Lately, I've been going to hot tubs and it has really helped me unwind after each day.
Here is some information on hot tubs and health:
http://www.epinions.com/content_2276106372
Tuesday, June 30, 2009
The Private Equity Edge by Arthur Laffer
Intro
In their efforts to boil the job of value building down to its essential and simplest elements, many CEOs use simplistic rules of thumb such as earnings per share growth or accounting multiples to measure their progress. The result is that many public companies do not build or communicate sustainable long-term corporate value..Top value builders set high goals and deliver better returns on capital. They think in terms of lean, continuous improvement and find ways to improve the return to providers of capital.
Set high goals, dig a bit deeper than your competition, and take action!
Clearly Focused Goals and Metrics Matter!
Top value builders understand rules of thumb but dig deeper than their peers. Digging deeper with a passion for action gives private equity the edge.
They promote dramatic operational change in the companies they acquire. They use better metrics to judge performance and risk.
-Solid frameworks based on fundamentals are better than rules of thumb.
-Timing and metrics matter.
-Incentives work (including disincentives by having top management put in their own money)
-Individuals have their own preference and goals
-Other supply-side principles
Private equity players:
-Demand a high return on capital for the risks they take
-Take more risks than public companies in funding new technologies and turning around distressed companies
-Promote value-building changes in the companies they buy
-Use more leverage when debit is on sale
-Buy good companies when the market price is below their intrinsic value
-Lock in value increases when the market correctly values or overvalues their investments
-Say no when asked to continue funding low-return projects
-Act with speed and knowledge
-Make and learn from mistakes, but don't bet the farm
-Are longer-term investors, not traders
Intro: How Value Builders Create Value and Wealth and Reduce Risk
-Cost of capital is not commonly understood.
-Macroeconomics and its understanding is far more important than most professionals think.
-The ideal private equity investment typically has been in a middle market, under managed company with reasonably steady cash flow that can be acquired for less than intrinsic value, financed through additional debt, and upgraded through operational improvement.
-Most private equity investments take place outside the US.
-Top value builders seek to boost returns by taking advantage of the three to six year up and down cycles of bull and bear markets.
-Top value builders recognize the difficulty of formulating "brilliant strategies." What they use is not strokes of genius but better methods of continuously renewing and revising their ongoing strategies and goals to meet the ever-changing need of dynamic markets.
-Top value builders focus on being realistic about the past, yet positive and realistic about the future.
-Thinking about risk without including an assessment of both magnitude and probabilities can result in misunderstanding.
-Private equity incentive plans require management to have risk of loss as well as a share of long-term gains in value (naturally weeds out B and C players by nature and those that don't think the deal will work).
-Top value builders tie executive pay to value-building performance. Financial transparency and non-financial incentives help create a value-building culture. Private equity incentives and compensation help attract the best talent for value building.
-Private equity players intuitively use the concept of "real options" in determining the value of acquisitions.
-Top value builders do not hold excess cash balances.
-Private equity firms act quickly, fast trumps slow.
-Top value builders view their businesses as portfolios of investments. They never bet the farm on an unproven experiment and taks risk.
-Top value builders can act with speed because they use the best combination of analytics, people, and incentives to their advantage. The key to continued corporate and national success is involving more poeple in continuous renewal.
Ch 1 - Rules of Thumb, simplistic and often wrong.
-GAAP is not a good indicator of profitability.
-Keep it simple.
-"Crisis, when it is personal, its a powerful teacher."
-Outsourcing was a powerful way to increase earnings to Asian countries like China.
-EPS multiples do not provide a clear path toward corporate value for boards and management to follow. To stay out of the trouble the user must understand the limited range of usefulness. We know of no simple EBITDA-based model that is broadly applicable.
-Growth doesn't always create value.
-While the market seems to understand companies very well (on average), many boards don't seem to understand what the market wants from them.
-Private equity firms are more transparent to their boards and investors. They take into account value metrics and cash flow.
-Cash is always put to use or put back into the fund.
-For comfort corporate decision makers use EBITDA multiples which do not tell the whole story.
-When major decisions are to be made, it is wise to doublecheck the probable outcome of the decision with more than one value or decision model. This is how top value builders gain experience and learn which models work best.
-It is not unsual to see a company that moves from accounting-based performance measurement to value-based performance measurement to find that a third of their previous decisions on business unit values and capital allocations were wrong.
-Sometimes accounting systems can show that there is growth when there is no real growth.
-Private equity players break down all the dvisions and figure out which one is winning and which one is losing and sell/spin off losing ones.
-Top value builders understand that building value basically requires understanding value. Value is built when, over time, operating units provide a return to the corporate parent and its investors in excess of the cost of capital.
-Top value builders understand cost of capital. Bob Lane, CEO of John Deere, inserted cost of capital discipline by charging each operating unit 1 percent per month on its net assets. That transformed Deere's performance from accounting to financial value building and incorporated cost of capital.
-Effective private equity players have learned how to buy and sell businesses, where public companies just buy and rarely divest (they are disincentivized from divesting).
-Private equity boards are more involved and offer value. In these board meetings challenging questions on business unit strategy, operations, and value arise and managemet is challenged.
-Board of directors often have large investments in the private equity fund themselves.
-The decline of the Roman Empire is attributed by some historians to persistent high taxes.
-Clear goals and priorities are important.
-I changed the process, I wanted four of five areas of risk to be constantly discussed by management not thousands giving in some annual filing. In some corporations this is even companywide and everyone looks for it.
-Common private equity practices that reduces risk:
1. Extensive due dilligence
2. Limited financial covenants
3. Involving right experts in the decisions and on the boards of directors.
4. Making tough decisions early
5. Refusing to throw good money after bad
6. Extracting cash as quickly as possible from all investments
7. Having an exit strategy that will maximize returns in the face of a variety of risks.
8. Seperating risk among business entities to ensure survival of the rest of the fund if one tanks completely (even though its highly leveraged doesn't effect other portfolio companies).
-Individual risks are plotted on a rough scale of both their possible impact and likelihood. Asked, should the risk be insured, transferred, or accepted?
-When used properly, probabilities will help to better communicate both the opportunities to build corporate value and the risk of destroying it.
-Cerebrus is known to through massive resources on due diligence.
-Data without analysis is not information, data must be digestible in order to be important information.
-Public corporations are required to disclose risk on their annual 10k reports. Private equity firms are structured to look at risk differently.
Ch4. Incentives
-At the grassroots, there is the choice of paying for value rather then hourly.
-Incenting A and hoping for B is not an effective strategy.
-Private equity stresses growth over value, because private equity professionals are incented from sale of fund not from size of company.
-Educating employees on what creates value takes years and required a high degree of passion, very difficult.
-Plans that pay huge amounts one year and taking nothing back if business collapses, encourage risk taking but do not built sustainable business.
-The most talented people vote with their feet. Top value-oriented CEOs are attracted to private equity because of the opportunity to build personal wealth while operating in a more business-friendly environment.
Ch 5. Options and Alternatives Can Add Value
-Private equity players buy with an end in mind
-Public companies like to sleep at night so they hoard cash and become a prime target for takeover. Only when they see another company getting taken over do they take some action.
-Good public companies return money to the shareholders that they are not using (tax advantages in this as well).
-Private equity examines how every division and company is using its money closely.
-When a public company leverages up its on the verge of bankruptcy, private equity firms live on the edge with high leverage.
-Speed gives private equity an edge.
-They typically set aggressive EBITDA goals as benchmark for value over a three to five year time horizon. As a result they stay focused and say no to most of the quarternly earnings per share reports.
-PE players do extensive private equity research.
-It usually takes a crisis to get a public company to make dramatic change. Survival under fire requires an intensified focus on cash.
-Unlike public company boards, private equity owners will not hestitate to replace management players who resist important value-enhancing change sought by owners.
-Some family owned businesses lack the speed that is needed to continue growing once they have become mature.
-Strong bias towards action in PE.
-Smart PE players use internet and data to monitor industry trends and comments on the internet.
Ch 7.
-Strategic intertia may cause sometimes great companies to continue with a strategy until it becomes a losing strategy (don't use zero-based thinking).
-Top private equity players have learned that it's easier to create value as a company grows from small cap to mid cap to large cap than to change a moderately successful large-cap company.
-Best Buy has allowed shareholdres and employees to dig deeper to understnad their value metrics, they have also invested in teaching front line employees about what creates value.
-Top value builders never lose focus on what matters to the customer.
-Top value builders understand the strategies of advancing competitors, pay attention, and react.
-The fall from greatness was from a lost discipline driven by a failure of leadership to listen, to continuously renew, to act sooner, and to keep the strategy fresh and great along the way.
-A clear private equity edge is a disciplined focus on value and the fulfillment of customers' needs required to produce that value (must eat what they kill).
-A focus on both intrinsic value and a customer-centric discipline is critical to value building. Value cannot be produced unless employees who deal with customers are trained and centered on value.
Ch 8. Act on Insights from the Fundamental Drivers
-Econmics tends to go through fads.
-Private equity funds that start during recessions have great opportunities to win and sell high at the end of the next bubble.
-There are 16 countries with flat tax rates.
--Those who have the capability to identify the fundamental drivers and early indicators have a clear advantage over those who expect the good time trends to continue.
-Bill Gaes says: "Succes is a lousy teacher. It seduces smart people into thinking they cannot lose." Milton Friedman: "One man and the truth is a majority."
-Fear can be paralyzing but facted based analysis of the changing macroeconomic environment can provide the answers.
-Recessions always happen for a reason whether based on gov policy or monetary policy or other events.
-Timing matters, calling inflection points is difficult.
Ch 9.
-Successful private equity players look before they leap. They use experienced executives with skin in the game to find new technologies, management talent, and undervalued assets.
-Failing on small projects can be cheap tuition for a thoughtful company. "Failing cheap" can build valuable experience that allows for quick action in the future. "Failing expensive" is a failure on opening night.
-Of ever 100 bplans a VC gets only 10 get a serious look and only one is funded. Can only do limited due diligence becasue of relatively small size of investment.
-Few public companies break with divisions/units when their capital can be used in a better way (almost taboo to do so).
-Only in the last decade have people really discovered the benefits of global trade and outsourcing.
-Private equity players are focused and good at saying No.
Summary and Conclusions:
-Top value builders never bet the farm. They stage their investments and say no to low-return projects.
-They promote and fund experiments, innovations, and transitions. Without action there is no learning. Without learning, wealth creation, is nothing more than luck. Top value builders increase their luck by placing bets in areas they have experience with. Luck and timing play a part. Luck is nice only while it is good. Let's not forget that many wrong decisions are defensively attributed to bad luck.
-Personal experience matters. Venture capital players who experiment gain ground-level experience in new industries and business models that the average businessperson would fail to understand.
-"Failing cheap" can build valuable experience. Rapid prototyping and controlling investment at each stage are ways to accelerate product innovation in small steps and contol investment. It is not suprising that private equity players have the discipline to say no. They find the right balance between experimenting and limiting risk.
Ch 10: Summary and Conclusions:
-Value building action requires integrity, preparing, and meaningful goals.
-Public companies tend to serve too many masters including analysts, activists, regulators which their private peers do not have to.
-Listening and learning from experience are important value-building skills refined by top value builders, be they public or private. Building long-term shareholder value is not possible without listening to customers.
-Top value builders use better frameworks to understand their markets.
-Timing of investments and knowledge of market cycles matter.
-Intuition helps, if it doesn't feel right, dig deeper. Intuition - if based on experience - usually provides good signals for successful value builders. Integrity is a necessary condition for long-term value creation.
In their efforts to boil the job of value building down to its essential and simplest elements, many CEOs use simplistic rules of thumb such as earnings per share growth or accounting multiples to measure their progress. The result is that many public companies do not build or communicate sustainable long-term corporate value..Top value builders set high goals and deliver better returns on capital. They think in terms of lean, continuous improvement and find ways to improve the return to providers of capital.
Set high goals, dig a bit deeper than your competition, and take action!
Clearly Focused Goals and Metrics Matter!
Top value builders understand rules of thumb but dig deeper than their peers. Digging deeper with a passion for action gives private equity the edge.
They promote dramatic operational change in the companies they acquire. They use better metrics to judge performance and risk.
-Solid frameworks based on fundamentals are better than rules of thumb.
-Timing and metrics matter.
-Incentives work (including disincentives by having top management put in their own money)
-Individuals have their own preference and goals
-Other supply-side principles
Private equity players:
-Demand a high return on capital for the risks they take
-Take more risks than public companies in funding new technologies and turning around distressed companies
-Promote value-building changes in the companies they buy
-Use more leverage when debit is on sale
-Buy good companies when the market price is below their intrinsic value
-Lock in value increases when the market correctly values or overvalues their investments
-Say no when asked to continue funding low-return projects
-Act with speed and knowledge
-Make and learn from mistakes, but don't bet the farm
-Are longer-term investors, not traders
Intro: How Value Builders Create Value and Wealth and Reduce Risk
-Cost of capital is not commonly understood.
-Macroeconomics and its understanding is far more important than most professionals think.
-The ideal private equity investment typically has been in a middle market, under managed company with reasonably steady cash flow that can be acquired for less than intrinsic value, financed through additional debt, and upgraded through operational improvement.
-Most private equity investments take place outside the US.
-Top value builders seek to boost returns by taking advantage of the three to six year up and down cycles of bull and bear markets.
-Top value builders recognize the difficulty of formulating "brilliant strategies." What they use is not strokes of genius but better methods of continuously renewing and revising their ongoing strategies and goals to meet the ever-changing need of dynamic markets.
-Top value builders focus on being realistic about the past, yet positive and realistic about the future.
-Thinking about risk without including an assessment of both magnitude and probabilities can result in misunderstanding.
-Private equity incentive plans require management to have risk of loss as well as a share of long-term gains in value (naturally weeds out B and C players by nature and those that don't think the deal will work).
-Top value builders tie executive pay to value-building performance. Financial transparency and non-financial incentives help create a value-building culture. Private equity incentives and compensation help attract the best talent for value building.
-Private equity players intuitively use the concept of "real options" in determining the value of acquisitions.
-Top value builders do not hold excess cash balances.
-Private equity firms act quickly, fast trumps slow.
-Top value builders view their businesses as portfolios of investments. They never bet the farm on an unproven experiment and taks risk.
-Top value builders can act with speed because they use the best combination of analytics, people, and incentives to their advantage. The key to continued corporate and national success is involving more poeple in continuous renewal.
Ch 1 - Rules of Thumb, simplistic and often wrong.
-GAAP is not a good indicator of profitability.
-Keep it simple.
-"Crisis, when it is personal, its a powerful teacher."
-Outsourcing was a powerful way to increase earnings to Asian countries like China.
-EPS multiples do not provide a clear path toward corporate value for boards and management to follow. To stay out of the trouble the user must understand the limited range of usefulness. We know of no simple EBITDA-based model that is broadly applicable.
-Growth doesn't always create value.
-While the market seems to understand companies very well (on average), many boards don't seem to understand what the market wants from them.
-Private equity firms are more transparent to their boards and investors. They take into account value metrics and cash flow.
-Cash is always put to use or put back into the fund.
-For comfort corporate decision makers use EBITDA multiples which do not tell the whole story.
-When major decisions are to be made, it is wise to doublecheck the probable outcome of the decision with more than one value or decision model. This is how top value builders gain experience and learn which models work best.
-It is not unsual to see a company that moves from accounting-based performance measurement to value-based performance measurement to find that a third of their previous decisions on business unit values and capital allocations were wrong.
-Sometimes accounting systems can show that there is growth when there is no real growth.
-Private equity players break down all the dvisions and figure out which one is winning and which one is losing and sell/spin off losing ones.
-Top value builders understand that building value basically requires understanding value. Value is built when, over time, operating units provide a return to the corporate parent and its investors in excess of the cost of capital.
-Top value builders understand cost of capital. Bob Lane, CEO of John Deere, inserted cost of capital discipline by charging each operating unit 1 percent per month on its net assets. That transformed Deere's performance from accounting to financial value building and incorporated cost of capital.
-Effective private equity players have learned how to buy and sell businesses, where public companies just buy and rarely divest (they are disincentivized from divesting).
-Private equity boards are more involved and offer value. In these board meetings challenging questions on business unit strategy, operations, and value arise and managemet is challenged.
-Board of directors often have large investments in the private equity fund themselves.
-The decline of the Roman Empire is attributed by some historians to persistent high taxes.
-Clear goals and priorities are important.
-I changed the process, I wanted four of five areas of risk to be constantly discussed by management not thousands giving in some annual filing. In some corporations this is even companywide and everyone looks for it.
-Common private equity practices that reduces risk:
1. Extensive due dilligence
2. Limited financial covenants
3. Involving right experts in the decisions and on the boards of directors.
4. Making tough decisions early
5. Refusing to throw good money after bad
6. Extracting cash as quickly as possible from all investments
7. Having an exit strategy that will maximize returns in the face of a variety of risks.
8. Seperating risk among business entities to ensure survival of the rest of the fund if one tanks completely (even though its highly leveraged doesn't effect other portfolio companies).
-Individual risks are plotted on a rough scale of both their possible impact and likelihood. Asked, should the risk be insured, transferred, or accepted?
-When used properly, probabilities will help to better communicate both the opportunities to build corporate value and the risk of destroying it.
-Cerebrus is known to through massive resources on due diligence.
-Data without analysis is not information, data must be digestible in order to be important information.
-Public corporations are required to disclose risk on their annual 10k reports. Private equity firms are structured to look at risk differently.
Ch4. Incentives
-At the grassroots, there is the choice of paying for value rather then hourly.
-Incenting A and hoping for B is not an effective strategy.
-Private equity stresses growth over value, because private equity professionals are incented from sale of fund not from size of company.
-Educating employees on what creates value takes years and required a high degree of passion, very difficult.
-Plans that pay huge amounts one year and taking nothing back if business collapses, encourage risk taking but do not built sustainable business.
