and most likely not approve the additional capital.

It’s important to note that there are many sources for these funds and that they all have different associated costs.  The sources can include Traditional Banks, Credit Cards, Private Lenders, Suppliers, Angel/Private Equity/Venture Capital Investors, and Friends and Family.  The least expensive will require the most time (with the possible exception of “Uncle Joe”), while the quicker, higher risk lenders will want to get paid for assuming that risk.  None of them are bad if used correctly.  Don’t use a high-interest rate loan for long term debt.  You can use it to take advantage of an opportunity and then refinance with a lower-rate loan.

Banks and other traditional resources are fine for long term debt, (although this should be kept to a minimum), but it is the "friends and family" of the business that will create the ability to take advantage of short-term opportunities. 

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Mind the Pennies, and the Dollars will Take Care of Themselves

 -William Lowndes (1652-1724), former Secretary to the Treasury of Great Britain

This time-tested phrase warns us to be frugal and the little steps will add up to big things.  In business, this pertains to stopping profit leaks within the organization. Every company has profit leaks, the key is to develop systems and automate them to minimize the effects of these leaks, thereby increasing profitability and putting more money "in the bank". 

I once consulted with a start-up company with 10 employees.  As a small company, the leadership felt that they weren’t “big enough” to need systems and that they could save money by handling processes manually.  Every day, the employees would call them with questions about how they should complete this task, where they should buy this supply, even call in their time card hours. (Most of the employees were remote workers). With one or two employees this “system” had worked, now that they had 10 employees, leadership spent most of their day on the phone!  Obviously, this was a terribly inefficient use of the leaderships time and they were not able to work either in or on their company and the bottom line was taking a significant hit because of it.

In order to help them, I first had to show them how much of a negative effect this had on their bottom line.  They didn’t even realize it was a problem!  After a long conversation, they approved a test.  We implemented a cloud-based “time clock” and required each employee to use it.  Guess what?  Not only did they reduce the number of phone calls by 10 each day, (a time savings of 30-45 minutes daily) but the employees were excited to have a few extra minutes each day as well!  This worked so well the other systems I recommended was approved on the spot.

These changes left the leadership with more time to focus on increasing revenue and a platform with which to scale the business. (working ON their business)  The effect of increased revenue AND increased profitability simultaneously supercharged the company's balance sheet and valuation.  Whether you want increased cash flow as an operator, or to increase your valuation prior to a sale, the quality and utilization of your systems will make a big difference in your bottom line.

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Long and Winding Road

It's been a long and winding road....

Sorry for the blatant Beatles rip-off, but that is the best description I could find.  The last 18 months have brought a tremendous upheaval in my life, so much so that I couldn't devote any time whatsoever to my blog.  All of that is about to change.  Let me explain.

Over the last two years, I have started two new enterprises and traversed the great divide that is divorce.  Now, any one of those events would cause a sane human being some stress and consternation.  That wasn't good enough for me, I had to do all three.  While I have had some very dark moments during this period, I have thus far been able to convince myself that all of the pain was for the greater good.  I have lost three people who were at one time in my corner (not so much over the last 8 or so years), I hope at some point we can all create some form of a relationship.  Only time will tell.  Honestly, I believe they will be better off traveling their path without me.  The journeys that once were intertwined had become irreversibly separated.  Apparently, God has another plan for me.  This is a business blog, and my family at one time were all involved in my businesses, so I can easily draw a line from one to the other.  It's like sorta like losing a business partner that you had been with for over 30 years (That's how long we were together) only a LOT more intense!

This turmoil has brought more perspective into my life.  After all, what doesn't kill you makes you stronger, right?  So far this hasn't killed me, and I am feeling a bit more like myself lately.  You see, I had lost that for a long time.  Things were too good.  I once again have that "edge" that drives me to succeed.  The complacency is gone, I am once again stepping outside of my comfort zone to achieve things most wouldn't even consider.  Stay tuned for more!

Too Many Chiefs

Have you ever worked for a company that had Co-CEOs, where both were extremely strong personalities and didn't always see “eye-to-eye” on issues?  How about an indistinguishable chain of command?  Maybe it was a board of directors that didn’t understand or value the CEO/Presidents role in the organization, and took it upon themselves to give guidance to the staff directly.


