Burning Question? Sleep on It
“We cannot solve our problems with the same level of thinking that created them.” ― Albert Einstein
Last month I was at a dinner in the US, chatting with a great CEO I work with about a massive problem in his business. He needed to find a key person for a very, very important role, and had no-one in the pipeline. He knew he couldn’t succeed without the right person and was at his wit’s end.
That night, he decided to separate himself from the problem by deliberately putting it the back of his mind so that he could get some sleep. The next morning, like a package from Amazon, the solution arrived in his mind. Someone he had worked with, many years ago, would be perfect for the role.
Although he was already with another company, the CEO sent him a message and they talked later that day. To his delight the person was ready for a change. The timing could not have been better, and they are now thrilled to be working together.
The Law of Attraction
Many books have been written on the Law of Attraction: the ability to attract into our lives whatever we focus on - about leveraging the power of the subconscious mind. It can be shocking how problems can be solved if we just give our brains the space to solve them. Sometimes overnight, sometimes over time.
I recently worked on new keynote presentation and stayed up late trying to wrestle it into submission, but it just wasn’t working. I gave up at 11 pm and consciously decided not to think about it anymore, to let my brain work on it while I slept. In the morning, I woke up with the ideas and clarity I needed, and I could see exactly what I needed to do to make the presentation better.
Sleep on it
In The Superhuman Mind: Free the Genius in Your Brain, authors Dr. Berit Brogaard, PhD (Director of the Brogaard Lab for Multisensory Research, University of Miami) and Kristian Marlow, MA (Fellow of the Initiative on Neuroscience and Law, Baylor College of Medicine) take a scientific look at how gifted individuals – like Nobel prize-winners, pro-golfers and authors - have gained conscious access to the potent processing power of the brain through ‘lucid dreaming’ – a hybrid of waking and dreaming – that activates the brain’s high-activity frontal area.
It comes down to asking the right, specific question and then letting your mind work on it while you get on with other things. Who can do the job? How can we double referrals? Fix the design flaw?
I guess there’s really something to the expression ‘sleep on it’.
The Challenge
- What burning question to do have to answer now?
- Can you invite and trust your brain to work on it while you sleep?
Key Performance Indicators - What's Most Important?
Revenue is Vanity, Profit is Sanity, Gross Profit is the Driver & Cash is King
“Vanity is the quicksand of reason.” - George Sand, French novelist, memoirist
Great revenue growth can bury a lot of sins.
If you simply skim over your financials when times are good, they may look fine on the surface – and be catastrophic underneath. It’s not until you hit a few bumps in the road that you realize how badly your company is actually operating – and then your vanity, your pride in your achievement - takes a tumble.
I’ve seen it more times that I care to remember: super-smart executives doing serious damage to a company because they haven’t paid attention to the right numbers, nor realized the implications of some of their decisions. They all had good intentions and incredible passion, but were misdirected by taking a short-term view.
Here are three common scenarios:
- You’re driven to hit a revenue goal, but compromise on gross margin
- You achieve the gross margin goal, but give it back with increases in overhead (G & A) expenses
- You drive and crush profit targets, but run the bank account (or line of credit) dry.
Yes, I know that you think these are mistakes that other people make, and that you and your team are not at risk - and I hope you’re right.
So, what’s more important?
- Revenue
- Gross profit
- G&A/Overhead
- Profit/EBITDA
All of the above - and the order of importance depends on your company and your situation.
For most companies it is usually:
- Profit - the final indicator of how well you run your own business
- Cash – your bank balance, and the flexibility it gives you to make the right decisions
- G & A (overhead) expenses – the indicator of how much management and support required to operate your business. This is the silent killer of profit.
- Gross Margin – the indicator of quality growth and how good your strategy is (increase perceived value and lower cost to create that value)
- Revenue – makes you feel proud, and an indicator of growth.
The key is to be aware of all of these, all the time - and to expect that well-intentioned executives and CEOs can make decisions that adversely affect these numbers. The income statement and balance sheet of most companies will not make these things obvious – until it is really, really painful.
So how do you ensure that your reports show oversights quickly?
Look Further Back
Every quarter, I sit through the presentation of financial statements for dozens of companies, and get to see performance over multiple years.