-The most talented people vote with their feet. Top value-oriented CEOs are attracted to private equity because of the opportunity to build personal wealth while operating in a more business-friendly environment.
Ch 5. Options and Alternatives Can Add Value
-Private equity players buy with an end in mind
-Public companies like to sleep at night so they hoard cash and become a prime target for takeover. Only when they see another company getting taken over do they take some action.
-Good public companies return money to the shareholders that they are not using (tax advantages in this as well).
-Private equity examines how every division and company is using its money closely.
-When a public company leverages up its on the verge of bankruptcy, private equity firms live on the edge with high leverage.
-Speed gives private equity an edge.
-They typically set aggressive EBITDA goals as benchmark for value over a three to five year time horizon. As a result they stay focused and say no to most of the quarternly earnings per share reports.
-PE players do extensive private equity research.
-It usually takes a crisis to get a public company to make dramatic change. Survival under fire requires an intensified focus on cash.
-Unlike public company boards, private equity owners will not hestitate to replace management players who resist important value-enhancing change sought by owners.
-Some family owned businesses lack the speed that is needed to continue growing once they have become mature.
-Strong bias towards action in PE.
-Smart PE players use internet and data to monitor industry trends and comments on the internet.
Ch 7.
-Strategic intertia may cause sometimes great companies to continue with a strategy until it becomes a losing strategy (don't use zero-based thinking).
-Top private equity players have learned that it's easier to create value as a company grows from small cap to mid cap to large cap than to change a moderately successful large-cap company.
-Best Buy has allowed shareholdres and employees to dig deeper to understnad their value metrics, they have also invested in teaching front line employees about what creates value.
-Top value builders never lose focus on what matters to the customer.
-Top value builders understand the strategies of advancing competitors, pay attention, and react.
-The fall from greatness was from a lost discipline driven by a failure of leadership to listen, to continuously renew, to act sooner, and to keep the strategy fresh and great along the way.
-A clear private equity edge is a disciplined focus on value and the fulfillment of customers' needs required to produce that value (must eat what they kill).
-A focus on both intrinsic value and a customer-centric discipline is critical to value building. Value cannot be produced unless employees who deal with customers are trained and centered on value.
Ch 8. Act on Insights from the Fundamental Drivers
-Econmics tends to go through fads.
-Private equity funds that start during recessions have great opportunities to win and sell high at the end of the next bubble.
-There are 16 countries with flat tax rates.
--Those who have the capability to identify the fundamental drivers and early indicators have a clear advantage over those who expect the good time trends to continue.
-Bill Gaes says: "Succes is a lousy teacher. It seduces smart people into thinking they cannot lose." Milton Friedman: "One man and the truth is a majority."
-Fear can be paralyzing but facted based analysis of the changing macroeconomic environment can provide the answers.
-Recessions always happen for a reason whether based on gov policy or monetary policy or other events.
-Timing matters, calling inflection points is difficult.
Ch 9.
-Successful private equity players look before they leap. They use experienced executives with skin in the game to find new technologies, management talent, and undervalued assets.
-Failing on small projects can be cheap tuition for a thoughtful company. "Failing cheap" can build valuable experience that allows for quick action in the future. "Failing expensive" is a failure on opening night.
-Of ever 100 bplans a VC gets only 10 get a serious look and only one is funded. Can only do limited due diligence becasue of relatively small size of investment.
-Few public companies break with divisions/units when their capital can be used in a better way (almost taboo to do so).
-Only in the last decade have people really discovered the benefits of global trade and outsourcing.
-Private equity players are focused and good at saying No.
Summary and Conclusions:
-Top value builders never bet the farm. They stage their investments and say no to low-return projects.
-They promote and fund experiments, innovations, and transitions. Without action there is no learning. Without learning, wealth creation, is nothing more than luck. Top value builders increase their luck by placing bets in areas they have experience with. Luck and timing play a part. Luck is nice only while it is good. Let's not forget that many wrong decisions are defensively attributed to bad luck.
-Personal experience matters. Venture capital players who experiment gain ground-level experience in new industries and business models that the average businessperson would fail to understand.
-"Failing cheap" can build valuable experience. Rapid prototyping and controlling investment at each stage are ways to accelerate product innovation in small steps and contol investment. It is not suprising that private equity players have the discipline to say no. They find the right balance between experimenting and limiting risk.
Ch 10: Summary and Conclusions:
-Value building action requires integrity, preparing, and meaningful goals.
-Public companies tend to serve too many masters including analysts, activists, regulators which their private peers do not have to.
-Listening and learning from experience are important value-building skills refined by top value builders, be they public or private. Building long-term shareholder value is not possible without listening to customers.
-Top value builders use better frameworks to understand their markets.
-Timing of investments and knowledge of market cycles matter.
-Intuition helps, if it doesn't feel right, dig deeper. Intuition - if based on experience - usually provides good signals for successful value builders. Integrity is a necessary condition for long-term value creation.
Stressed?
If you are feeling stressed make sure you refocus on the outcome, instead of the process steps. Refocusing on the outcome will chunk things in your mind and make them seem more achievable.
Refocusing, like other actions that can help you, is not a one time "event" but rather a process you condition your mind to follow over time.
By the way, a non specific outcome can decrease much of the stress because it is more reachable.
For example, making your goal "to be rich" is more in your control and achievable then have a specific X dollar amount goal.
Refocusing, like other actions that can help you, is not a one time "event" but rather a process you condition your mind to follow over time.
By the way, a non specific outcome can decrease much of the stress because it is more reachable.
For example, making your goal "to be rich" is more in your control and achievable then have a specific X dollar amount goal.
Monday, June 29, 2009
Tools vs. Distinctions
I have recently wrote about distinctions and how beneficial they are. Basically, distinctions help to split apart thought processes that you originally thought were one.
For example, you may have thought that you knew the area of sales. However, once you learned that sales is very different for small and large ticket items you made a valuable distinction.
Distinctions are mutually exclusive.
In many ways tools are the active way we use distinctions. For example, you may learn several different management "tools" to deal with different types of people.
Neither management tool whether a tool that helps you deal with passive aggressive people or one that helps you deal with aggressive people is better or worse. A tool is only as valuable to the extent that it is needed in the situation and is only applicable if we appropriately identify the distinction.
For example, you may have thought that you knew the area of sales. However, once you learned that sales is very different for small and large ticket items you made a valuable distinction.
Distinctions are mutually exclusive.
In many ways tools are the active way we use distinctions. For example, you may learn several different management "tools" to deal with different types of people.
Neither management tool whether a tool that helps you deal with passive aggressive people or one that helps you deal with aggressive people is better or worse. A tool is only as valuable to the extent that it is needed in the situation and is only applicable if we appropriately identify the distinction.
Spin Selling A Players
What are your career goals?
What would be implications if you were able to achieve these intermediary goals?
What if you could get these intermediary goals accomplished at our company?
Remember, the employee is a customer until he/she is on your team.
What would be implications if you were able to achieve these intermediary goals?
What if you could get these intermediary goals accomplished at our company?
Remember, the employee is a customer until he/she is on your team.
Notes from Spin Selling by Neil Rackham
-An important distinction: selling small ticket items is very different from big ticket items. In large ticket items there is a fear of making a mistake and the cost becomes significant. For smaller ticket items a lot of times people will buy it just out of impluse or because it satisfies an advantage (not a benefit as defined later).
-SPIN system:
Situation (data gathering)
Problem Identification -> creates dissatisfaction but not compulsion
Implication -> What is the result of the above "problem." Ask the customer "What happens as a result of your inefficient printer?
Need payoff -> "What would it do to your company if your printer could print faster?" etc.
Ch2:
-Traditional closing is ineffective and most buying managers are pissed off when people try to "close" them.
-You need to know what you are trying to do to advance. What kind of commitment are you looking to get?
Succeses as defined by Rackham:
Order (purchase)
Advance -> a true commitment to a next meeting, which involves getting a next date on the schedule.
Failure:
No-Sale (actively denying purchase)
Continuation -> A quasi-advance, where the potential buyer seems happy but there is no step taking to set up next meeting (positivity/smiling is not a sign of success there must be a new commitment or you will be soon forgotten).
Ch3:
-Perception of problem is not enough to sell large ticket item, the buyer must IN HIS OWN WORDS phrase the negative implications of the status quo.
Implicit - statement by customer of problem/difficulty
Explicit - statement by customer of intention to change system. <-- This is what you need.
The question is: How do you grow problem big enough to compel action?
Ch4:
-Do your homework, too many questions irritate the buyer.
-Summarize (after customer says the benefits himself): So from what you've said, because your Contortomat machines are so difficult to use, you've spent $25,000 in traning costs this year and you're getting expensive operator turnover. You've got bottlenecks in production, and these result in expensive overtime and force you to send jobs outside.
-Make sure that you don't offer solutions too early or you will automatically get objections. Have the buyer raise the objections.
-Practice doing these situation, problem identification, implications, need payoff with different items. It can even effect the other person in practice.
-Implication questions help build trust that your product/service will work and is relevant to the customer.
-First build up pain with implication questions and then use need-payoff questions to solve the problem. Get the customer telling you the benefits himself.
-Customers don't expect your solution to be perfect just to address their main needs.
-When buyers feel that their ideas are part of the solution, they gain enthusiasm for the product.
Ch 5.
Definitions of :
Features (specs of product/service)
Advantages (positive attributes of the product that do not satisfy root needs of customer)
Benefits (attributes of product that specifically address customer's main problems).
-Customers buy big ticket items based on benefits not features nor advantages.
-Use problem solving approach in sales call, best frame to use.
-Negative correlation in sales right after product launch of sales reps are too product-centered as are amazed about the bells and whistles of their product. Several months later, when sales reps, aren't as hyped about product they start to focus more on customer and sales tend to increase.
Ch 6: Preventing Objections
-If price is objective means you haven't created enough value and you have focused on features/advantages instead of benefits.
-Objection of price is sympton not the root cause.
Ch 7
-Introductory part of conversation not as important as traditional wisdom says on large ticket items.
-The invstigation part and asking the right questions is much more important.
-Modernly, people don't buy large ticket items as much from people based solely on liking them. The benefits of the product will get the sale over likability of the sales rep.
-At the end of the meeting reinforce all the benefits and then email it to them by email so that they can use it as a way to SELL to their uppers and other decision makers (very rarely a sole person decision with big ticket items).
-SPIN system:
Situation (data gathering)
Problem Identification -> creates dissatisfaction but not compulsion
Implication -> What is the result of the above "problem." Ask the customer "What happens as a result of your inefficient printer?
Need payoff -> "What would it do to your company if your printer could print faster?" etc.
Ch2:
-Traditional closing is ineffective and most buying managers are pissed off when people try to "close" them.
-You need to know what you are trying to do to advance. What kind of commitment are you looking to get?
Succeses as defined by Rackham:
Order (purchase)
Advance -> a true commitment to a next meeting, which involves getting a next date on the schedule.
Failure:
No-Sale (actively denying purchase)
Continuation -> A quasi-advance, where the potential buyer seems happy but there is no step taking to set up next meeting (positivity/smiling is not a sign of success there must be a new commitment or you will be soon forgotten).
Ch3:
-Perception of problem is not enough to sell large ticket item, the buyer must IN HIS OWN WORDS phrase the negative implications of the status quo.
Implicit - statement by customer of problem/difficulty
Explicit - statement by customer of intention to change system. <-- This is what you need.
The question is: How do you grow problem big enough to compel action?
Ch4:
-Do your homework, too many questions irritate the buyer.
-Summarize (after customer says the benefits himself): So from what you've said, because your Contortomat machines are so difficult to use, you've spent $25,000 in traning costs this year and you're getting expensive operator turnover. You've got bottlenecks in production, and these result in expensive overtime and force you to send jobs outside.
-Make sure that you don't offer solutions too early or you will automatically get objections. Have the buyer raise the objections.
-Practice doing these situation, problem identification, implications, need payoff with different items. It can even effect the other person in practice.
-Implication questions help build trust that your product/service will work and is relevant to the customer.
-First build up pain with implication questions and then use need-payoff questions to solve the problem. Get the customer telling you the benefits himself.
-Customers don't expect your solution to be perfect just to address their main needs.
-When buyers feel that their ideas are part of the solution, they gain enthusiasm for the product.
Ch 5.
Definitions of :
Features (specs of product/service)
Advantages (positive attributes of the product that do not satisfy root needs of customer)
Benefits (attributes of product that specifically address customer's main problems).
-Customers buy big ticket items based on benefits not features nor advantages.
-Use problem solving approach in sales call, best frame to use.
-Negative correlation in sales right after product launch of sales reps are too product-centered as are amazed about the bells and whistles of their product. Several months later, when sales reps, aren't as hyped about product they start to focus more on customer and sales tend to increase.
Ch 6: Preventing Objections
-If price is objective means you haven't created enough value and you have focused on features/advantages instead of benefits.
-Objection of price is sympton not the root cause.
Ch 7
-Introductory part of conversation not as important as traditional wisdom says on large ticket items.
-The invstigation part and asking the right questions is much more important.
-Modernly, people don't buy large ticket items as much from people based solely on liking them. The benefits of the product will get the sale over likability of the sales rep.
-At the end of the meeting reinforce all the benefits and then email it to them by email so that they can use it as a way to SELL to their uppers and other decision makers (very rarely a sole person decision with big ticket items).
The Overrated Game of Closing
(The following was directly inspired by Spin Selling by Neil Rackham)
The pros in sales know that every amateur that comes into the field is technique based. The amateur asks himself: "What technique can I learn to make the sale?"
Invariably, amateurs discover the concept of closing and boy is that appealing to them. If only he can learn the right close, the amateur thinks. Worst yet, the amateur is directly rewarded for his close with business (once in a while). The amateur never stops to think that there might be a recency bias and that just because the business came right after the close doesn't mean that it was because of the close that the business was transacted.
Interestingly enough, the same exact phenomenon can be witnessed in the arena of dating and women. (let's define closing as kissing a girl).
Men, or should I say boys, want to learn the pick up line they should say or the "kiss-close". The concept is that if you say the right close in the right tone you can close any girl.
Conversely, the pros understand that the goal of the night is to create so much value for the girl that the close becomes inevitable.
The same thoughts are transferable to sales, you do not need a close to "sell" a client if you have successfully showed the client the benefits that the product/service would provide to him. It is what Eben Pagan calls "The Path of Self Advantage", the question being how do we set up a product/service in such a way that it is in the client's best interest to buy?
Guess what happens when we do this... When this happens the client himself will try to close you! As Peter Drucker said, "The goal of marketing (positioning the product perfectly for the client) is to make selling unnecessary."
Warning: The following post is only relevant to big ticket items. Why? Because if you put someone in an awkward relationship and try to close them on a $5 pen, it is highly likely that the person will buy from you because the cost $5 is higher then the cost of having to deal with you.
However, in the above case you will never be able to sell to that client again.
The pros in sales know that every amateur that comes into the field is technique based. The amateur asks himself: "What technique can I learn to make the sale?"
Invariably, amateurs discover the concept of closing and boy is that appealing to them. If only he can learn the right close, the amateur thinks. Worst yet, the amateur is directly rewarded for his close with business (once in a while). The amateur never stops to think that there might be a recency bias and that just because the business came right after the close doesn't mean that it was because of the close that the business was transacted.
Interestingly enough, the same exact phenomenon can be witnessed in the arena of dating and women. (let's define closing as kissing a girl).
Men, or should I say boys, want to learn the pick up line they should say or the "kiss-close". The concept is that if you say the right close in the right tone you can close any girl.
Conversely, the pros understand that the goal of the night is to create so much value for the girl that the close becomes inevitable.
The same thoughts are transferable to sales, you do not need a close to "sell" a client if you have successfully showed the client the benefits that the product/service would provide to him. It is what Eben Pagan calls "The Path of Self Advantage", the question being how do we set up a product/service in such a way that it is in the client's best interest to buy?
Guess what happens when we do this... When this happens the client himself will try to close you! As Peter Drucker said, "The goal of marketing (positioning the product perfectly for the client) is to make selling unnecessary."
Warning: The following post is only relevant to big ticket items. Why? Because if you put someone in an awkward relationship and try to close them on a $5 pen, it is highly likely that the person will buy from you because the cost $5 is higher then the cost of having to deal with you.
However, in the above case you will never be able to sell to that client again.
The Power of Certain Steps
Often times we have trouble starting a task.
More then likely, the issue is that you have not clearly defined the next action steps (and action steps in general) that need to be taken in order to complete the task.
Often times it is not simple to figure out what needs to be done. In fact, if you are having trouble starting it is probably one of these cases.
Despite it not being simple it is important to understand that until you sit down and figure out the actual steps needed to complete the task you will not be able to finish it.
So take whatever time and effort it takes to figure out the next steps if you are serious about completing the task.
More then likely, the issue is that you have not clearly defined the next action steps (and action steps in general) that need to be taken in order to complete the task.
Often times it is not simple to figure out what needs to be done. In fact, if you are having trouble starting it is probably one of these cases.
Despite it not being simple it is important to understand that until you sit down and figure out the actual steps needed to complete the task you will not be able to finish it.
So take whatever time and effort it takes to figure out the next steps if you are serious about completing the task.
On the other side of self punishment
Many of us, and I mean many entrepreneurs, "motivate" ourselves through self punishment. That is, we threaten themselves with personal unhappiness and punishment if certain tasks are not done. (by the way, this is not limited to entrepreneurs)
I know this for two reasons: 1) Through conversation with others. 2) Through monitoring myself.
For a long time (up until this past week), I was the same way, until I finally changed.
One of the fears of someone that punishes themselves is that if the self punishment was not there there would be no accomplishment. Individuals are too afraid to even envision being "on the other side" of self punishment.
