From issues managing cash and people, and a lack of clarity on strategy and values, Advisor to CEOs and Executive Teams Kevin Lawrence talks about the most common mistakes made by leaders of quickly growing companies.
The most common mistakes? Wow, that’s a good one.
Very, very common mistakes are being critical of people’s performance, when the people that work for you don’t have the right tools – or the right clarity to perform. And the executive, the CEO, will be mad because they’re not doing this, but they think they’re supposed to do this.
Having no clear transparency on the expectation is very, very common in growing companies -’cause they’re growing so fast, there’s not enough time to have the systems in place, or they haven’t put the time to have the systems in place to have really clear communication. That’s why, for each employee, we believe that every employee should have a couple of key performance indicators, or numbers that they can use – so that those employees know, at the end of every day, whether or not they’ve had a good day – without the person that manages them telling them.
The other thing is that everyone should have what we would call rocks or goals every quarter – tangible goals – so that they can know if they made the right progress on their projects.
Now, we also talk about them having a critical number, so they know the one most important number in their world, at any level of an organization. That’s one big mistake.
The second big mistake people make, I see, is not being really, really clear on strategy.
Although they may have one, because it’s not clearly articulated, they muffle it or muddle it up over time – and something that was really, really sharp gets dull and then a company becomes just like their competitors.
And then they wonder why their margins slip, and why it’s harder for their sales people to sell, and it’s harder to grow. But if you go back five years in time, what they offered was distinct and highly valued in the market – and, over time, it becomes almost commodity-like – and some people call it commodity hell. They get stuck in this commodity hell.
The third biggest mistake I see in organizations is managing cash. People think that cash is something that the finance people do. “I’m gonna leave that to the finance team.”
But every single person in the company makes decisions on what you buy, how you negotiate. Well, most people have a role in negotiating or buying something – and people don’t understand the impact of the timing of cash flow versus the profitability of a company.
A lot of executives understand cash flow as a concept, but it’s not taken into account in day-to- day decisions.
I had a company recently that negotiated a phenomenal discount on their biggest expense in their company – the biggest raw material they purchased – a phenomenal discount. The problem is that the payment terms went from 60-day payment terms to 15-day payment terms.
That doesn’t seem like a big deal, but what it meant is that as soon as they made that deal – as they went through a couple of payment cycles – their bank balance dropped by a few million dollars. Now, it was more profitable, but it just killed their cash flow.
People, and executives in particular, not understanding the relationship between profitability or price, and payment terms or process timing, and how that impacts the cash. And there’ve been many, many times people make amazing decisions for a profit, kill the cash, and then the company goes into distress.
The other biggest challenge – and it fits into one of the first ones – is the leadership team not making decisions around people using core values.
And a lot of people think core values are some corporate fluff – and something your HR department does – but core values is really about having a whole bunch of people, in your company, who see the world through a similar lens as you.
They have a similar belief or operating system, so that makes it easy to trust them, because their natural instincts are similar to yours. And when you have really high performers who don’t have that, it’s tumultuous in the company.
It’s very stressful for people, ’cause it creates a lot of havoc, and it’s not ’cause they’re bad: it’s just that they’re running a different operating system. It’s like trying to make a PC and a MAC compatible.
Although it’s getting better, there are still challenges. The challenge is that when people have these in companies, executives are often really slow to address it, and then it almost starts to undermine the culture of the company. They’re not bad people, they’re just in the wrong company.