Here’s what I noticed: We usually look at the current time period (monthly, quarter or year to date) compared to the budget and last year. While this can provide some insight, it’s shortsighted – and can be dangerous.
Problems can’t easily be detected with a 24-month view – but always can with a 5 to 10-year view.
In fact, 10-year trend reporting is the best way to gain insight. I’ve seen all kinds of good and weak financial and KPI reporting, and the best solution is the chart below: Monthly data (weekly’s better), a 12-month axis, and 10 years of history shown in percentages or ratios (for most measures).
Here are my favorites:
Look at Your Income Statement from Different Perspectives
If you look back over the last 5 or 10 years of most measures of your income statements there can still be problems buried beneath the surface that aren’t obvious. So the best way is to look at some of the most sensitive numbers in your business model, and track the changes as a percentage of revenue, as a percentage of gross profit, or on a per-employee basis.
In some cases, some expenses may look great as a percentage of revenue, but when you look at it as a percentage of gross profit, or on a per-employee basis, they could be completely out of whack. Every business model is different so when you track these over time, you’ll see the ones that actually matter most in your business.
Consider if any of these may be relevant for your business:
As a Percentage of Gross Profit:
- Sales expenses
- G&A/Overhead expenses
- IT expenses
- People expenses (salaries, benefits & consultants)
On a per employee basis:
- Sales expenses
- G&A/Overhead expenses
- IT expenses
- People (salaries, benefits & consultants)
- Net income
- EBITDA
Look at the Trends of Your Operational Metrics (KPIs)
You can analyze your income statements all you want, but the work really happens - and the greatest improvements or problems seen - in your operational metrics, which reflect how well your business is being run at an operational level. Every business has different measures that matter most, and here are some of the ones that every business owner needs to watch.
These are sample KPI’s for a few areas of your business. These should be in place (and reviewed regularly) for all areas including HR, IT, Operations, etc.
Financial:
- Cash conversion cycle days
- A/R days
- A/P days
- Inventory days
- WIP days
Sales:
- Customer satisfaction rating at the end of the sales process (NPS or similar measure)
- # of meetings per week with prospective customers
- Time to close
- Close rate
- Average Order Size
- Order GP
- Items per order
- Reorder rate
- Return rate
Marketing:
- # of qualified leads generated
- Cost per qualified lead generates
- # of customers engaged
- Total audience engaged
- Total digital traffic
- % of digital traffic that is mobile
Know What Great Looks Like in Your Industry
Measuring yourself internally against your own historical performance is excellent, and those trends will vary slightly. But, if at all possible, it’s even more powerful to benchmark yourself against the best your industry can do. Not the industry average - because that’s an indication of mediocrity – but the best.
In most developed industries, you can get these metrics in trade publications, at industry conferences, or from consultants who are experts in your particular industry.
The Right Data
No matter what your role in the company it is your responsibility to understand what’s really going on - and you can only do that well if you take into account the trends over the last 5 years.
Most leaders fail to manage the right things because they don’t have the right data.
In a great article Ford CEO, Alan Mulally, talks about reviewing over 300 charts in their weekly meetings. He says that you can’t manage a secret, and charts (like the ones I describe here) are the only way to get the key factors on the table to run a business well.
The Challenge
- What are the numbers that you need to track over at least a 5 to 10-year time horizon?
- When are you going to make sure you review these – monthly or quarterly?
If you need help, and more samples and examples to set up KPIs and financial metrics, let me know.
We are happy to help.
Beautiful Short-Term Business Relationships
“Some people come into your life for a reason, a season or a lifetime.” - Anonymous
In a recent half-day strategy session, I had a conversation with a CEO and an executive about a close colleague who had recently left their team. They had done spectacular work together and even became close friends outside the office. This direct report had been so good, and had become such an incredible thought partner, that they made the executive notably better at what they did.
Clearly, it was a beautiful relationship - so much so that they were devastated when the colleague left. It hurt.
So, we talked about it, and what came up was that it was painful because the executive had a story in his head that the relationship was supposed to last forever. He felt betrayed and didn’t want to invest in building other relationships in case it happened again.
No wonder he was disappointed! That’s like saying that a movie or a piece of music is so good it’ll never end. And that’s just not possible.