Since I have been "on the other side" for about 3 days, let me tell you honestly about my experiences:
My feelings: Several hours after I decided to stop punishing myself (after I read about energy and how I was burning energy by self punishment) I felt an INCREDIBLE load drop off my shoulder. I felt as if a large boulder was removed from my shoulders. I continue to feel more optimistic and fulfilled in the 3'rd day.
My productivity: My productivity, paradoxically, has increased quite a bit. This is because I now have significantly more energy because I no longer have to deal with the inertia of self punishment and the energy it saps. On a "lazy" Saturday afternoon I started and finished 2 business books. Today, I was in the office ready and hopping at 6:30. You make the call on whether that is an improvement.
My view on getting into the office: I found that I actually looked forward to getting into the office on Monday all weekend long (although it was a great weekend). Why? Because I naturally love BUSINESS, it's just very hard to perform in anything when you are holding your entire self worth on the line and using self punishment to "motivate yourself".
Overall: It takes an incredible "leap of faith" to overcome a lifetime habit of self punishment. I do not believe that we can simply do this on our own will. It is important to listen to scientists and peak performance coaches like Jeff Schwartz (in Get Altitude) and Tony Robbin's Personal Power so that you can see the proof of the above concepts.
Looking from the other side I can tell you that I am happier, more productive, and more hopeful.
I know this for two reasons: 1) Through conversation with others. 2) Through monitoring myself.
For a long time (up until this past week), I was the same way, until I finally changed.
One of the fears of someone that punishes themselves is that if the self punishment was not there there would be no accomplishment. Individuals are too afraid to even envision being "on the other side" of self punishment.
Since I have been "on the other side" for about 3 days, let me tell you honestly about my experiences:
My feelings: Several hours after I decided to stop punishing myself (after I read about energy and how I was burning energy by self punishment) I felt an INCREDIBLE load drop off my shoulder. I felt as if a large boulder was removed from my shoulders. I continue to feel more optimistic and fulfilled in the 3'rd day.
My productivity: My productivity, paradoxically, has increased quite a bit. This is because I now have significantly more energy because I no longer have to deal with the inertia of self punishment and the energy it saps. On a "lazy" Saturday afternoon I started and finished 2 business books. Today, I was in the office ready and hopping at 6:30. You make the call on whether that is an improvement.
My view on getting into the office: I found that I actually looked forward to getting into the office on Monday all weekend long (although it was a great weekend). Why? Because I naturally love BUSINESS, it's just very hard to perform in anything when you are holding your entire self worth on the line and using self punishment to "motivate yourself".
Overall: It takes an incredible "leap of faith" to overcome a lifetime habit of self punishment. I do not believe that we can simply do this on our own will. It is important to listen to scientists and peak performance coaches like Jeff Schwartz (in Get Altitude) and Tony Robbin's Personal Power so that you can see the proof of the above concepts.
Looking from the other side I can tell you that I am happier, more productive, and more hopeful.
Saturday, June 27, 2009
Quotes from Brad Fallon
-There is always an opportunity to compress time closer to NOW!
-You can never overcommunicate what is going on in a company. Make sure there is clear communication.
-If you're doing something you're good at, that's probably bad. Move on to another task and hire out the original task.
-You can never overcommunicate what is going on in a company. Make sure there is clear communication.
-If you're doing something you're good at, that's probably bad. Move on to another task and hire out the original task.
Quotes from Murray Hidary
-"You'll never find anyone that can do it better than you, learn to be fine with 85-90% performance so that you can scale the business."
-Often time the buyer of your company will be someone you are friendly with such as partners, distributors, competitors. It is about knowing the buyer of your business before you sell it.
-Often time the buyer of your company will be someone you are friendly with such as partners, distributors, competitors. It is about knowing the buyer of your business before you sell it.
Ideas vs. Execution
Dean Jackson, the creator of the opt in page and other innovative online marketing tools:
The argument between whether ideas or execution is more important is irrelevant, because most ideas people think that are good are not actually good. That is, for an idea to be good it must be executable, and most "good" ideas are simply not executable.
-You can always figure out logistics if the logic makes sense.
-Be in relationship business not transaction business where you churn through customers.
-If not in info product business use information to sell information.
-Sometimes just one sales letter is the difference between being rich and poor, just one marketing piece. In fact, most successful internet marketers started with that "one" sales letter / online copy that changed everything.
The argument between whether ideas or execution is more important is irrelevant, because most ideas people think that are good are not actually good. That is, for an idea to be good it must be executable, and most "good" ideas are simply not executable.
-You can always figure out logistics if the logic makes sense.
-Be in relationship business not transaction business where you churn through customers.
-If not in info product business use information to sell information.
-Sometimes just one sales letter is the difference between being rich and poor, just one marketing piece. In fact, most successful internet marketers started with that "one" sales letter / online copy that changed everything.
Quotes from Tony Schwartz one of the top experts on peak performance
1) "Will and discipline are HIGHLY OVERRATED. We have little of it, 95% of what we do we do automatically. We are habitual animals."
In order to ensure long term success we must create habits that make success inevitable. It takes 30 days to create a new habit and the most effective way to do this is to focus on one habit at a time.
How do we know when something becomes a habit?
When not doing it feels worse then doing it.
2) How you hold your body profoundly influences how you feel.
3) Regret is a terrible waste of energy.
It's not whether you are justified to be angry, it's whether it serves you well to be angry.
In order to ensure long term success we must create habits that make success inevitable. It takes 30 days to create a new habit and the most effective way to do this is to focus on one habit at a time.
How do we know when something becomes a habit?
When not doing it feels worse then doing it.
2) How you hold your body profoundly influences how you feel.
3) Regret is a terrible waste of energy.
It's not whether you are justified to be angry, it's whether it serves you well to be angry.
Path of Self-Advantage
How do the best marketers market?
They make sure that their product/service is so aligned with their customer base that it is in their own self interest to purchase it.
Always talk in the context of how your customer will be using your product/service.
They make sure that their product/service is so aligned with their customer base that it is in their own self interest to purchase it.
Always talk in the context of how your customer will be using your product/service.
Friday, June 26, 2009
How to significantly decrease your anxiety
After listening to this same concept a 3'rd time from Tony Robbins, I believe I finally get it, although I'd like to phrase it a different way:
The problem with most time management systems is that people are focused on answering the question: "How do I finish my tasks faster" rather then the much more important question of "What tasks should I be doing?"
The real problem is that people look at tasks as fulfilling certain process requirements rather then fulfilling their goal requirements.
Let me give you an example:
-Most people who want to get rich start out with the following questions:
Who should I meet? What books should I read? Where should I invest, etc?
Not necessarily bad ideas. The problem is that ultimately, many high achievers get into an opt-out mindset rather then an opt-in mindset.
For example, they see a new book on operations and they say to themselves: "This operation book may come in handy." The problem is that this may quickly turns into a [If I want to be successful] I must read this book. This applies to other erroneous must beliefs such as "I must meet this person, I must make this investment, etc."
By taking on this mindset we switch from a specific-goal mindset to a specific-process mindset, a an automatic mind switch that can drive us crazy.
Imagine this, what if every morning, before driving to work you would think of all the possible routes to get there (let's say there are 7). Now, before you could drive, you would have to knock out all 7 routes, test them, and make sure that the one you are taking is optimal.
While this may be a good idea if you are planning on driving there for many years, this mindset applied to everything in our lives would create an unendurable amount of anxiety.
This is in contrast to the tested and highly successful entrepreneurial method of taking just enough time to find a solution that is "good enough".
Let me ask the following question: who is a better business person, someone who has made a billion dollars and has read two business books, or someone who has made a million dollars and read a hundred business books? The answer, of course, is the former business person.
That is because reading business books is only ONE of the processes that gets you a desired result. Of course, it helps, and it helps greatly, but by becoming too rigid in our processes and not focusing on our goals we exhaust our energy and increase our anxiety.
I hope this helps.
The problem with most time management systems is that people are focused on answering the question: "How do I finish my tasks faster" rather then the much more important question of "What tasks should I be doing?"
The real problem is that people look at tasks as fulfilling certain process requirements rather then fulfilling their goal requirements.
Let me give you an example:
-Most people who want to get rich start out with the following questions:
Who should I meet? What books should I read? Where should I invest, etc?
Not necessarily bad ideas. The problem is that ultimately, many high achievers get into an opt-out mindset rather then an opt-in mindset.
For example, they see a new book on operations and they say to themselves: "This operation book may come in handy." The problem is that this may quickly turns into a [If I want to be successful] I must read this book. This applies to other erroneous must beliefs such as "I must meet this person, I must make this investment, etc."
By taking on this mindset we switch from a specific-goal mindset to a specific-process mindset, a an automatic mind switch that can drive us crazy.
Imagine this, what if every morning, before driving to work you would think of all the possible routes to get there (let's say there are 7). Now, before you could drive, you would have to knock out all 7 routes, test them, and make sure that the one you are taking is optimal.
While this may be a good idea if you are planning on driving there for many years, this mindset applied to everything in our lives would create an unendurable amount of anxiety.
This is in contrast to the tested and highly successful entrepreneurial method of taking just enough time to find a solution that is "good enough".
Let me ask the following question: who is a better business person, someone who has made a billion dollars and has read two business books, or someone who has made a million dollars and read a hundred business books? The answer, of course, is the former business person.
That is because reading business books is only ONE of the processes that gets you a desired result. Of course, it helps, and it helps greatly, but by becoming too rigid in our processes and not focusing on our goals we exhaust our energy and increase our anxiety.
I hope this helps.
The Deadline Game : Another way to spot A+ players
Setting vague and long deadlines can be a great way to spot A+ players. In the beginning of the employment set no deadline or a long deadline to see how the employee will react. Will he/she feel an inner compulsion to complete the work on their own schedule?
I realized this last spring when I had several people write recommendations for me. Pretty much everyone handed in their recommendations several days before the deadline (despite several emails), except my friend John.
The same John, founder of Isocket, who has also been busily at work for roughly two years on a silicon valley start up. Coincidence?
I realized this last spring when I had several people write recommendations for me. Pretty much everyone handed in their recommendations several days before the deadline (despite several emails), except my friend John.
The same John, founder of Isocket, who has also been busily at work for roughly two years on a silicon valley start up. Coincidence?
Thursday, June 25, 2009
After Hours Stress & Active Rest
Lately I have been studying the topic of active rest.
Today, I was thinking about how active rest relates to after hours stress.
I realized that paradoxically, most after hours stress comes from NOT LETTING go rather of the day's work (or thinking of the next day's work) much more then actual work. Once you learn to let go (something that must start out as a conscious activity and over time develop into a habit), even doing after-hours work will become minimally stressful.
The majority of after-hour stress comes from thinking about what needs to be done the next day, not actually doing the work... fascinating.
Today, I was thinking about how active rest relates to after hours stress.
I realized that paradoxically, most after hours stress comes from NOT LETTING go rather of the day's work (or thinking of the next day's work) much more then actual work. Once you learn to let go (something that must start out as a conscious activity and over time develop into a habit), even doing after-hours work will become minimally stressful.
The majority of after-hour stress comes from thinking about what needs to be done the next day, not actually doing the work... fascinating.
The "Pill"
Imagine a product that increases alertness, boosts creativity, reduces stress, improves perception, stamina, motor skills, and accuracy, enhances your sex life, helps you make better decisions, keeps you looking younger, aids in weight loss, reduces the risk of heart attack, elevates your mood, and strengthens memory. Now imagine that this product is nontoxic, has no dangerous side effects, and, best of all, is absolutely free.
Great sales copy, a great concept:
http://www.amazon.com/Take-Nap-Change-Your-Life/dp/0761142908/ref=sr_1_1?ie=UTF8&s=books&qid=1245960191&sr=8-1
Great sales copy, a great concept:
http://www.amazon.com/Take-Nap-Change-Your-Life/dp/0761142908/ref=sr_1_1?ie=UTF8&s=books&qid=1245960191&sr=8-1
Why do we learn "silly" tests?
Why is it important to learn silly tests in business.
For example, there is a test created by Brian Tracy called the "consequences" test. This is a test that you need to think of before taking any major action.
The test is considering what is the consequence of completing the task or what is the consequences of failing to complete the test? If neither doing it or neglecting it will lead to any consequence then it is by definition inconsequential and should not be done.
Another test is the "results" test. We must look at what an employee is delivering not how the employee is working to determine the employee's benefit. This is a counter to the natural feelings of injustice we feel when an employee leaves early or comes in late into an office. If we don't focus on what they are producing we can penalize very productive workers.
So WHY do we need such a simple and stupid test?
The answer is, because it is COUNTER-intuitive to think in this way (as logical as it sounds). The reason we need special tests is to counter act what our minds want us to NATURALLY do.
For example, in the above scenario, people often have a compulsion to complete tasks without really thinking about why they are doing it.
Such is the case with all tests that are relevant. For a test to be useful it must have a counter to itself, which will always be our natural inclination.
Learn the tests, because much of success is counter-intuitive.
For example, there is a test created by Brian Tracy called the "consequences" test. This is a test that you need to think of before taking any major action.
The test is considering what is the consequence of completing the task or what is the consequences of failing to complete the test? If neither doing it or neglecting it will lead to any consequence then it is by definition inconsequential and should not be done.
Another test is the "results" test. We must look at what an employee is delivering not how the employee is working to determine the employee's benefit. This is a counter to the natural feelings of injustice we feel when an employee leaves early or comes in late into an office. If we don't focus on what they are producing we can penalize very productive workers.
So WHY do we need such a simple and stupid test?
The answer is, because it is COUNTER-intuitive to think in this way (as logical as it sounds). The reason we need special tests is to counter act what our minds want us to NATURALLY do.
For example, in the above scenario, people often have a compulsion to complete tasks without really thinking about why they are doing it.
Such is the case with all tests that are relevant. For a test to be useful it must have a counter to itself, which will always be our natural inclination.
Learn the tests, because much of success is counter-intuitive.
Wednesday, June 24, 2009
The COMPULSION factor
I have noticed a very important distinction between A+ players and the rest of the world: an almost irrational compulsion to get things done.
That is, A+ players feel MORE stress when they are not working then when they are working.
This simple distinction will account for 95% of identifying A+ players (unfortunately, there aren't that many around).
Here is a simple test that internet marketer Eban Pagan does at the beginning with each hire to test this: he gives them a simple task (like going around and getting everyone's business cards and ordering cards) and then LEAVES THEM ALONE (if they don't do anything in first week, he'll say unfortunately, I don't think this environment will work out let's find a place where you can succeed, or something of this manner).
He will not say anything for days or even hint at the work.
Then he watches. A+ players will always show themselves giving this test.
They will not ask questions such as "What color do you want" etc. (although this may very well be an A or A- player that asks this).
What they will do is come to you with 5 colors/materials and give you the advantages/disadvantages of each one WITHOUT YOU EVEN REMINDING THEM ABOUT THE JOB.
That is a trait an A+ will consistently and the above is the way to find them.
BTW: People's habits and character are very consistent so what happens in 3 days will most likely show itself through the term of the employment (things definetly won't GET BETTER, that's for sure because the first few months are often referred to as the honeymoon period).
That is, A+ players feel MORE stress when they are not working then when they are working.
This simple distinction will account for 95% of identifying A+ players (unfortunately, there aren't that many around).
Here is a simple test that internet marketer Eban Pagan does at the beginning with each hire to test this: he gives them a simple task (like going around and getting everyone's business cards and ordering cards) and then LEAVES THEM ALONE (if they don't do anything in first week, he'll say unfortunately, I don't think this environment will work out let's find a place where you can succeed, or something of this manner).
He will not say anything for days or even hint at the work.
Then he watches. A+ players will always show themselves giving this test.
They will not ask questions such as "What color do you want" etc. (although this may very well be an A or A- player that asks this).
What they will do is come to you with 5 colors/materials and give you the advantages/disadvantages of each one WITHOUT YOU EVEN REMINDING THEM ABOUT THE JOB.
That is a trait an A+ will consistently and the above is the way to find them.
BTW: People's habits and character are very consistent so what happens in 3 days will most likely show itself through the term of the employment (things definetly won't GET BETTER, that's for sure because the first few months are often referred to as the honeymoon period).
Active Rest as an Oscillatory Being
Lately I have noticed just how hard it is to take part in the active rest portion of the energy pendulum. That is, the time that you actively take to re-energize yourself.
It is hard to get out of the "gray zone", when you are not actively working nor resting.
I found this today when I was in the bank. Almost by compulsion I was tempted to do some work, read a business magazine, etc. (for me going to the bank is rest).
However, it is important to remember that ACTIVE rest is as important as ACTIVE work and to overcome the compulsion to work in any free time. Thankfully, like any habit it becomes easier to break after time.
It is hard to get out of the "gray zone", when you are not actively working nor resting.
I found this today when I was in the bank. Almost by compulsion I was tempted to do some work, read a business magazine, etc. (for me going to the bank is rest).
However, it is important to remember that ACTIVE rest is as important as ACTIVE work and to overcome the compulsion to work in any free time. Thankfully, like any habit it becomes easier to break after time.
How to Prevent Future Problems
Issue: there are some looming issues that are potentially BIG but not garaunteed to happen.
Example: You may be slapped with a $10k fine.
The problem: since the potentially big problem is not garaunteed, our motivation can often times be very low to take care of it (since we can always justify to ourselves: "well it may not even happen".
Solution 1: Figure out the percentage change that it can happen. If it is a $10k fine with a 1% likely chance of happening then perhaps you shouldn't take care of it. If it is $10k fine with 50% likely happening then you probably should (depending on how long it takes and what you expect to make hourly). Also, keep in mind although your time may be worth more then $100/hour, it may very well be that a $10,000 fine can jeopardize your business and you may not want to play with that.
Solution 2: Create pain by an imagined future. Imagine whatever it is that you fear happening and think about whether it is worth fixing. Most of the time, once we imagine the future it is pretty bad and it spurs us to action.