These scenarios are played out in companies all over the world on a daily basis, and are causing trillions of dollars in lost productivity and missed opportunities.  It is impossible to get multiple personalities to agree consistently.  Trying is an exercise in futility, so preparing for the situation is an imperative.  If a company is to be governed by a board, the board needs to have an odd number of members to provide a "tie breaker" vote.  All of the board members need to commit to provide the appearance of agreement to staff once that vote has been settled in order to maintain a cohesive operation.  Daily operations require a clear chain of command so as not to be confusing to the team members.  The employees report to their managers, the managers report to the VP’s, the VP’s report to the President/COO/CEO (depending on structure), the President/ CEO reports to the board.  Simple right?  These are absolutes in business.  No “special circumstances” or “just this one time” scenarios.

When I was in my early twenties, I worked for a company that had four owners, three of whom worked in the company daily.  There were “official” titles for each of the owners, but all of the employees knew that the titles really didn't mean anything as they frequently made decisions in each others areas of responsibilities.  What happened when an employee didn't get the desired answer was akin to going to “ask Dad” when mom said “no”.  As you can probably imagine, this created a tremendous amount of tension among the partners and the employees alike.  Eventually, communication deteriorated into a completely dysfunctional mess and the company closed down, taking their investment and many years of service with it.


Co-CEO’s don’t work because in order to be a good CEO, a person must have certain leadership qualities.  Those very same leadership qualities make it very difficult to share the role.  I can hear many of you chiming in already, “What about Oracle, or Chipotle or Whole Foods, they have Co-CEOs?”  Yes, technically they do, but if you look at the division of labor, that is not necessarily the case.  In regards to Chipotle and Whole Foods, keeping the Founder in place as a Co-CEO was an effort to keep the “spirit” of the company alive while a stronger manager came in to bolster the systems.  In the case of Oracle, the two CEOs have very specific areas that they attend to, and cross the line only when the responsible Co-CEO is otherwise occupied.


If a company doesn’t define the roles very succinctly, with significant consequences for “crossing over”, the result is often chaos or worse.  It is better to title the roles closer to their actual duties.  If you are responsible for daily operations (sales, manufacturing, logistics, etc.) then a COO title is more appropriate.  If you are responsible for strategic vision, administration and acting as a liaison between the board and/or investors, that is more of a CEO role.


I can provide many examples where this type of situation became unworkable.  Big companies, small companies, and anything in between, are not immune to its effects.  In fact, sometimes the larger companies try to “correct” the issue by spending money on consultants, subject matter experts and lawyers, examining “problem areas”.  These areas are designated by leadership, deflecting their own culpability, and creating a loop that continues until the money runs out or one of the leaders gets frustrated and leaves!

To avoid this in your company, simply make sure that the roles are clearly defined, the penalties for crossing into another leaders area of responsibility are meaningful, the leadership respects each others role and how appearances effect the rank and file employees.  Simple Right?







Eric Johnson is  a Strategic Business Consultant, Executive Coach, Private Equity Investor, and has started 11 companies on his own.  For more information, go to www.JohnsonCapital.solutions 

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Team Vision has Better Focus

A Diverse Team Can Drive Success

An individual may create and lead the initial vision, but the team will provide distinct viewpoints that will be invaluable as time goes on, bringing to the project an appeal and insight that will give the project "legs".

This is why it is important to assemble a well-rounded team of individuals that all complement each other, yet retain their own distinct voices the process.  I have lead many teams during my career and have had experiences ranging from the “rag-tag” team with no formal education but the tremendous heart and a hunger for learning, to the “all-star’ team with tremendous pedigree, whose incessant politicking ultimately spelled doom for the organization as it was envisioned.  I have learned that team building is an art, and as such, it is not always perfect, rather it takes nurturing and tinkering to get it to the point where you have the right combination of knowledge, motivation, hands-on skills, and leadership.  There is no room for ego, everything must be done for the benefit of the common goal.

When this is accomplished, it is beautiful and I liken it to riding a wave.  Everything seems to flow naturally and effortlessly.  Every member doing their part selflessly and co-authoring a grand sonata of achievements on their way to greatness.

In the late nineties, I led a team where this occurred.  I would love to take credit for assembling the team, but it was handed to me fully formed, all I had to do was my part.  Sure the team was financially successful, that was expected, but we also accomplished many great things that had never been dreamed of previously, and developed life long friendships with each other in the process.    We had all come from similar but varied backgrounds, so there was a commonality that provided us with a base for communication and relating to one another.  The variance provided us with different vantage points that were beneficial when solving difficult and complex problems.  The resulting business processes and techniques are still being widely utilized today in that industry.

Sometimes you can “stack the deck” with well-qualified individuals with decades of experience and not get the anticipated results because the team didn't “buy-in” to the leaderships vision, or worse, actively sought to undermine it, feeling they were more qualified or otherwise superior to the current leadership.   There is a great truth in the idiom “One bad apple spoils the whole bunch”.  The negativity of one employee can bring a whole team to its’ knees, so they must be dealt with quickly and decisively, either through counseling or dismissal.