Love the Lessons
It’s important to love the lessons (Chapter 15 in my book), and to see the positive in every situation.
As long as he could only see the negative, he’d be held back from building the quality of relationships that gets incredible work done, in this company’s culture.
Appreciate that painful experiences make you stronger and smarter.
To be OK, he needed to rewire and change his story because, truth is, some relationships are meant to be short, some are meant to be medium term, and others are forever.
To consider that all good relationships will last ‘forever’ is not the healthiest approach – or even possible. So be open to great, short-term relationships which can bring something fresh and amazing to your life – and appreciate them for what they are.
The Challenge
Think about the amazing working relationships you have:
- Which ones may be meant to be short term that you’re trying to make long term?
- What’s your next step?
- Which ones have outlived their lifecycle and continue out of loyalty or habit?
- How do you move on?
- Which ones have the potential to be long term that you can put more energy into?
- What can you do about that?
- For your forever relationships, what can you do to enhance them?
The Art of Decision Making
“Human decision-making is complex. On our own, our tendency to yield to short-term temptations, and even to addictions, may be too strong for our rational, long-term planning.” - Peter Singer, American philosopher
Every day we wake up, we’re confronted with decisions that need to be made, ranging from the mundane (what shirt or dress to wear?) to the complex (should I hire the new marketing manager or not?). And whether we realize it or not, we use the same decision making process for both scenarios, just at different speeds.
We get into trouble when we start taking mental shortcuts – when we tell ourselves we have been in this situation before so “I know the answer”. Unfortunately, the known answer incorporates your personal bias without truly defining the problem or decision criteria.
Here’s a tried and true decision making process we ask clients to undertake:
1. Define the problem
A clearly defined problem allows us to effectively search our alternatives.
I see organizations chase the wrong problem on a regular basis, leading to solutions that only address symptoms, not root causes.
Example problem: "We need to expand and require another retail location."
2. Determine the decision criteria
What are the most important criteria that should be considered in selecting our alternatives?
- Population density in excess of 50K within two km of the location
- Price per square foot < $30
- On a major street
- Has great sign visibility
- Supports an open concept feel
- Is in a trendy part of the city.
3. Weight the decision criteria
Use a scale where 10 is vital to the decision and 1 is a nice to have. For our example problem:
- Population density in excess of 50K within 2 km of the location (10)
- Price per square foot < $30 (10)
- On a major street (7)
- Has great sign visibility (9)
- Supports an open concept feel (3)
- Is in a trendy part of the city (8).
4. Develop Alternatives
Develop a list of alternatives that meet the decision criteria.In our example problem there are four retail location alternatives:
- Lonsdale
- Main Corridor
- Cambie Corridor
- Commercial Corridor.
5. Select the best alternative
Select the alternative that best meets the most important decision criteria. For our retail store example, we would inspect each location and choose.
Effectively deciding on the decision criteria and being honest about the importance of the criteria truly helps you select the right alternative. And, to filter your internal bias, leverage your network to provide perspective. The more you practice this, the more effective your team’s decision making becomes.
The Challenge
- Clearly list and prioritize the decision criteria for one key decision currently in front of the team
- Vet the criteria based on the most important viable priorities and generate your new list of alternatives.
Dean Ritchey is a Coach and Strategic Planning Advisor at Lawrence & Co. Growth Advisors.
Perform Like an Elite Athlete With 360 Degree Feedback
I’m pleased to continue sharing content with you from my associates and other guest experts. Here is the first from my associate advisor Kristin Hazzard:
“Criticism may not be agreeable, but it is necessary. It fulfils the same function as pain in the human body. It calls attention to an unhealthy state of things.” – Winston Churchill
Professional hockey teams and high-performing businesses have a lot in common:
Both have a vision for success and are aligned with goals and targets to achieve them. Both have high performing team members who have specific roles and skill sets which they execute proficiently, and both are structured in a specific hierarchy that helps drive performance and handle logistics.
The most successful teams also trust each other, communicate effectively, hold each other accountable, and push each other constantly. When it comes to delivering feedback and recalibrating for continual improvement, hockey is as good as it gets. It happens on a play-by-play basis and businesses can learn a lot from this type of frequency to gain powerful insights to improve.