Example: You may be slapped with a $10k fine.
The problem: since the potentially big problem is not garaunteed, our motivation can often times be very low to take care of it (since we can always justify to ourselves: "well it may not even happen".
Solution 1: Figure out the percentage change that it can happen. If it is a $10k fine with a 1% likely chance of happening then perhaps you shouldn't take care of it. If it is $10k fine with 50% likely happening then you probably should (depending on how long it takes and what you expect to make hourly). Also, keep in mind although your time may be worth more then $100/hour, it may very well be that a $10,000 fine can jeopardize your business and you may not want to play with that.
Solution 2: Create pain by an imagined future. Imagine whatever it is that you fear happening and think about whether it is worth fixing. Most of the time, once we imagine the future it is pretty bad and it spurs us to action.
Change that Sticks
Many people try to change, constantly. It is estimated that nearly half of our population is on a diet at any given time.
Then why is it that the average person in the US is still 30 POUNDS overweight?!
The reason is because people try to change their habits without changing their identity.
They think of themselves as "forcing themselves" to eat healthy or they think of themselves as "fat people on a diet."
Not until you think positively about eating well or think of yourself as a thin person overweight can you really change.
Same thing goes for people who gain a lot of pleasure or embrace an identity of being a nice person. Until they let go of the self-benefit they get from being a "nice person" they will not be able to be assertive and stand up for themselves.
Then why is it that the average person in the US is still 30 POUNDS overweight?!
The reason is because people try to change their habits without changing their identity.
They think of themselves as "forcing themselves" to eat healthy or they think of themselves as "fat people on a diet."
Not until you think positively about eating well or think of yourself as a thin person overweight can you really change.
Same thing goes for people who gain a lot of pleasure or embrace an identity of being a nice person. Until they let go of the self-benefit they get from being a "nice person" they will not be able to be assertive and stand up for themselves.
The Two Weakest Words in Business
"Ill try."
What does this mean?
As Yoda once said, "Do or do not, there is no try."
What does this mean?
As Yoda once said, "Do or do not, there is no try."
Habits Get Stronger
Every habit gets stronger. No where is this more evident then in doing work and being lazy.
The more you do work and have success the more it will appeal to you.
The more you act lazy the more it will appeal to you.
Changes in either habit do not come overnight, the goal is to strengthen the habits, over time, that are beneficial and overcome bad habits over time. If you try to institute change overnight you will not succeed.
The more you do work and have success the more it will appeal to you.
The more you act lazy the more it will appeal to you.
Changes in either habit do not come overnight, the goal is to strengthen the habits, over time, that are beneficial and overcome bad habits over time. If you try to institute change overnight you will not succeed.
What are errands and when do you do them?
Errands - I define errands as anything that has nothing to do with a non-core activity. For example, calling the Indiana Workforce Development about a notice is an errand as is writing this blog.
When do you do them?
The best time to do errands is after you have maxed out your oscillatory period, at the end of 90 minutes (or less) of uninterrupted concentrated time on your core activity.
When do you do them?
The best time to do errands is after you have maxed out your oscillatory period, at the end of 90 minutes (or less) of uninterrupted concentrated time on your core activity.
Tuesday, June 23, 2009
There is no "neutral" state
When passive people want to learn how to be more assertive they strive for a "neutral" state.
The reality is that there is no neutral state. In fact, the closest thing to a "neutral" state is when there are two passive people talking or negotiating. This is the most annoying and uncomfortable conversation you ever hear because you have to listen to two people being fake and not expressing their two opinions and intentions.
If you truly want to change from passive you need to switch to aggressive.
This concept is analagous to the military concept that you are either attacking or defending.
Have you ever heard the army say anything but attack or defend? In some cases, the command may be to "hold the fort" but make no mistake: this is a defensive position.
You may say, in normal day business and conversation is not like war.. and you would be right. But stop and watch some conversations between individuals. You will certainly notice that most conversations have some subtle tone of submissive/passive.
While most learn about the world through what it "should be like", scientists and pragmatists learn the world the way it truly is.
You decide.
Oscillatory Beings (advice from a peak performance coach)
This is based on the advice from a peak performance coach (one of the top guys in the world). Using his own methods he wrote a New York Times bestseller book in 90 days.
Humans are oscillatory beings. What does this mean?
Before we can go into what it does mean, let's examine what the common perception is. The common perception is that humans are like machines. That is, that they can function between the hours of 9-5 like clockwork with little variance.
While this is the common perception it is wrong.
Humans are indeed oscillatory beings. That means that we can only work effectively in 90 minute increments (even 90 minutes you need to work up to). After 90 minutes we stop being effective.
Our energy goes down over 90 minutes like this:
So how do we deal with this issue? We deal with this issue by planning ACTIVE rest/breaks. Everyone has different ways that they actively re-energize.
Here is what the peak performance coach's schedule was like when he finished his book in 90 days:
7AM-8:30 Work
8:30-9 Breakfast and reading paper
9-10:30 Work
10:30-11 Weight Lifting
11-12:30 Work
12:30-1 Run
1-2:30 Work
Rest of day.. off.
Peak performers look at each day as a SPRINT, not a MARATHON (though they look at lifelong success as a Marathon).
It is not about going an extra hour working at 10% capacity. It is about working 100% for short term increments.
I CHALLENGE you to try resting after 90 minutes and see if you don't come back significantly more effective.
Other ideas for rejuvenation: sex, short term naps (or laying down and closing eyes), deep breathing.
Humans are oscillatory beings. What does this mean?
Before we can go into what it does mean, let's examine what the common perception is. The common perception is that humans are like machines. That is, that they can function between the hours of 9-5 like clockwork with little variance.
While this is the common perception it is wrong.
Humans are indeed oscillatory beings. That means that we can only work effectively in 90 minute increments (even 90 minutes you need to work up to). After 90 minutes we stop being effective.
Our energy goes down over 90 minutes like this:
So how do we deal with this issue? We deal with this issue by planning ACTIVE rest/breaks. Everyone has different ways that they actively re-energize.
Here is what the peak performance coach's schedule was like when he finished his book in 90 days:
7AM-8:30 Work
8:30-9 Breakfast and reading paper
9-10:30 Work
10:30-11 Weight Lifting
11-12:30 Work
12:30-1 Run
1-2:30 Work
Rest of day.. off.
Peak performers look at each day as a SPRINT, not a MARATHON (though they look at lifelong success as a Marathon).
It is not about going an extra hour working at 10% capacity. It is about working 100% for short term increments.
I CHALLENGE you to try resting after 90 minutes and see if you don't come back significantly more effective.
Other ideas for rejuvenation: sex, short term naps (or laying down and closing eyes), deep breathing.
Monday, June 22, 2009
Friday, June 19, 2009
Friction and Starting the day off on the right foot
Advice from the world's TOP fitness guru (this guy made half a BILLION dollars from fitness products):
What is the ONE thing that determines whether someone will stick to the plan and lose weight?:
Paraphrased:
'The ONE thing that determines whether they will lose weight is the first meal that they eat in the morning. If they eat a healthy meal they will go ahead and want to eat healthy for the rest of the day, because their mind won't want to mess up their good feeling. If they eat a semi-healthy meal then their mind will cave in and say "well, I've already broken the healthy meal plan, I might as well make today a semi-healthy day Anyways.." and of course, the fully unhealthy meal people continue to eat fully unhealthy meals for the rest of the day.'
Interesting..
The real question (at least for this blog) is does this transfer to business? I have found personally that I build incredible momentum if I start off in the morning doing two blocked periods of high value tasks. I find myself COMPELLED to continue on my high performance activity.
All it comes down to is the inertia that you must break in the morning of rest to work, once the wheels are moving they are easily moved forward.
What is the ONE thing that determines whether someone will stick to the plan and lose weight?:
Paraphrased:
'The ONE thing that determines whether they will lose weight is the first meal that they eat in the morning. If they eat a healthy meal they will go ahead and want to eat healthy for the rest of the day, because their mind won't want to mess up their good feeling. If they eat a semi-healthy meal then their mind will cave in and say "well, I've already broken the healthy meal plan, I might as well make today a semi-healthy day Anyways.." and of course, the fully unhealthy meal people continue to eat fully unhealthy meals for the rest of the day.'
Interesting..
The real question (at least for this blog) is does this transfer to business? I have found personally that I build incredible momentum if I start off in the morning doing two blocked periods of high value tasks. I find myself COMPELLED to continue on my high performance activity.
All it comes down to is the inertia that you must break in the morning of rest to work, once the wheels are moving they are easily moved forward.
Mind Mapping (how to prioritize your projects)
In my company, we have been grappling with the inherent conflict between creativity and focus over the last year.
What I mean by this is having to deal with the inherent paradox of: if we get "too creative" we will lose focus and not be able to grow the company, yet if we get "too siloed in our thinking" we will run out of growth opportunities and expansion.
We have tried several systems (that worked relatively well) in terms of documenting any ideas and putting them in a pipeline for future development. Although this has worked, our system has been far from perfect.
That is until (as of today) we implemented a mind mapping system.
Under a new folder in basecamp we have created three different frameworks under which to group all future projects (created by very successful entrepreneur Scott Hallman):
A projects (great and easily implementable)
B projects (great but not yet time to implement)
C projects (something that may have potential and should be considered in future)
We further break down every folder (A project, B project, etc.) with the following instructions:
so that you can see exactly what is going on in the company at any given time. You can even see whether it's time to do a brainstorming session since your pipeline is getting weak.
(If it is not a A,B, or C project it should be deleted because it is by definition irrelevant. There are literally an infinite amount of projects that can be thought of and created, if you are having problems thinking of A,B, or C projects THINK harder do not settle on irrelevant projects, in the worst case it may be time to move on to the next business).
By the way, if you do not document your projects or listen to your team members, eventually all of your team members will lose motivation to propose new ideas because they will know that they will not be implemented. Documenting your ideas allows you to "keep them for the future without fear of losing the thought" while simultaneously being able to stay on track and focused on the current projects.
What I mean by this is having to deal with the inherent paradox of: if we get "too creative" we will lose focus and not be able to grow the company, yet if we get "too siloed in our thinking" we will run out of growth opportunities and expansion.
We have tried several systems (that worked relatively well) in terms of documenting any ideas and putting them in a pipeline for future development. Although this has worked, our system has been far from perfect.
That is until (as of today) we implemented a mind mapping system.
Under a new folder in basecamp we have created three different frameworks under which to group all future projects (created by very successful entrepreneur Scott Hallman):
A projects (great and easily implementable)
B projects (great but not yet time to implement)
C projects (something that may have potential and should be considered in future)
We further break down every folder (A project, B project, etc.) with the following instructions:
Rank and do these based on lowest hanging fruits (high reward, low effort) and group them by:
*In Progress
*On Benchso that you can see exactly what is going on in the company at any given time. You can even see whether it's time to do a brainstorming session since your pipeline is getting weak.
(If it is not a A,B, or C project it should be deleted because it is by definition irrelevant. There are literally an infinite amount of projects that can be thought of and created, if you are having problems thinking of A,B, or C projects THINK harder do not settle on irrelevant projects, in the worst case it may be time to move on to the next business).
By the way, if you do not document your projects or listen to your team members, eventually all of your team members will lose motivation to propose new ideas because they will know that they will not be implemented. Documenting your ideas allows you to "keep them for the future without fear of losing the thought" while simultaneously being able to stay on track and focused on the current projects.
Thursday, June 18, 2009
Sunday, June 14, 2009
Arguing vs. Learning
I have noticed an interesting distinction between high performing and average performing individuals.
The distinction is that whenever I talk to a high performing individual about a new concept I learned they listen and weigh in. They listen for the truth and wisdom they can gain from it regardless of whether they agree with it entirely or not.
Average or low performing individuals on the other hand see business conversations as an intellectual jujitsu, a battle of two people to see who can upend the other.
The distinction is that whenever I talk to a high performing individual about a new concept I learned they listen and weigh in. They listen for the truth and wisdom they can gain from it regardless of whether they agree with it entirely or not.
Average or low performing individuals on the other hand see business conversations as an intellectual jujitsu, a battle of two people to see who can upend the other.
Choosing Your Environment
Most people realize the significant effect that our environment has on our overall happiness and success, yet few people do anything about it.
It is analogous to the business phenomenon that every CEO says "people are our greatest assset" without taking the time to learn systems such as Top grading to know how to hire the right people.
It seems that people do acts such as choose roommates quite quickly and easily, not thinking about the long term repercussions.
What would happen if people chose roommates and environment as carefully as they did their spouse and employer?
It is analogous to the business phenomenon that every CEO says "people are our greatest assset" without taking the time to learn systems such as Top grading to know how to hire the right people.
It seems that people do acts such as choose roommates quite quickly and easily, not thinking about the long term repercussions.
What would happen if people chose roommates and environment as carefully as they did their spouse and employer?
Research on Peak Performers
One piece of research shows that peak performers engage in high levels of effort/performance followed by high levels of conscious relaxation (such as going to the spa, vacationing, etc.).
What do peak performers avoid? Activities in the gray zone such as doing laundry and non-value added errands.
What do peak performers avoid? Activities in the gray zone such as doing laundry and non-value added errands.
Friday, June 12, 2009
The Network Effect
Metcalfe's law is that the value of a network grows exponentially as it expands.
More and more, I am seeing this effect in many instances.
Eben Pagan brought up the example of hiring A players or stars. The more he hired the more they started to compound their skills sets and bounce off each other.
I have also found this in the path of knowledge. The more business knowledge I acquire, the more both past and future business knowledge becomes valuable. It all starts to connect.
Where else do you see the power of the network effect in action?
More and more, I am seeing this effect in many instances.
Eben Pagan brought up the example of hiring A players or stars. The more he hired the more they started to compound their skills sets and bounce off each other.
I have also found this in the path of knowledge. The more business knowledge I acquire, the more both past and future business knowledge becomes valuable. It all starts to connect.
Where else do you see the power of the network effect in action?
Seeking Harmony
The Kabbalah teaches us that all human beings seek one thing: unity, or harmony. This is why certain things, such as structure, is very appealing to us.
Unfortunately, a lot of things that lead to business success are counter-intuitive or even counter-instinctive (which can be translated to going against human instinct).
Since all human being seek harmony we hate when things are disordered or pending. We hate when there is an order problem outstanding over the weekend.
As business grows many entrepreneurs experience even more unharmony, that is more pending problems etc. Many times, this causes them to consciously or subconsciously scale back to a level that they feel more comfortable.
Take away: If we are to be ultimatley successful we must be aware of our natural instinct of striving towards harmony and make sure that it does not hinder us on our path to success.
Unfortunately, a lot of things that lead to business success are counter-intuitive or even counter-instinctive (which can be translated to going against human instinct).
Since all human being seek harmony we hate when things are disordered or pending. We hate when there is an order problem outstanding over the weekend.
As business grows many entrepreneurs experience even more unharmony, that is more pending problems etc. Many times, this causes them to consciously or subconsciously scale back to a level that they feel more comfortable.
Take away: If we are to be ultimatley successful we must be aware of our natural instinct of striving towards harmony and make sure that it does not hinder us on our path to success.
How is lack of projects a bottle neck?
A legitimate question by one of my readers was poised to question my post on bottlenecks (after all my readers are my customers and you can never be "smarter" then your customers).
The question was, "How can lack of project possibly be a bottleneck, aren't you just playing games with semantics?
The answer is that lack of projects is NOT ALWAYS a bottleneck. In fact, most of the time it is not a bottleneck.
Let me explain.
Let's say that you start out your company and you have a backlog of leads. The bottleneck in that case is lead fulfillment. Let's say that you increase capacity and are able to follow up on all the leads plus have the capacity to process many more leads.
What happens at this point? There is another bottleneck. At this point, most likely, the bottleneck becomes the number of leads.
Theoretically, this can go back and forth forever.. however there is reality to deal with. The reality to deal with is that EVERY individual project has a finite capacity of revenue generation. Even google needed to start new projects (see: gmail, calendar, etc.) even though there first project: the search engine was incredibly lucrative.
Smart businesses "max out" their assets that are already performing before they invest money and focus into new projects. That is why before a market is tapped out (not literally but in a way where additional dollars don't pass the cost/benefit test) the bottleneck will always be marketing the project.
Once the project is "maxed out" then the bottleneck for the company becomes the lack of projects. Literally, the company is suffocated from new growth until a new project is started. This is not hyped up motivational slogan but rather something that is rooted in basic logic and impossible to refute.
At this point, you can motivate 80%+ of your employees by referring to the lack of projects as a bottleneck, or a problem, rather then a "goal" that you reach towards. My belief, though it is not confirmed by any numbers is that even the 20%+ that say they are motivated by goals are still more motivated by solving problems (because the need to avoid pain more then reach for pleasure is a universal human trait). Where did I come up with this hypothesis? I looked in the mirror.
The question was, "How can lack of project possibly be a bottleneck, aren't you just playing games with semantics?
The answer is that lack of projects is NOT ALWAYS a bottleneck. In fact, most of the time it is not a bottleneck.
Let me explain.
Let's say that you start out your company and you have a backlog of leads. The bottleneck in that case is lead fulfillment. Let's say that you increase capacity and are able to follow up on all the leads plus have the capacity to process many more leads.
What happens at this point? There is another bottleneck. At this point, most likely, the bottleneck becomes the number of leads.
Theoretically, this can go back and forth forever.. however there is reality to deal with. The reality to deal with is that EVERY individual project has a finite capacity of revenue generation. Even google needed to start new projects (see: gmail, calendar, etc.) even though there first project: the search engine was incredibly lucrative.
Smart businesses "max out" their assets that are already performing before they invest money and focus into new projects. That is why before a market is tapped out (not literally but in a way where additional dollars don't pass the cost/benefit test) the bottleneck will always be marketing the project.