This is actually a more common scenario than you would think.  It is also a very difficult situation from which to recover.  There are often many ways to operate a company, and especially in the start-up phase, many of them could be highly profitable.  In this situation, the leadership has an obligation to assess the merits of each scenario, including any resource allocation, strategy, and motivations, and make adjustments for the benefit of the company without the ego.  Many high-level executives, and especially founders, can have difficulty with this.  If there is a (business) need for a founder/CEO to step aside, there can be a sensation of loss akin to losing a loved one, especially if the start-up process was long or particularly difficult.

I have participated in nine of my own start ups and this situation has occurred in more than half of them when an unfamiliar team is assembled.  It is very difficult to predict the path an unknown entity will take when under pressure to perform.  Does this mean that you should forego the experienced team in favor of the “heart” of a younger, more malleable team?  I believe the answer lies in a balance of experience and leadership with a malleable young team with “heart”.  I see great value in “seeding” your team with people you know well.  They in turn know what is expected of them and can help to relay and maintain the vision with the newer team members.

Once you have the right team in place, and a clear, fact based strategic path laid out, there are very few obstacles that can deter the team from achieving their goals.  So tell me, do you have your “dream team” in place?

For more information or to engage my services, please go to www.JohnsonCapital.solutions 

Be Quick to Listen and Slow to React.

Taking time to listen to people who want to share something with you will keep you aware and help you to respond to trends.  Reacting to trends or complaints too quickly can lead you down the wrong path and can be extremely costly.
This is a tough lesson for most of us to learn, as it goes directly against human nature. People, and especially the “type A” personalities often associated with entrepreneurship, usually feel as though they have a pretty good grasp on what is going on in their respective fields of expertise. The danger lies in getting into a groove and becoming stuck. “We’ve always done it that way”, is a hallmark of this tragic mode of transacting business. I’m not saying that one should change things just for the sake of change, rather, all processes should be reviewed regularly and benchmarked against what is being absorbed from constant customer data mining.
As a sole proprietor, the customer data mining can be relatively simple, i.e. asking questions of your customer base as they are shopping or checking out. The further removed you are from the action of the sale, the more complex this process becomes, and can include social media, industry trending analysis, A/B testing and a myriad of other tools to get to the heart of your customers' desires.
Let me give you a few examples of data mining that I hope will illuminate some possibilities for you. Early in 2009, I was operating a small retail shop with only one other employee. We were selling a fairly complex product with a lot of moving parts, and it was intimidating to many of our customers. “What do I do if this thing ever breaks?” was a phrase that was heard on a nearly daily basis in the shop. We didn’t have a repair shop, in fact, there wasn’t a repair shop within fifty miles of us. After several months of research and polling our customer base, we had enough information to correctly plan and open our repair shop onsite. This was a boon to our business and soon after the opening, revenues from the repairs accounted for 60% of the overall business!
In another instance, I was operating a multi-million dollar business that was considering expanding into an adjunct line of business at significant cost, to increase incremental sales. The marketing team and sales team had created a beautiful proposal with data that had been gathered from a multitude of sources (including several highly-regarded thought leaders) but hadn’t taken the step of polling our actual customer base to get their feedback on whether or not they would actually purchase this product. As it turned out, the problem that this new product solved didn’t justify its’ cost in our geography (the problem wasn’t an imperative for our customers) and they were not very likely to make the purchase. That customer poll not only saved the company a significant amount of money in inventory, labor, and advertising but also saved us the embarrassment of rolling out a huge marketing program that would have clearly painted us as “out of touch” with our clientele.
Customer service agents, delivery personnel, and really any customer-facing personnel can be a tremendous source of information. When the client lodges a complaint, it should be dealt with quickly and decisively and should exceed the clients' expectations. That is good business and a great way to ensure that you will have customers for a lifetime. In doing this, however, one must be careful not to make policy changes “on the fly”. Doing so jeopardizes future business by making it increasingly difficult for customer service agents to know what to do in a given circumstance and appearing hesitant. A better way is to track the nature of the complaints and to get to the root of the problem. If it is systemic and policies need to be changed, then do so after the analysis has been completed. More often than not, the issue is a “one-off”, where a confluence of factors created a bad situation.
These are a few examples of many that demonstrate the value of gathering information (listening), verifying it (slowly reacting), and then utilizing it to make sound business decisions. By following this method consistently, your business will benefit, your stress level will decrease, and you may even run across new opportunities that will take you to the next level!

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