One of the best tools we’ve found to deliver meaningful feedback for improved performance and growth is a 360 review.
360 Degree Review
A succinct, direct questionnaire provided to key executives, managers, peers, and direct reports, a 360 asks strategic questions about an employee’s strengths and opportunities for growth, and delivers qualitative and quantitative data about how other people view their performance –sometimes in contrast with how they view themselves. Blind spots are revealed, and insights emerge. It’s a transparent process that can elicit powerful changes in behaviours which directly correlates to improved results.
In hockey terms, it’s like watching a game tape of yourself with real-time feedback.
Annual performance reviews are not frequent enough to elicit powerful change in performance and behaviour. Used strategically, 360 reviews get the right feedback on the table, required to elevate the performance and capacity of employees, which ultimately boosts the strength of the team.
A long-time client has conducted quarterly 360 reviews with their executive team for the past seven years. This ‘game-tape’ ritual has become part of their culture – a natural rhythm to give each other honest feedback.
Our Unique Approach
Our approach to 360s is very different than the traditional methodologies because we don’t use 60-100 statistical questions that become pages of data and comparative charts. The 360s we administer use 8-12 powerful questions to focus on their alignment with the culture (core values), strengths as a leader, blind spots, and what they could do to be more effective as a leader.
After data is collated, we offer a more robust version by diving deeper and interviewing participants to explore themes that emerge, to gain the best insights and deliver the best recommendations.
If you haven’t experienced a 360, this may sound daunting or terrifying. But, just like an elite hockey team, giving direct, succinct and performance-based feedback is a natural process, critical to recalibrate and improve everyone’s performance, during and after a game.
The Challenge
- How often do you provide feedback to members of your team (praise or redirect)?
- Who on your team needs help recalibrating to achieve their goals?
- Who would benefit from a 360-feedback assessment?
Reach out to us if you need help to provide feedback that improves performance, or to conduct an impactful 360 assessment for you and your team.
Kristin Hazzard, an Executive & Leadership Coach at Lawrence & Co. Growth Advisors, was an elite hockey player who competed at the national championship level and in the semi-professional Women’s Hockey League.
The Power of Productive Paranoia
“Really great entrepreneurs have this very special mix of unstoppable optimism and scathing paranoia.” - Astro Teller, intelligent technology scientist
It was an incredible relief when I first read Jim Collins’ book Great by Choice where he talked about the attributes of leaders who thrived in turbulent times. One of those attributes was Productive Paranoia.
Common in some of the most successful leaders, Productive Paranoia can be healthy. It’s the attribute of being hyper-aware so that you do what you need to succeed, no matter what.
This is not the paranoia that freaks you out, but the kind that gets you into action, to plan better, think better and prepare better.
Productive paranoia makes you feel better when you’ve done what you can, allowing you to stop worrying and be present to what’s important right now. It’s about anticipation versus worry.
Turn Thought into Action
I’ve always felt paranoid about things that could go wrong, and am constantly thinking about what can be done to make sure we win, making Plans A, B and C. It’s fascinating that, in many conversations about paranoia with a dozen CEOs, I learned they felt the same way!
I once worked with a CEO in the US who was a doomsday person - a preparer to the extreme. He even had a large SUV with bullet-proof blankets, just in case.
As I talked to him, I realized I could do something about my own worry about disasters – like what would happen if the power went out for a month and people went crazy.
So I got into action: I made survival kits for my family with a back-up generator, emergency supplies, food and water. I put together a winter survival kit for my car, as I often drive through the mountains in the winter. And when I travel, I anticipate what could get lost or break down, and always go with extra chargers and connectors for phone and laptop.
While I haven’t gone as far as bullet-proof blankets, or a stash buried in back yard, I do know that, if things got weird, my family and I are ok for a few weeks.
And I noticed that after I put together the kits, I was more relaxed. I felt better, knowing I was prepared, and could move on to other important things. That’s the power of Productive Paranoia.
The Challenge
Think about where you can convert paranoia to productivity:
- What do you need to do to let the paranoia go, to quiet your mind?
- Get into action to make sure it happens so that you can focus on what’s most important.