Once the project is "maxed out" then the bottleneck for the company becomes the lack of projects. Literally, the company is suffocated from new growth until a new project is started. This is not hyped up motivational slogan but rather something that is rooted in basic logic and impossible to refute.
At this point, you can motivate 80%+ of your employees by referring to the lack of projects as a bottleneck, or a problem, rather then a "goal" that you reach towards. My belief, though it is not confirmed by any numbers is that even the 20%+ that say they are motivated by goals are still more motivated by solving problems (because the need to avoid pain more then reach for pleasure is a universal human trait). Where did I come up with this hypothesis? I looked in the mirror.
Contentment vs. Satisfaction
For high performers, there is a seemingly pardoxical struggle between achievement and happiness.
That is, how do we ensure significant improvement and gain while allowing ourselves to be presently happy.
I say "seemingly" because it doesn't have to be this way.
Why?
The problem is that many high performers interchangeably use the words the words Happy and Content/Satisfied, when in reality they are very different concepts.
Happy - Feeling jovial and thankful with your current situation. A good and healthy amount of endorphin flow.
Content - Feeling as if things are perfect. Seeing no reason to improve things and/or no reason to change the status quo.
THESE are not the same.
Rather then give you a theoretical explanation, let me give you an example.
A college player just wins the NCAA champsionship. He holds up the trophy, feeling a great high and thinks to himself, next year I will go pro and win the NBA championship.
Is he happy? Yes, very much. Is he content to die with no further achievement? No.
Here is what's interesting. Until you realize this important distinction our brain will work to keep us relatively unhappy. Why? Because the brain sees a payoff of higher performance as a reason to take "the loss" on feelings of happiness.
As soon as the brain gains awareness, through my enlightening blog ;), the equation will change and it will no longer feel like it must keep you unhappy for your to succeed.
Comprende senor?
That is, how do we ensure significant improvement and gain while allowing ourselves to be presently happy.
I say "seemingly" because it doesn't have to be this way.
Why?
The problem is that many high performers interchangeably use the words the words Happy and Content/Satisfied, when in reality they are very different concepts.
Happy - Feeling jovial and thankful with your current situation. A good and healthy amount of endorphin flow.
Content - Feeling as if things are perfect. Seeing no reason to improve things and/or no reason to change the status quo.
THESE are not the same.
Rather then give you a theoretical explanation, let me give you an example.
A college player just wins the NCAA champsionship. He holds up the trophy, feeling a great high and thinks to himself, next year I will go pro and win the NBA championship.
Is he happy? Yes, very much. Is he content to die with no further achievement? No.
Here is what's interesting. Until you realize this important distinction our brain will work to keep us relatively unhappy. Why? Because the brain sees a payoff of higher performance as a reason to take "the loss" on feelings of happiness.
As soon as the brain gains awareness, through my enlightening blog ;), the equation will change and it will no longer feel like it must keep you unhappy for your to succeed.
Comprende senor?
"Smart enough to know when you are being lucky." - Eben Pagan
This is a concept that I've struggled with myself. We humans have several biases that lead to bad outcomes. One such bias is emotional approximation. We judge how good something will be based on how good we feel about it. This leads to bad investments in marketing, bad hiring decisions, etc.
What is the COUNTER to emotional approximation? The counter to it is market based feedback. That is, testing your emotional approximation against the market (no matter how small) and seeing if it works. There is no better objective measure.
(Back to the topic at hand)..
The best entrepreneurs are smart enough to know when they are being lucky. What does this mean?
It means that it is very very difficult to know whether a project/business will be successful. Because of the hundreds of known and even more unknown variables that contribute to a success, it is more or less impossible to know with certainty (though we can definetly increase the chances) whether a project will be successful or not.
(By the way, this is coming from Eban Pagan who runs 5 successful online brands that together account for more then $20M/year in sales. This comes from someone who has experienced incredible success but still understands the luck that is involved).
So how do we deal with the concept that initial success is often a result of luck (growing a business has much less to do with luck then starting it).
We deal with this in two ways: cut our losses and keep our losses minimal (by testing a small fragment or small part of our product/service before we invest large amounts of money) and by MILKING our wins.
Regardless of whether we understand the variables that led to our product/service success, we must understand the value of a successful and semi successful product and milk and grow it BEFORE we get distracted with a new project that may or may not be successful.
That is the way to deal with this business reality.
What is the COUNTER to emotional approximation? The counter to it is market based feedback. That is, testing your emotional approximation against the market (no matter how small) and seeing if it works. There is no better objective measure.
(Back to the topic at hand)..
The best entrepreneurs are smart enough to know when they are being lucky. What does this mean?
It means that it is very very difficult to know whether a project/business will be successful. Because of the hundreds of known and even more unknown variables that contribute to a success, it is more or less impossible to know with certainty (though we can definetly increase the chances) whether a project will be successful or not.
(By the way, this is coming from Eban Pagan who runs 5 successful online brands that together account for more then $20M/year in sales. This comes from someone who has experienced incredible success but still understands the luck that is involved).
So how do we deal with the concept that initial success is often a result of luck (growing a business has much less to do with luck then starting it).
We deal with this in two ways: cut our losses and keep our losses minimal (by testing a small fragment or small part of our product/service before we invest large amounts of money) and by MILKING our wins.
Regardless of whether we understand the variables that led to our product/service success, we must understand the value of a successful and semi successful product and milk and grow it BEFORE we get distracted with a new project that may or may not be successful.
That is the way to deal with this business reality.
How to test your marketing EFFECTIVELY
GOOD salescopy and GOOD marketing ONLY applies to your target market. That's right, people are generally looking for customized solutions, even if the more general solution is as effective.
People want to feel as if they've found something that no one else has found that was designed SPECIFICALLY for them. (don't question it, just know this is a fact of human pyschology).
So what do you do when you write up some salescopy or create a new marketing piece? In order to gage whether you have successfully designed the copy or marketing you must test it on YOUR market, not on general consumers or friends/family.
People want to feel as if they've found something that no one else has found that was designed SPECIFICALLY for them. (don't question it, just know this is a fact of human pyschology).
So what do you do when you write up some salescopy or create a new marketing piece? In order to gage whether you have successfully designed the copy or marketing you must test it on YOUR market, not on general consumers or friends/family.
Thursday, June 11, 2009
Solving Problems vs. Setting Goals
New research suggests that over 80% of people do not intrinsically enjoy setting goals, rather they prefer to solve problems.
Interesting, considering that GROWTH is all about SOLVING problem more then it is setting goals. What I mean is that growth is about removing bottle necks to allow natural growth to increase (not enough projects being launched is a bottleneck FYI).
Ask yourself continually: What is the bottleneck and you will find yourself hitting "your goals".
Interesting, considering that GROWTH is all about SOLVING problem more then it is setting goals. What I mean is that growth is about removing bottle necks to allow natural growth to increase (not enough projects being launched is a bottleneck FYI).
Ask yourself continually: What is the bottleneck and you will find yourself hitting "your goals".
It is important to break the intertia on a problem
The moment a problem hits it is a pivotal time. Why? Because if you defer the problem for long enough you will give up on it and internalize the failure.
In order to undo this process you must take action, however small, to counteract the problem almost immediately after it hits. That is, brainstorm several solutions.
That way, when you come back to deal with the problem you would have already broken the inertia of starting a task and you can easily continue the process BEFORE you internalize the failure.
In order to undo this process you must take action, however small, to counteract the problem almost immediately after it hits. That is, brainstorm several solutions.
That way, when you come back to deal with the problem you would have already broken the inertia of starting a task and you can easily continue the process BEFORE you internalize the failure.
What every great marketer understands
Finally, most average to great salespeople are understanding the power of consultative selling, that means advising your customer rather then "selling" to him/her.
The problem is, how much do you give away. On one hand you want to entice the buyer, on the other hand you want them to hire you.
Here is what every great consultative salesperson knows:
You give your customer EXACTLY what needs to be done (so they can visualize it) without the concrete steps on how to do it.
For example, if you are doing a consulting session on internet marketing you would tell them what they need to set up: opt in page, auto-responders, etc.
First off, most great business people will not try to reinvent the wheel and learn all of this on themselves, once they are sold on the process they will immediately hire you.
The other people may try to do it themselves, but after some frustration they will probably be back for your services. You can even tell them if they insist "try it by yourself and if you need help get in contact with us."
It is important to GIVE value to your customer and teach them something before they purchase from you. People buy from people they believe can help and teach them.
Teach general principles and general business practices and they will be sold on you and hire you to execute the job.
The technique of telling what needs to be done, without giving specific techniques creates a powerful GAP in their knowledge which makes the potential customer feel a sense of loss if he/she does not fill it.
The problem is, how much do you give away. On one hand you want to entice the buyer, on the other hand you want them to hire you.
Here is what every great consultative salesperson knows:
You give your customer EXACTLY what needs to be done (so they can visualize it) without the concrete steps on how to do it.
For example, if you are doing a consulting session on internet marketing you would tell them what they need to set up: opt in page, auto-responders, etc.
First off, most great business people will not try to reinvent the wheel and learn all of this on themselves, once they are sold on the process they will immediately hire you.
The other people may try to do it themselves, but after some frustration they will probably be back for your services. You can even tell them if they insist "try it by yourself and if you need help get in contact with us."
It is important to GIVE value to your customer and teach them something before they purchase from you. People buy from people they believe can help and teach them.
Teach general principles and general business practices and they will be sold on you and hire you to execute the job.
The technique of telling what needs to be done, without giving specific techniques creates a powerful GAP in their knowledge which makes the potential customer feel a sense of loss if he/she does not fill it.
Why extreme examples work
If you want to teach something to someone you must learn to use extreme examples.
Why?
Extreme examples are inclusive, that is, they include every possible scenario of what you may be talking about. In other words, there is no confusion around what you are talking about, and the distinction can be understood by 100% of the audience.
What happens if you don't use an extreme example? Well if you don't use an extreme example some or even most people will probably get it, but it may very well be that some people do not get it. No distinction, no comprehension, no learning.
If you are planning on giving an example, you might as well make it extreme so that you can make sure everyone makes a distinction and understands your point.
Why?
Extreme examples are inclusive, that is, they include every possible scenario of what you may be talking about. In other words, there is no confusion around what you are talking about, and the distinction can be understood by 100% of the audience.
What happens if you don't use an extreme example? Well if you don't use an extreme example some or even most people will probably get it, but it may very well be that some people do not get it. No distinction, no comprehension, no learning.
If you are planning on giving an example, you might as well make it extreme so that you can make sure everyone makes a distinction and understands your point.
Wednesday, June 10, 2009
Information vs. Creator of Information
What is powerful: is it information or is it the source of information?
Most people think that the creator of information is the powerful one. They believe that certain people have the "magic touch" and that only they can apply their own information.
This is nonsense. Once the information is made public, the true power of information comes from the information itself, not the person who created it.
For example, Eban Pagan is credited by most as the first internet marketer to create landing pages. This one concept revolutionized the internet marketing arena and increased his profits many times.
As great and powerful an idea as it was (and it was brilliant) as soon as he put it out on his site and his competitors could see it the idea was no longer powerful just for him, but rather powerful for anyone that used it.
Takeaway: Realize that the source of information is not the powerful one, rather it is anyone who applies the information that gains power in a capitalist society. MODEL successful people.
Most people think that the creator of information is the powerful one. They believe that certain people have the "magic touch" and that only they can apply their own information.
This is nonsense. Once the information is made public, the true power of information comes from the information itself, not the person who created it.
For example, Eban Pagan is credited by most as the first internet marketer to create landing pages. This one concept revolutionized the internet marketing arena and increased his profits many times.
As great and powerful an idea as it was (and it was brilliant) as soon as he put it out on his site and his competitors could see it the idea was no longer powerful just for him, but rather powerful for anyone that used it.
Takeaway: Realize that the source of information is not the powerful one, rather it is anyone who applies the information that gains power in a capitalist society. MODEL successful people.
Tuesday, June 9, 2009
Defeating the Inner Bitch
Recently, I've found the #1 reason to work out, whether it be running or lifting weights (weights for me).
The #1 reason to lift weights / run is to defeat that inner bitch, that is to defeat the inner voice that says "I don't want to", the whining inner voice that hinders business success. Nothing, I repeat nothing, has helped me defeat this voice and improve my sharpness and mental toughness more then lifting weights.
In fact, I have changed the purpose of each set from any type of weight goal or number of repetitions to simply "make the inner bitch die." By lifting until total exhaustion and until I make the voice die I have had significant success (improving my bench press by 15 pounds in one session).
It is important to identify as many positive outcomes of a given action if you hope to repeat it in a sustainable way. As of now, looks is only the 4'th top benefit that I get from lifting weights and running. It is for this reason that I am confident that I will sustain this activity for many years to come.
Here are my associated benefits ranked in order of importance:
1) Increasing mental discipline, the ability to take on any business challenge.
2) Getting a good night's sleep and waking up optimistic and ready to take on the day
3) Confidence, testoterone, emotional stability, and better cognitive ability (both during times of peace and war)
4) Looking better
The #1 reason to lift weights / run is to defeat that inner bitch, that is to defeat the inner voice that says "I don't want to", the whining inner voice that hinders business success. Nothing, I repeat nothing, has helped me defeat this voice and improve my sharpness and mental toughness more then lifting weights.
In fact, I have changed the purpose of each set from any type of weight goal or number of repetitions to simply "make the inner bitch die." By lifting until total exhaustion and until I make the voice die I have had significant success (improving my bench press by 15 pounds in one session).
It is important to identify as many positive outcomes of a given action if you hope to repeat it in a sustainable way. As of now, looks is only the 4'th top benefit that I get from lifting weights and running. It is for this reason that I am confident that I will sustain this activity for many years to come.
Here are my associated benefits ranked in order of importance:
1) Increasing mental discipline, the ability to take on any business challenge.
2) Getting a good night's sleep and waking up optimistic and ready to take on the day
3) Confidence, testoterone, emotional stability, and better cognitive ability (both during times of peace and war)
4) Looking better
Notes from a Roundtable on Business Intelligence
The following are notes of a presentation by Jeff Block, Principal Consultant at Capstone Consulting (www.CapstoneC.com)
-What is value in IT? Value is a strong return on business investment in IT
-The more grossly intuitive the KPI (key performance indicator) the better
-Work with business leaders and have them define exactly what they want.
Actually have them define requirements.
-The benefit of consultants is that they have experience implementing the solution to different companies, not just experience within a company.
-Outside consultants are neutral, bring perspective and avoid politics.
-Mere act of talking about BI moves organization forward.
-Proliferation of bad information on BI is staggering, buzzwords become bad words.
-You measure value of BI by seeing whether decision makers benefit form it.
-ITA and BI seminars (TDWI) for more information
capstonec.com/resources.aspx
-BI is not a product to be bought, it has to be understood. Technology is last part of the process.
-Success is iterative, don't replace original system without a staging of the new system. Get buy in at top and perhaps the entire organization if possible.
-Identify quick solutions to easy problems to get buy in and execute short term projects.
Random words of wisdom: "Any problem you can solve with a checkbook isn't a real problem."
-What is value in IT? Value is a strong return on business investment in IT
-The more grossly intuitive the KPI (key performance indicator) the better
-Work with business leaders and have them define exactly what they want.
Actually have them define requirements.
-The benefit of consultants is that they have experience implementing the solution to different companies, not just experience within a company.
-Outside consultants are neutral, bring perspective and avoid politics.
-Mere act of talking about BI moves organization forward.
-Proliferation of bad information on BI is staggering, buzzwords become bad words.
-You measure value of BI by seeing whether decision makers benefit form it.
-ITA and BI seminars (TDWI) for more information
capstonec.com/resources.aspx
-BI is not a product to be bought, it has to be understood. Technology is last part of the process.
-Success is iterative, don't replace original system without a staging of the new system. Get buy in at top and perhaps the entire organization if possible.
-Identify quick solutions to easy problems to get buy in and execute short term projects.
Random words of wisdom: "Any problem you can solve with a checkbook isn't a real problem."
Monday, June 8, 2009
An effective way to learn
One of the most effective ways to learn something is to nail it in from different sides.
What do I mean?
The equivalent is having a nail that you hit too hard. The nail begins to stick out on another side. After you hit the nail again from the other side it starts to stick out on a new side.
The equivalent of hitting in the nail from different sides is also the most effective way to learn: learning different models (from different people/sources) that explain the same phenomenon.
The more you hear the same concept worded and framed differently the more deeply you understand the topic.
What do I mean?
The equivalent is having a nail that you hit too hard. The nail begins to stick out on another side. After you hit the nail again from the other side it starts to stick out on a new side.
The equivalent of hitting in the nail from different sides is also the most effective way to learn: learning different models (from different people/sources) that explain the same phenomenon.
The more you hear the same concept worded and framed differently the more deeply you understand the topic.
Lessons from Private Equity by Orit Gadiesh
The best PE investors do exactly that: they generate excellent returns on their investments, usually after a period of ownership of three to five years. In this memo, we will not only explain these results, but also will describe how these PE investors achieve them, and why their approach is relevant to all companies, regardless of ownership structure.
Here are the lesson:
-Define the pull potential (after proper due diligence)
-Develop the blueprint (and stick to the plan)
-Accelerate performance
-Harness the talent
-Make equity sweat
-Foster a results-orientined mindset
For this reason, the best PE firms have shifted many of the resources that they once poured into financial engineering toward creating operating value - and they are doing it in a way that is more systematic, focused, and aggressive than the practices found in most companies.
What is going on in private equity?
PE ownership can give companies the freedom to strike a balance between entrepreneurship on the one hand and financial discipline on the other.
By following a half dozen deceptively simple rules, the leading players in the PE community create value to a degree that many traditional companies do not - or at least have not, to date.
How can PE lessons apply to you?
Define the pull potential - it is not about next year's budget but about the full potential that can be experienced over the next 3 to 5 years. Strategic due diligence is the way to set the number, and growing your cash flow by pursuing a few core initiatives derived from this due diligence is the way to get there. Focusing on the right critical issues and no more then three to five in most cases, is crucial to achieving success.
Adopting such a focus necessarily will encourage a more medium-term outlook. Wittingly or unwittingly, every company located itself somewhere on the spectrum of performance improvement : from the short term focus to the indefinite term. In most cases, it turns out, the practical, actionable time frame for getting full potential is three to five years, in other words, a private equity investor's typical time frame.
Develop the blueprint: The blueprint is the road map for getting to what full potential destination - the who, what, when, where and how. The emphasis is on action and making sure that someone is ultimately responsible for each action.
Accelerate performance - You must drive organizational change around the key initiatives that will define success. It almost means getting people to own the key initiatives, and setting up appropriate program management tools to support the initiatives and their "owners."
Finally, accelerating performance means monitoring a few key metrics. These metrics go well beyond the deep pools of standard management accounting data - they are forward looking and actionable NOT historical.
Your blueprint determines the key measures.
Harness the talent - Money alone won't cut it, culture too is key. Talent goes where it is properly incented which PE does a good job at doing.
Value-added boards help coach CEOs, provide real business input and make quick decisions. Of course, board members should also be well steeped in the key initiatives and the blueprint.
Make equity sweat: You have to embrace LBO economics, which means being comfortable with leverage. A higher debt-to-equity ration helps strengthen manager's focus, ensuring that they view cash as a scarce resouce.
Nestle surprised the market on the heels of stellar earnings by announcing a share buyback. Scarce cash also forces managers to work the rest of the balance sheet harder, using it as a dynamic tool for growth rather then a static indicator of performance. This means eliminating unproductive or underperforming capitcal, often by cutting pieces out of the business. It also many mean finding new ways to convert traditionally fixed assets into sources of financing.
Foster a results-oriented mindset: The best PE firms also work their margic by helping their portfolio companies foster a results-oriented mindset.
Creating this culture requires both the right managers and the right management processes, as we have discussed.
Definet he Full Potential
There is no really only one way to swim against competitive currents and a cyclical market condition: create operating value, increase the cash flow of acquired companies is the process PE firms must use to keep generating attractive returns. They get richly rewarded for that systematic approach.
The starting point begins with defining the full potential of the business in question.
The PE Approach
The first thing that the best PE firms do is to develop a clear understanding of where and how a business makes money and why'd they want to own it. They conduct a rigorous and dispassionate due diligence, building an objective fact base of the business and its industry. This might be called a "strategic" due diligence.
-Derived demand analysis (what are the true drivers of the business, how are they changing)?
-Customer analysis (What are this business's customers going to do?)
-Competitive analysis
-Environmental analysis
-Microeconomic analysis
The target is based on the assumption that they will be successful at injecting new thinking into the company if required, and that they will be able to partner with management in steering the company.
Staying disciplined, the only compelling reaosn to pay more than the next bidder is the discovery that the microeconomics of the business can be better than conventional wisdom would imply.
Conversely, the best PE firms are acutely attutend to any red flags that may persudate them to bow out and they are aware that there is someone out there that will overpay for the company.
Top PE buyers are also aware that every business and industry is a moving target. So even if they know something about the company or industry, they ask endless questions. They live by the mantra, "In God we trust. All others bring data."
Good investors put little faith in the offering books that are put together for companies. These books rarely look deeply into the demand drivers that industry growth will depend on in the future.
Instead, the best PE buyers do their own homework. They and their advisers drill deply into the key drivers of demand and how they might behave in the future. The approach suppliers the same way, looking at costs.
What are smart buyers looking for? They are looking to determine what the full potential of the business is and what it could be worth in three to five years. This becomes their target equity value.
The PE buyers focus on three to five goals and figure out what the company is NOT goin gto do. The process helps ensure the business does not waste time, money, and management bandwith on the wrong issues. In our experience, the discipline of not doing things can preserve tremendous value. Therefore, identifying the full potential path early is critical.
Smart PE owners must think about sustainability because they will be selling their business in one form or another in the future.
The Sealy example: Sealy had a particular low share in smaller accounts, yet this segment offered higher margins and faster grwoth than Sealy's typical customers.
The two PE firms set a value-creation target of five times their equity investment. To reach that target, they zeroes in on a few crucial initiatives.
One of the key initiatives was a complete redesign of Sealy's core Posturepedic mattress line.
Your Approach to Defining the Company's Full Potential
We argue that corporations can benefit from a rigorous, PE-style process of internal due diligence, aimed at building an objective fact base about the company and discovering the full potential. We argue that a process of "rediscovery" should be conducted to renew plans.
Think "blank sheet of paper", why sould someone want to buy the company now (If I had a chance now would I buy the company, and what would be the biggest opportunities if I did buy it?)
You must collect facts on the key drivers of demand and how they are likely to behave in the future. You must interview customers to understand how they make purchase decisions and how your key products or services stack up against those of the competition.
What are customers doing? Are my costs truly competitive? (aim to improve instead of being just perfect).
Centre partners sent in a crack due diligence team, combining experts in consumer products, fishing operations, and marine biology, and found that, far from being a blip, American Seafoods' profit boom had the potential to expand.
Although pollack prices had recently increased, they remained well below the levels of competing whitefish like cod. As a result, there seemed little chance that pollack would be subject to significant price competition in the foreseeable future.
By the same token, too many are disinclined to bet heavily on new initiatives. The failure of any such new initiative would be highly visible and could be destructive to sernior corporate careers. Even a delayed success could be damaging, given Wall Street's short-term focus.
While strategic due diligence sounds daunting, it need not be. If the derived demand, customer, competitive, environmental and microeconomic analyses are not standard procedure consider getting outside help. Make sure that you and your helpers focus on the actionable.
Remember: you are zeroing in on the three to five initiatives. Do not let your organization get lost in the clouds! And to the extent possible, run an ongoing culture check. Who is excited about this process and who is not?
Last, you might be interested to know that some of the PE firms look to "buy it again". They want to look at the business anew, with an eye toward a recast and improved value proposition. Leading companies should do the same.
Develop the Blueprint
Like the PE buyer, you have identified a short list of the highest potential initiatives in the company - the areas that deserve systematic investments and attention in the near and middle term, to ensure the highest possible return within three to five years.
Now the goal is to make that real. This is accomplished through the development of a blueprint.
The initiatives get actions, resources, timelines, milestones, metrics and deliverables attached to it.
-Korea first would need to shift its bank branch to serve retail customers.
-It would need to develop the back-office support and customer service capabilities that a competitive retail bank would need.
-Finally, the bank would need to create a different kind of sales force, one focused on customer service and retail sales.
Finally, the blueprint took into account the need to build the right organization with the right salespeople to support the full-potential plan.
Since then, Standard Chartered has replicated Korea First's model in other countries.
Some companies are highly skilled at the fundamentals of developing a blueprint, most are not. Plan on budgeting between two and six months for the blueprint process, on average, with an eye toward launching your first initiative within the first one hundred days. Some blueprints will take longer than others because they must take into account more complexity than others.
Doesn't the very act of investment by a PE firm or consortium in any given company create in that company a sense of urgency, anxiety, and expectation - an environment that, for better or worse, tends to foster change versus the status quo. The answer to that is yes but any company can create this environment.
Accelerate Performance
How PE Firms Accelerate Performance
The first priority is to mold the organization around the blueprint. The best PE firms don't want to manage your company they want management that is positioned for success.
The best PE firms foster senior management accountability. They do so in a number of ways, including insisting on executive sponsorship of individual initiatives. Each initiative gets an owner and accountability.
The rewards are linked to hitting blueprint targets not to some outside factor like earnings, etc. PE firms set up a program office which governs the blueprint and ensures that each initiatives delivers value on time. It is a a structure composed of a subset of cross-functional folks from across the organization - some senior, some junior.
The program office reports to senior management every couple of weeks to ensure that things are on track and to highlight any problems or key decisions that need to be made. The program office, along with senior management, plays a key role in making sure that the tough and often unpopular decisions get made and the people accept accountability.
Watching the Vital Few Metrics - What may not be so obvious is that not all PE firms track the same things. More activist buyers dig deeper. They track metrics that help them monitor progress toward operational goals before it shows up in the financial results.
PE firms focus on operational measures that look forward, point to root causes, and thereby spur action.
The primary financial measure Crown Castle focuses on is cash flow per share versus an absolute measure such as pure cash flow. This ensures the company is focusing its efforts on growth strategies that increase shareholder value and not growth for growth's sake. In addition to being Crown Castle's primary financial measure, it is also the measure the company reinforces with Wall Street analysts.
Managers in the best PE firms are careful to avoid imposing one set of measures across their entire portfolios, preferring to tailor measures to each business in the portfolio. "We use their metrics, not our metrics," explains James Coulter, founding partner of TPG.
They benchmarked the company's sales and marketing performance against the industry's best practices, and established a new incentive-heavy compensation scheme that delivered significant rewards to top performers.
Ask yourself again, what is needed to make the agreed-on blueprint real. Translate the specific actions of the blueprint into the responsibility of specific individuals. Who, exactly, is on the hook for this specific outcome?
Build HR functions around the blueprint, not the other way around.
A good program office can be invaluable in providing a consistent helping hand to senior managers while ensuring that the initiatives achieve full potential and remain on track (helps to gain cross functional commitment).
The simple screen to put all such bonuses through is whether the additional compensation is directly linked to an outcome that is within the individual's control. Too many corporations tie incentives to the bottom line, which isn't easily moved by an individual or working group within the organization. As a result they waste money intended to focus motivation (and dis-motivate people).
For those that are not being incentivized point out to them that the incentivized initiatives are crucial to the company's success and that the success of them is likely to lead to more initiatives and a broader base of involvement.
Harness the Talent
Harness talent. This means people up and down the chain of command, but particularly in frontline positions in the key initiative areas. It means linking rewards with performance.
It also means using the board of directors in a strategic way. By bringing the board members' talents to bear, those boards often play an absolutely critical role in the success of their companies.
PE players are absolutely unbending in their insistence on performance. It's not that they're cold-blooded. It's just that their three to five year time horizon doesn't allow for very many misfires.
PE players bite the bullet, they act quickly to replace senior managers who fail to deliver or who are judged inadequate to the challenge.
As a rule they conduct a broad search, looking well beyond the score of their personal contacts. They look for a strong skill set and track record. They seek managers who, however experienced, are hungry for success, are willing to put up their own financial upside at risk and relish the challenge of transforming a company.
They look for a generalist CEO who is a proven team builder, understands the importance of building value quickly, and has demonstrated the ability to hit ambitious targets. The individual generalist is surrounded by technical advisers who help him reach his targets.
The most important way that PE firms recruit senior talent is to give them an equity position in their company that grows when targets are hit over the life or the investment.
Rewards remain closed tied to performance on the benchmarks, and they often time have downside risks.
In many cases, it turns out that hitting these targets requires hard work, but not magic.
Once these incentives are put in place, the most ambitious people come into play.
PE firms also hang on to their talent from project to project, company to company. When the right opportunity comes along, they take advantage.
Very little of the CEO's time is spent "bringing board members around" most of it is spent drawing on their expertise.
Don't sell your existing people short, often times there are inside guys who are entrepreneurial and what the opportunity to help grow the business. CEOs who are in crisis mode - are inclined to think that the people who are already on the payroll are part of the problem rather then the solution. People already on the team have had a lot company investment into them and understand the business well, do not discount them.
"Economy of talent" - talent gravitates toward good risk/reward opportunities. Great opportunities in working for PE funds attract a disproportionate amount of the available talent.
Make sure the reward is in line with the risk you are asking them to take. It means you have to pay close to market value of the skills you require, don't be handcuffed by tradition-bound notions of pay grades and hierarchical systems, get market data on the alternatives that these individuals have.
You need to find people who are interested more in opportunities more then in guarantees.
Give you hires extraordinary responsibilities and superb support, to increase the odds that they'll win.
Consider recruiting bona fide experts in your business or industry - or in an area where you see trends develop that might impact your business.
Reward boldness and success.
Make Equity Sweat
Focus intenesely on the balance sheet and make sure you keep cash low enough to make it sweat. This is one of the biggest differences between PE and publicly traded companies.
PE firms find new ways to convert traditionally fixed assets into sources of financing. They eliminate unproductive capital by selling equipment or by closing facilities. And they divest underperforming businesses or divisions.
Punch Pubs packaged their real estate as a seperate investment security that could be sold to investors. They made the funding cheaper then an equity type funding and made a lot more money from financing.
Public companies are more conservative since they have no recourse to a parent fund and can't ask for more money.
Make capital deployed on a project base. Make people opt in for capital and ask you for it.
One practical way for CEOs to discipine their capital expenditures is to play an active role in the capital allocation process. Warren Buffett believes that capital allocation decisions are the most important ones he makes: "Charles T. Munger, Berkshire's vice chaimrn, and I really only have two jobs. One is to attract and keep outstanding managers to run our various operations. The other is capital allocation."
Some airline companies sell and lease back their airline fleets. Every dollar of equity is precious and I have to maximize the return on that dollar. By adding leverage to the balance sheet, you are - by definition - making equity scarcer and more valuable.
Foster a Results-Oriented Mind Set
The More certain the record, the less painful the process. Metrics and incentive drives culture.
The right culture is the right managers with a bias for action.
The best PE firms are learning organizations. They put forward their theory of full potential, blueprint it, test it, monitor it, figure out what's wrong, recalibrate, and move forward again.
Over time, these PE firms get better and better at what they do, on both a business and on an industry basis. They develop successful formulas that they can 1) repeat within the business 2) replicate outside the business.
Nike used its own replicatable blueprint in going from sport to sport and getting a leading position in the sport, launching a clothing line endorsed by top athlete in sport, and getting into apparel and accessories.
Looking for the right adjacencies, and jumping into them with a "new but related" blueprint, is a key component of the results-oriented mindset. The best PE firms do it all the time - but as the Nike experience demonstrates, so can you.
Of course top management team is ultimately responsibilty. The stronger the team the more likely accountability will drift upward. Unfortunately, too often initiatives exist in which no managers feels true ownership of results.
The general managers of your business have to feel that they are on the ook to deliver the results.
Great managers tell their employees: "I want you to spend 50 percent of your time doing what you are supposed to do, but spend 50 percent on telling me how you can create more value."
This is especially hard when times "feel good". People always respond better to unplanned change - that is, crises and disasters, than they do to planned change. (See: Sense of Urgency).
Your job is to explain why business as usual won't work anymore and why aspiring to create change is the best plan for all. In some cases this may be a formulization of many things already going on inside your organization. Explain how collectively you will create more jobs and opportunities.
The CEO and his management team called meetings whenever they needed to talk about issues - and kept them short, rather then reverting to the old schedule of daylong meetings every six weeks.
Resetting standards is simply a plea for keeping an edge on the blueprint and - as a result - on the results orientation of the company. Smart PE firms are constantly moving the goalposts in the direction of higher performance and better results.
They want to make sure they aren't missing any opportunities for better performance.
PE firms use future investors and current peers as way to keep the pressure on and make it competitive.
Conclusion
PE firms help companies innovate and renovate products : as mentioned, Nestle has largely renewed its product portfolio across all divisions.
The vision now? For Nestle to be recognized as more than just a leading food and beverage company, and instead to be acknowledged as the world's most respected nutrition, health, and wellness company (Reframed the entire company!)
Here are the lesson:
-Define the pull potential (after proper due diligence)
-Develop the blueprint (and stick to the plan)
-Accelerate performance
-Harness the talent
-Make equity sweat
-Foster a results-orientined mindset
For this reason, the best PE firms have shifted many of the resources that they once poured into financial engineering toward creating operating value - and they are doing it in a way that is more systematic, focused, and aggressive than the practices found in most companies.
What is going on in private equity?
PE ownership can give companies the freedom to strike a balance between entrepreneurship on the one hand and financial discipline on the other.
By following a half dozen deceptively simple rules, the leading players in the PE community create value to a degree that many traditional companies do not - or at least have not, to date.
How can PE lessons apply to you?
Define the pull potential - it is not about next year's budget but about the full potential that can be experienced over the next 3 to 5 years. Strategic due diligence is the way to set the number, and growing your cash flow by pursuing a few core initiatives derived from this due diligence is the way to get there. Focusing on the right critical issues and no more then three to five in most cases, is crucial to achieving success.
Adopting such a focus necessarily will encourage a more medium-term outlook. Wittingly or unwittingly, every company located itself somewhere on the spectrum of performance improvement : from the short term focus to the indefinite term. In most cases, it turns out, the practical, actionable time frame for getting full potential is three to five years, in other words, a private equity investor's typical time frame.
Develop the blueprint: The blueprint is the road map for getting to what full potential destination - the who, what, when, where and how. The emphasis is on action and making sure that someone is ultimately responsible for each action.
Accelerate performance - You must drive organizational change around the key initiatives that will define success. It almost means getting people to own the key initiatives, and setting up appropriate program management tools to support the initiatives and their "owners."
Finally, accelerating performance means monitoring a few key metrics. These metrics go well beyond the deep pools of standard management accounting data - they are forward looking and actionable NOT historical.
Your blueprint determines the key measures.
Harness the talent - Money alone won't cut it, culture too is key. Talent goes where it is properly incented which PE does a good job at doing.
Value-added boards help coach CEOs, provide real business input and make quick decisions. Of course, board members should also be well steeped in the key initiatives and the blueprint.
Make equity sweat: You have to embrace LBO economics, which means being comfortable with leverage. A higher debt-to-equity ration helps strengthen manager's focus, ensuring that they view cash as a scarce resouce.
Nestle surprised the market on the heels of stellar earnings by announcing a share buyback. Scarce cash also forces managers to work the rest of the balance sheet harder, using it as a dynamic tool for growth rather then a static indicator of performance. This means eliminating unproductive or underperforming capitcal, often by cutting pieces out of the business. It also many mean finding new ways to convert traditionally fixed assets into sources of financing.
Foster a results-oriented mindset: The best PE firms also work their margic by helping their portfolio companies foster a results-oriented mindset.
Creating this culture requires both the right managers and the right management processes, as we have discussed.
Definet he Full Potential
There is no really only one way to swim against competitive currents and a cyclical market condition: create operating value, increase the cash flow of acquired companies is the process PE firms must use to keep generating attractive returns. They get richly rewarded for that systematic approach.
The starting point begins with defining the full potential of the business in question.
The PE Approach
The first thing that the best PE firms do is to develop a clear understanding of where and how a business makes money and why'd they want to own it. They conduct a rigorous and dispassionate due diligence, building an objective fact base of the business and its industry. This might be called a "strategic" due diligence.
-Derived demand analysis (what are the true drivers of the business, how are they changing)?
-Customer analysis (What are this business's customers going to do?)
-Competitive analysis
-Environmental analysis
-Microeconomic analysis
The target is based on the assumption that they will be successful at injecting new thinking into the company if required, and that they will be able to partner with management in steering the company.
Staying disciplined, the only compelling reaosn to pay more than the next bidder is the discovery that the microeconomics of the business can be better than conventional wisdom would imply.
Conversely, the best PE firms are acutely attutend to any red flags that may persudate them to bow out and they are aware that there is someone out there that will overpay for the company.
Top PE buyers are also aware that every business and industry is a moving target. So even if they know something about the company or industry, they ask endless questions. They live by the mantra, "In God we trust. All others bring data."
Good investors put little faith in the offering books that are put together for companies. These books rarely look deeply into the demand drivers that industry growth will depend on in the future.
Instead, the best PE buyers do their own homework. They and their advisers drill deply into the key drivers of demand and how they might behave in the future. The approach suppliers the same way, looking at costs.
What are smart buyers looking for? They are looking to determine what the full potential of the business is and what it could be worth in three to five years. This becomes their target equity value.
The PE buyers focus on three to five goals and figure out what the company is NOT goin gto do. The process helps ensure the business does not waste time, money, and management bandwith on the wrong issues. In our experience, the discipline of not doing things can preserve tremendous value. Therefore, identifying the full potential path early is critical.
Smart PE owners must think about sustainability because they will be selling their business in one form or another in the future.
The Sealy example: Sealy had a particular low share in smaller accounts, yet this segment offered higher margins and faster grwoth than Sealy's typical customers.
The two PE firms set a value-creation target of five times their equity investment. To reach that target, they zeroes in on a few crucial initiatives.
One of the key initiatives was a complete redesign of Sealy's core Posturepedic mattress line.
Your Approach to Defining the Company's Full Potential
We argue that corporations can benefit from a rigorous, PE-style process of internal due diligence, aimed at building an objective fact base about the company and discovering the full potential. We argue that a process of "rediscovery" should be conducted to renew plans.
Think "blank sheet of paper", why sould someone want to buy the company now (If I had a chance now would I buy the company, and what would be the biggest opportunities if I did buy it?)
You must collect facts on the key drivers of demand and how they are likely to behave in the future. You must interview customers to understand how they make purchase decisions and how your key products or services stack up against those of the competition.
What are customers doing? Are my costs truly competitive? (aim to improve instead of being just perfect).
Centre partners sent in a crack due diligence team, combining experts in consumer products, fishing operations, and marine biology, and found that, far from being a blip, American Seafoods' profit boom had the potential to expand.
Although pollack prices had recently increased, they remained well below the levels of competing whitefish like cod. As a result, there seemed little chance that pollack would be subject to significant price competition in the foreseeable future.
By the same token, too many are disinclined to bet heavily on new initiatives. The failure of any such new initiative would be highly visible and could be destructive to sernior corporate careers. Even a delayed success could be damaging, given Wall Street's short-term focus.
While strategic due diligence sounds daunting, it need not be. If the derived demand, customer, competitive, environmental and microeconomic analyses are not standard procedure consider getting outside help. Make sure that you and your helpers focus on the actionable.
Remember: you are zeroing in on the three to five initiatives. Do not let your organization get lost in the clouds! And to the extent possible, run an ongoing culture check. Who is excited about this process and who is not?
Last, you might be interested to know that some of the PE firms look to "buy it again". They want to look at the business anew, with an eye toward a recast and improved value proposition. Leading companies should do the same.
Develop the Blueprint
Like the PE buyer, you have identified a short list of the highest potential initiatives in the company - the areas that deserve systematic investments and attention in the near and middle term, to ensure the highest possible return within three to five years.
Now the goal is to make that real. This is accomplished through the development of a blueprint.
The initiatives get actions, resources, timelines, milestones, metrics and deliverables attached to it.
-Korea first would need to shift its bank branch to serve retail customers.
-It would need to develop the back-office support and customer service capabilities that a competitive retail bank would need.
-Finally, the bank would need to create a different kind of sales force, one focused on customer service and retail sales.
Finally, the blueprint took into account the need to build the right organization with the right salespeople to support the full-potential plan.
Since then, Standard Chartered has replicated Korea First's model in other countries.
Some companies are highly skilled at the fundamentals of developing a blueprint, most are not. Plan on budgeting between two and six months for the blueprint process, on average, with an eye toward launching your first initiative within the first one hundred days. Some blueprints will take longer than others because they must take into account more complexity than others.
Doesn't the very act of investment by a PE firm or consortium in any given company create in that company a sense of urgency, anxiety, and expectation - an environment that, for better or worse, tends to foster change versus the status quo. The answer to that is yes but any company can create this environment.
Accelerate Performance
How PE Firms Accelerate Performance
The first priority is to mold the organization around the blueprint. The best PE firms don't want to manage your company they want management that is positioned for success.
The best PE firms foster senior management accountability. They do so in a number of ways, including insisting on executive sponsorship of individual initiatives. Each initiative gets an owner and accountability.
The rewards are linked to hitting blueprint targets not to some outside factor like earnings, etc. PE firms set up a program office which governs the blueprint and ensures that each initiatives delivers value on time. It is a a structure composed of a subset of cross-functional folks from across the organization - some senior, some junior.
The program office reports to senior management every couple of weeks to ensure that things are on track and to highlight any problems or key decisions that need to be made. The program office, along with senior management, plays a key role in making sure that the tough and often unpopular decisions get made and the people accept accountability.
Watching the Vital Few Metrics - What may not be so obvious is that not all PE firms track the same things. More activist buyers dig deeper. They track metrics that help them monitor progress toward operational goals before it shows up in the financial results.
PE firms focus on operational measures that look forward, point to root causes, and thereby spur action.
The primary financial measure Crown Castle focuses on is cash flow per share versus an absolute measure such as pure cash flow. This ensures the company is focusing its efforts on growth strategies that increase shareholder value and not growth for growth's sake. In addition to being Crown Castle's primary financial measure, it is also the measure the company reinforces with Wall Street analysts.
Managers in the best PE firms are careful to avoid imposing one set of measures across their entire portfolios, preferring to tailor measures to each business in the portfolio. "We use their metrics, not our metrics," explains James Coulter, founding partner of TPG.
They benchmarked the company's sales and marketing performance against the industry's best practices, and established a new incentive-heavy compensation scheme that delivered significant rewards to top performers.
Ask yourself again, what is needed to make the agreed-on blueprint real. Translate the specific actions of the blueprint into the responsibility of specific individuals. Who, exactly, is on the hook for this specific outcome?
Build HR functions around the blueprint, not the other way around.
A good program office can be invaluable in providing a consistent helping hand to senior managers while ensuring that the initiatives achieve full potential and remain on track (helps to gain cross functional commitment).
The simple screen to put all such bonuses through is whether the additional compensation is directly linked to an outcome that is within the individual's control. Too many corporations tie incentives to the bottom line, which isn't easily moved by an individual or working group within the organization. As a result they waste money intended to focus motivation (and dis-motivate people).
For those that are not being incentivized point out to them that the incentivized initiatives are crucial to the company's success and that the success of them is likely to lead to more initiatives and a broader base of involvement.
Harness the Talent
Harness talent. This means people up and down the chain of command, but particularly in frontline positions in the key initiative areas. It means linking rewards with performance.
It also means using the board of directors in a strategic way. By bringing the board members' talents to bear, those boards often play an absolutely critical role in the success of their companies.
PE players are absolutely unbending in their insistence on performance. It's not that they're cold-blooded. It's just that their three to five year time horizon doesn't allow for very many misfires.
PE players bite the bullet, they act quickly to replace senior managers who fail to deliver or who are judged inadequate to the challenge.
As a rule they conduct a broad search, looking well beyond the score of their personal contacts. They look for a strong skill set and track record. They seek managers who, however experienced, are hungry for success, are willing to put up their own financial upside at risk and relish the challenge of transforming a company.
They look for a generalist CEO who is a proven team builder, understands the importance of building value quickly, and has demonstrated the ability to hit ambitious targets. The individual generalist is surrounded by technical advisers who help him reach his targets.
The most important way that PE firms recruit senior talent is to give them an equity position in their company that grows when targets are hit over the life or the investment.
Rewards remain closed tied to performance on the benchmarks, and they often time have downside risks.
In many cases, it turns out that hitting these targets requires hard work, but not magic.
Once these incentives are put in place, the most ambitious people come into play.
PE firms also hang on to their talent from project to project, company to company. When the right opportunity comes along, they take advantage.
Very little of the CEO's time is spent "bringing board members around" most of it is spent drawing on their expertise.
Don't sell your existing people short, often times there are inside guys who are entrepreneurial and what the opportunity to help grow the business. CEOs who are in crisis mode - are inclined to think that the people who are already on the payroll are part of the problem rather then the solution. People already on the team have had a lot company investment into them and understand the business well, do not discount them.
"Economy of talent" - talent gravitates toward good risk/reward opportunities. Great opportunities in working for PE funds attract a disproportionate amount of the available talent.
Make sure the reward is in line with the risk you are asking them to take. It means you have to pay close to market value of the skills you require, don't be handcuffed by tradition-bound notions of pay grades and hierarchical systems, get market data on the alternatives that these individuals have.
You need to find people who are interested more in opportunities more then in guarantees.
Give you hires extraordinary responsibilities and superb support, to increase the odds that they'll win.
Consider recruiting bona fide experts in your business or industry - or in an area where you see trends develop that might impact your business.
Reward boldness and success.
Make Equity Sweat
Focus intenesely on the balance sheet and make sure you keep cash low enough to make it sweat. This is one of the biggest differences between PE and publicly traded companies.
PE firms find new ways to convert traditionally fixed assets into sources of financing. They eliminate unproductive capital by selling equipment or by closing facilities. And they divest underperforming businesses or divisions.
Punch Pubs packaged their real estate as a seperate investment security that could be sold to investors. They made the funding cheaper then an equity type funding and made a lot more money from financing.
Public companies are more conservative since they have no recourse to a parent fund and can't ask for more money.
Make capital deployed on a project base. Make people opt in for capital and ask you for it.
One practical way for CEOs to discipine their capital expenditures is to play an active role in the capital allocation process. Warren Buffett believes that capital allocation decisions are the most important ones he makes: "Charles T. Munger, Berkshire's vice chaimrn, and I really only have two jobs. One is to attract and keep outstanding managers to run our various operations. The other is capital allocation."
Some airline companies sell and lease back their airline fleets. Every dollar of equity is precious and I have to maximize the return on that dollar. By adding leverage to the balance sheet, you are - by definition - making equity scarcer and more valuable.
Foster a Results-Oriented Mind Set
The More certain the record, the less painful the process. Metrics and incentive drives culture.
The right culture is the right managers with a bias for action.
The best PE firms are learning organizations. They put forward their theory of full potential, blueprint it, test it, monitor it, figure out what's wrong, recalibrate, and move forward again.
Over time, these PE firms get better and better at what they do, on both a business and on an industry basis. They develop successful formulas that they can 1) repeat within the business 2) replicate outside the business.
Nike used its own replicatable blueprint in going from sport to sport and getting a leading position in the sport, launching a clothing line endorsed by top athlete in sport, and getting into apparel and accessories.
Looking for the right adjacencies, and jumping into them with a "new but related" blueprint, is a key component of the results-oriented mindset. The best PE firms do it all the time - but as the Nike experience demonstrates, so can you.
Of course top management team is ultimately responsibilty. The stronger the team the more likely accountability will drift upward. Unfortunately, too often initiatives exist in which no managers feels true ownership of results.
The general managers of your business have to feel that they are on the ook to deliver the results.
Great managers tell their employees: "I want you to spend 50 percent of your time doing what you are supposed to do, but spend 50 percent on telling me how you can create more value."
This is especially hard when times "feel good". People always respond better to unplanned change - that is, crises and disasters, than they do to planned change. (See: Sense of Urgency).
Your job is to explain why business as usual won't work anymore and why aspiring to create change is the best plan for all. In some cases this may be a formulization of many things already going on inside your organization. Explain how collectively you will create more jobs and opportunities.
The CEO and his management team called meetings whenever they needed to talk about issues - and kept them short, rather then reverting to the old schedule of daylong meetings every six weeks.
Resetting standards is simply a plea for keeping an edge on the blueprint and - as a result - on the results orientation of the company. Smart PE firms are constantly moving the goalposts in the direction of higher performance and better results.
They want to make sure they aren't missing any opportunities for better performance.
PE firms use future investors and current peers as way to keep the pressure on and make it competitive.
Conclusion
PE firms help companies innovate and renovate products : as mentioned, Nestle has largely renewed its product portfolio across all divisions.
The vision now? For Nestle to be recognized as more than just a leading food and beverage company, and instead to be acknowledged as the world's most respected nutrition, health, and wellness company (Reframed the entire company!)
Sunday, June 7, 2009
Lust vs. Love as defined by the "old" testament
Lust - feeling good from the result of being with a person.
Love - the mutual consideration of two people. Feeling good from the result of giving to another person.
Love - the mutual consideration of two people. Feeling good from the result of giving to another person.
Saturday, June 6, 2009
How to Reconcile Work Hard - Party Hard
Numerous long term studies on peak performers has revealed that the top peak performers systematically take 1-2 days off every week. This is relevant in sports, business, and other venues of peak performance.
Here's the problem. Personally, when I come back from a week of intense concentration/work I find to incredibly difficult to unplug myself. I find idle times of attempting to rest incredibly.. well anxiety provoking. I strive to challenge myself by some drivers/metrics, such as making up to do lists and going shopping etc.
Here's how we deal with this issue:
The real issue is actually not about resting, in the lazy sit-on-your-couch kind of way. (In my relevant, yet unresearched opinion) peak performers benefit from the diversion of focus from their business more then the actual method of resting. It is analogous to the benefit you get from taking 2-3 days before you reread your paper and edit it. You gain more perspective and you come in with a fresh mind.
Don't get me wrong, rest and rejuvenation are important pillars of the day off rejuvenation strategy. However, different people achieve this goal in different ways.
For example, people who are driven to do tasks during the workweek can satisfy the rest they need on the weekends by doing things such as jumping out of airplanes, rock climbing, etc.
You can also satisfy this by changing your physiology to be in a more relaxed form by doing yoga, running, jacuzzi-ing, etc.
Just be sure that you unplug yourself from your work. If need be, store a folder at your office with your email passwords (which you can change every weekend), so that you have to opt in to checking your email by driving to your office. As soon as your brain recognizes the effort needed to login, it will think twice and let you relax.
Take away: Rejuvenation and resting on the weekend doesn't have to be a passive activity. Design it as you will but make sure you take off at least one day each weekend to regroup and relax.
Here's the problem. Personally, when I come back from a week of intense concentration/work I find to incredibly difficult to unplug myself. I find idle times of attempting to rest incredibly.. well anxiety provoking. I strive to challenge myself by some drivers/metrics, such as making up to do lists and going shopping etc.
Here's how we deal with this issue:
The real issue is actually not about resting, in the lazy sit-on-your-couch kind of way. (In my relevant, yet unresearched opinion) peak performers benefit from the diversion of focus from their business more then the actual method of resting. It is analogous to the benefit you get from taking 2-3 days before you reread your paper and edit it. You gain more perspective and you come in with a fresh mind.
Don't get me wrong, rest and rejuvenation are important pillars of the day off rejuvenation strategy. However, different people achieve this goal in different ways.
For example, people who are driven to do tasks during the workweek can satisfy the rest they need on the weekends by doing things such as jumping out of airplanes, rock climbing, etc.
You can also satisfy this by changing your physiology to be in a more relaxed form by doing yoga, running, jacuzzi-ing, etc.
Just be sure that you unplug yourself from your work. If need be, store a folder at your office with your email passwords (which you can change every weekend), so that you have to opt in to checking your email by driving to your office. As soon as your brain recognizes the effort needed to login, it will think twice and let you relax.
Take away: Rejuvenation and resting on the weekend doesn't have to be a passive activity. Design it as you will but make sure you take off at least one day each weekend to regroup and relax.
Friday, June 5, 2009
Blending
Blending is the name I gave to a phenomenon I discovered in relation to creating positive/negative neuro associations.
What is a neuro association? Neuro associations are the mental associations we make with an activity. For example, if we enjoy eating ice cream we have a positive neuro association. If we hate going to work we have a negative neuro association.
We avoid as many negative neuro associations as possible and strive towards activities/things we have a positive neuro association with.
The way we change our activities and increase our motivation is by creating positive neuro associations out of negative ones.
Here is an example:
We may hate going to work even though it is important. If we want to create a positive neuro association we might want to do something like put in a snapple machine into our office or listen to music every morning when we get into our office.
Now here's the interesting phenomenon.
You would think that doing this would result in the following: intense positive feelings when the new stimulus (drinking snapple, music is playing) is introduced followed by the previously negative associations of the rest of the work day.
But in fact, our brains blends the two activities and make the entire activity of "going to work" more enjoyable. It helps take away the edge of going to work or it even makes the ENTIRE "going to work" activity more enjoyable. Rather then simply associate drinking snapple with enjoyment you start associating "going to work" with enjoyment. Pretty powerful stuff.
What is a neuro association? Neuro associations are the mental associations we make with an activity. For example, if we enjoy eating ice cream we have a positive neuro association. If we hate going to work we have a negative neuro association.
We avoid as many negative neuro associations as possible and strive towards activities/things we have a positive neuro association with.
The way we change our activities and increase our motivation is by creating positive neuro associations out of negative ones.
Here is an example:
We may hate going to work even though it is important. If we want to create a positive neuro association we might want to do something like put in a snapple machine into our office or listen to music every morning when we get into our office.
Now here's the interesting phenomenon.
You would think that doing this would result in the following: intense positive feelings when the new stimulus (drinking snapple, music is playing) is introduced followed by the previously negative associations of the rest of the work day.
But in fact, our brains blends the two activities and make the entire activity of "going to work" more enjoyable. It helps take away the edge of going to work or it even makes the ENTIRE "going to work" activity more enjoyable. Rather then simply associate drinking snapple with enjoyment you start associating "going to work" with enjoyment. Pretty powerful stuff.
On motivation: Overexaggeration and Unrealistic Expectations
Can it be that our dreams about our business are the very things that bound us to mediocrity?
Wouldn't it be ironic if it so happened that our very idealizations about our business: thinking about how happy, great, and carefree running a business can be is the very thing that stinted our success and almost guaranteed failure?
Well that is exactly the case.
How? Why?
Here is what happens. When you are starting out a business you tend to idealize everything about how great it is. You think about all the benefits and great things that will happen from starting the business. The freedom, the money, the fulfillment.
At this point, these idealizations benefit us. That is, until we hit our first problem, or as I like to say, until we hit feedback from the market that we need to address.
Now the very same idealizations demotivate us and can cause complete failure of the business, if we do not learn and understand them.
Why?
What happens is that two powerful forces hit each other. Our ideals hit reality. The first powerful force is our idealization about our business: the picture of us sipping a Corona on the beach making millions of dollars hits the painful reality that we must work hard in order to achieve success.
What happens when two powerful forces hit each other is that usually one of these forces wins. For most people, the first idea wins, they continue to idealize about the perfect business that is out there that will bring millions of dollars and require no effort. Why? Because that dream is just too hard to give up. That dream is a mental asset that most people can not afford to lose.
If we are to achieve a high degree of success, we must have the latter force win: the reality that we must work hard in order to achieve success. This very belief and the complete acceptance of this reality is a necessary prerequisite for success.
In order for our great dreams to live we must first have our small dreams die. The death of this idealization, as seductive as it seems, is the first step of business maturation, and the most important one we will ever take.
Note: To make this transition easier make sure you have a balanced life. It is the same with relationships with women, if you do not have a passion outside of your relationships you will be easily seducted into infatuation and lust (two negative forces that will ultimately lead your dreams to fall from the sky). Face it, your business is only ONE aspect of your life, have passion in other aspects and you won't worry about having a perfect business experience, you will be greatful about having a great or good experience just as well.
Wouldn't it be ironic if it so happened that our very idealizations about our business: thinking about how happy, great, and carefree running a business can be is the very thing that stinted our success and almost guaranteed failure?
Well that is exactly the case.
How? Why?
Here is what happens. When you are starting out a business you tend to idealize everything about how great it is. You think about all the benefits and great things that will happen from starting the business. The freedom, the money, the fulfillment.
At this point, these idealizations benefit us. That is, until we hit our first problem, or as I like to say, until we hit feedback from the market that we need to address.
Now the very same idealizations demotivate us and can cause complete failure of the business, if we do not learn and understand them.
Why?
What happens is that two powerful forces hit each other. Our ideals hit reality. The first powerful force is our idealization about our business: the picture of us sipping a Corona on the beach making millions of dollars hits the painful reality that we must work hard in order to achieve success.
What happens when two powerful forces hit each other is that usually one of these forces wins. For most people, the first idea wins, they continue to idealize about the perfect business that is out there that will bring millions of dollars and require no effort. Why? Because that dream is just too hard to give up. That dream is a mental asset that most people can not afford to lose.
If we are to achieve a high degree of success, we must have the latter force win: the reality that we must work hard in order to achieve success. This very belief and the complete acceptance of this reality is a necessary prerequisite for success.
In order for our great dreams to live we must first have our small dreams die. The death of this idealization, as seductive as it seems, is the first step of business maturation, and the most important one we will ever take.
Note: To make this transition easier make sure you have a balanced life. It is the same with relationships with women, if you do not have a passion outside of your relationships you will be easily seducted into infatuation and lust (two negative forces that will ultimately lead your dreams to fall from the sky). Face it, your business is only ONE aspect of your life, have passion in other aspects and you won't worry about having a perfect business experience, you will be greatful about having a great or good experience just as well.
Motivation & Commitment: The Physical Form
Physical environment affects our motivation.
What do I mean?
What I mean is that the physical proximity of individuals is correlated to the level of motivation and commitment we experience.
Let me give you an example. Yesterday, we discussed the concept of commitment and how it affects motivation. I gave the example of how having someone work out with you increases your motivation level.
Now imagine what would happen if you had a virtual partner. That is, you either watched each other on video working out and/or you called each other over the phone to keep each other accountable before the workout.
Would you experience the same level of commitment and motivation? The answer is no.
Why not?
The harder it is to "get out" of something the more motivated you become. If you simply need to not call someone to get out of something it is less motivating then having to physically ditch someone. Why?
Well, the answer has to do with another concept that I discussed yesterday: burning energy. In the beginning of a business we burn a lot of energy constantly answering the question, "Should I stay in the business or not?" The barriers to getting out of the business are light since you haven't yet created a significant asset.
As your business grows your barriers go up and you no longer struggle with this question. What happens is that the energy you have been burning trying to answer this question can be plugged into a much more resourceful type of activity: increasing revenues and growing your core business.
That is why being physically bound to an office and to other employees expecting you to come in the morning can be so liberating. It is a paradox: that which bounds you to others also liberates you from struggle. That is what commitment is and this is how you leverage it for your benefit.
What do I mean?
What I mean is that the physical proximity of individuals is correlated to the level of motivation and commitment we experience.
Let me give you an example. Yesterday, we discussed the concept of commitment and how it affects motivation. I gave the example of how having someone work out with you increases your motivation level.
Now imagine what would happen if you had a virtual partner. That is, you either watched each other on video working out and/or you called each other over the phone to keep each other accountable before the workout.
Would you experience the same level of commitment and motivation? The answer is no.
Why not?
The harder it is to "get out" of something the more motivated you become. If you simply need to not call someone to get out of something it is less motivating then having to physically ditch someone. Why?
Well, the answer has to do with another concept that I discussed yesterday: burning energy. In the beginning of a business we burn a lot of energy constantly answering the question, "Should I stay in the business or not?" The barriers to getting out of the business are light since you haven't yet created a significant asset.
As your business grows your barriers go up and you no longer struggle with this question. What happens is that the energy you have been burning trying to answer this question can be plugged into a much more resourceful type of activity: increasing revenues and growing your core business.
That is why being physically bound to an office and to other employees expecting you to come in the morning can be so liberating. It is a paradox: that which bounds you to others also liberates you from struggle. That is what commitment is and this is how you leverage it for your benefit.
Thursday, June 4, 2009
A Story of Commitment
Commitment is entrepreneurial. Well let me rephrase that... Commitment CAN BE entrepreneurial.
What do I mean by this? I mean that commitment can be a 1+1=3 equation, that is, together, two or more people can possess more commitment then the sum of each individual.
Think teams, think armies, think religious organization, think non profits.
That is the power of commitment, it inspires people to achieve more then they could by themselves.
How much easier is it to work out with a partner then it is to do it yourself? For me, it is significantly easier. In fact, the harder the other guy is pushing the more I push myself.
Of course, commitment can destroy. More specifically, discommitment or a lack of commitment destroys, even if it comes from just one individual. Ever work with someone in a group that was dragging down EVERYONE? One bad apple can certainly ruin everything.
Commitment is a powerful force, however most people do not use it a conscious tool. Rather, they let a lack of commitment by others drag them down and a strength of commitment by some lift them up.. without understanding why they feel this way.
For us to maximize the benefit and minimize the cost of commitment, and a lack of commitment, we must become conscious of the power that it holds over us.
What do I mean by this? I mean that commitment can be a 1+1=3 equation, that is, together, two or more people can possess more commitment then the sum of each individual.
Think teams, think armies, think religious organization, think non profits.
That is the power of commitment, it inspires people to achieve more then they could by themselves.
How much easier is it to work out with a partner then it is to do it yourself? For me, it is significantly easier. In fact, the harder the other guy is pushing the more I push myself.
Of course, commitment can destroy. More specifically, discommitment or a lack of commitment destroys, even if it comes from just one individual. Ever work with someone in a group that was dragging down EVERYONE? One bad apple can certainly ruin everything.
Commitment is a powerful force, however most people do not use it a conscious tool. Rather, they let a lack of commitment by others drag them down and a strength of commitment by some lift them up.. without understanding why they feel this way.
For us to maximize the benefit and minimize the cost of commitment, and a lack of commitment, we must become conscious of the power that it holds over us.
Compounding Knowledge
An interesting phenomenon I recently noticed:
Education has a compounding effect. When you learn something new you don't JUST learn that one concept. What happens if you gain a better understanding of a previous concept as well.
The education builds on itself and gives you better understanding of previous concepts.. it compounds.
Education has a compounding effect. When you learn something new you don't JUST learn that one concept. What happens if you gain a better understanding of a previous concept as well.
The education builds on itself and gives you better understanding of previous concepts.. it compounds.
Fleeting Motivation: a new motivation paradigm
You know the last time you got a "great idea?" It felt good right? You felt a real natural high.. endorphins were spreading through your entire body. You went around and told everyone about it.
For a day you felt like it was the greatest idea. Perhaps this feeling lasted for 2, 3 or 4 days... and then something happened... What happened you didn't quite know, but suddenly you lost your motivation.. just like that. As quickly as you got pumped you lost your motivation! WHAT the hell happened?
What happened is a common phenomenon which we will call fleeting motivation. Almost everyone has experienced it at one point in their life. That's the bad news. The good news is that there is a solution to it, and if you understand the solution then you can ensure that you will never feel "very good" about an idea only to see the motivation go away the next day.
So what is it?
Well before I tell you, please paypal me $10,000 to.. just kidding. But in reality, if you could get an answer to this question wouldn't it be worth $10,000? Wouldn't it be worth $20,000 or $100,000?? I would argue that it would be worth much more.
This question is quite complex and touches on several aspects of human pyschology. I can not give you one magic pill to solve it, but I can give you three magic pills.
Issue #1: Design AND Execution
Most people go around thinking they are either "motivated" people or "lazy" people. The truth is that no one is either. People are just motivated by DIFFERENT things. The people that won't move a finger to help a customer will spend 40 hours a week intensely concentrated on killing people on a computer screen (a skill that takes significant time investment).
The first paradigm that we must comprehend is to realize that motivation is more of a DESIGN problem then it is an EXECUTION problem. What do I mean? Most people go around thinking "Why can't I gain motivation to complete this task?" While this is relevant, the more relevant question is how do we design the task to be intrinsically more motivating?
For example, you might not be motivated to run 5 miles, but what if I said that you could save your father's life if you ran the 5 miles? Wouldn't you be more motivated? You bet you would.
This is of course an extreme example, but there is a logical and easy to follow methodology that will help to significantly increase your motivation in achieving your goals.
Here's one hint: money is RARELY enough to motivate someone to follow through. Why? Well, if money is your only motivation to follow through with a task then how quickly will you switch to another task when that task gets hard?
What's an alternative? What's more motivating then JUST money? How about helping people, how about gaining significance or fame?
The takeaway: Don't just focus on "executing" the idea, also focus on "designing" the idea to be more.. executable.
Issue #2:
The power of momentum.
Momentum is quite possibly the most important driver of business success. What creates momentum? One word: SALES... and here's why.
Having sales puts up a significant barrier to getting out of a business. The moment you make your first sale you create an asset. This asset is similar to having an asset such as a car, house, etc. It has real value.
What happens if you decide to quit your business? The same thing that happens if you decide to quit your car.. you lose it. You lose an asset.
Do you enjoy losing a car? In the same way, we are naturally disinclined to "lose" a business.
This means that the moment you have momentum you put up a mental wall that makes it harder to quit the business.
Trust me, there are days when I want to quit my business, every entrepreneur goes through this at some point. What keeps me from quitting? Other then knowing that this is just a temporary phase (or a bad day) the one thing that ENSURES that I do not quit is the fact that my business is an asset that brings me money.. by nature it is hard for me to part with it.
In fact, all humans are naturally loss averse. For us humans it is an evolutionary defense.
Let me ask you a simple question: which event make you more emotional, making $100 or losing $100? For most, losing $100 brings more pain then making $100 brings in pleasure. One of my favorite authors, Tim Ferriss, once commented that for him it is a 7-1 ratio, the intensity of emotion is the same when multiplied by 7.
This means that making $700 brings as much pleasure as losing $100 brings pain.
We can use this understanding of momentum to "lock ourselves" into good opportunities as well as make sure we don't get locked into bad opportunities. Again, it requires more foresight and conscious consideration regarding what opportunities we want to lock ourselves into.
What also starts to happen is that by starting and beginning to make a profit you save yourself from wasting energy on fighting the intertia of constantly asking the question, "should I quit or should I keep going?" Instead you can channel that energy into increasing sales and making a better profit.
Takeaway: Use momentum wisely. Avoid momentum in situations you do not want in the long term and use momentum to lock yourself into situations that will be good in the long term.
Issue #3: Dismomentum.
What is dismomentum? Well, it's a word that I made up.. so guess what.. I get to define it.
Dismomentum is the opposite of momentum. The way momentum/inspiration brings us to think of all the possibilities of our idea, dismomentum makes us think of all the boundaries to our idea.
What naturally happens is that the first 24 hours of a great idea we think of opportunities. Then, what happens is that you start to think about all the hurdles. You go from being the biggest optimist to being the biggest pessimist.
Let me give you an example.
Let us examine dismomentum in the online information space. You can gain a lot of dismomentum by thinking about everything you "need" to do: pay per click advertising, partnerships, affiliate marketing, etc.
Here is how to overcome this natural inclination to dismomentum:
Understand the concept of momentum. Know that as your business gets bigger you will simultaneously require LESS motivation yet have MORE motivation?
What do I mean? Why will you gain more motivation as your business grows? Other then the fact that you lock yourself in, you also start to prove to your brain the obvious benefits of your business.
Once your brain sees that you are getting paid for taking action it is much more "motivated" to do more action. The brain is a value maximizing machine, the more it sees that what you are doing is working the more naturally motivated you will become.
Let me give you an example, let's compare the following statement: "If you run to the grocery store I will give you $500." Now think about your motivation to go to the grocery store if your most trusted friend would say this to you vs. the person you trust the least. Suddenly, you have levels of "motivating" to act... Interesting.
Back to the topic at hand.. dismomentum.
Dismomentum paints an UNREALISTIC picture of how things work. The idea that you will have to do 100's of little things to get ONE payoff is simply not true.
Here is how it happens:
You start out with a little pay per click advertising. Great, it starts to make you a little money. Maybe you make $100 a day in passive income. You are inspired and more motivated. What happens next is you use this new found motivation to start doing some affiliate marketing, now you are making $500 a day, even better...your motivation starts to increase. Isn't that just what momentum is?
Here's the great part: as soon as you get big enough you are able to leverage the talent of other people and get them to spend their time (and sometimes money) to help you. That's right, you start to bank on the talent of other people.. we call them experts. Everything becomes easier.
This is how business grows. In fact, this is how every enterprise in the history of the world has grown.
Takeaway: DO not buy in to the concept of dismomentum. It is as unrealistic as the idea that you won't run into any problems as you grow your business. DO we have problems? Yes, but it's OK because you are compensated along the way.. Remember, wouldn't you run to the grocery store for $500? Isn't going to the grocery store technically a task? Yes, but we do it because we are rewarded. That is how we are motivated.
For a day you felt like it was the greatest idea. Perhaps this feeling lasted for 2, 3 or 4 days... and then something happened... What happened you didn't quite know, but suddenly you lost your motivation.. just like that. As quickly as you got pumped you lost your motivation! WHAT the hell happened?
What happened is a common phenomenon which we will call fleeting motivation. Almost everyone has experienced it at one point in their life. That's the bad news. The good news is that there is a solution to it, and if you understand the solution then you can ensure that you will never feel "very good" about an idea only to see the motivation go away the next day.
So what is it?
Well before I tell you, please paypal me $10,000 to.. just kidding. But in reality, if you could get an answer to this question wouldn't it be worth $10,000? Wouldn't it be worth $20,000 or $100,000?? I would argue that it would be worth much more.
This question is quite complex and touches on several aspects of human pyschology. I can not give you one magic pill to solve it, but I can give you three magic pills.
Issue #1: Design AND Execution
Most people go around thinking they are either "motivated" people or "lazy" people. The truth is that no one is either. People are just motivated by DIFFERENT things. The people that won't move a finger to help a customer will spend 40 hours a week intensely concentrated on killing people on a computer screen (a skill that takes significant time investment).
The first paradigm that we must comprehend is to realize that motivation is more of a DESIGN problem then it is an EXECUTION problem. What do I mean? Most people go around thinking "Why can't I gain motivation to complete this task?" While this is relevant, the more relevant question is how do we design the task to be intrinsically more motivating?
For example, you might not be motivated to run 5 miles, but what if I said that you could save your father's life if you ran the 5 miles? Wouldn't you be more motivated? You bet you would.
This is of course an extreme example, but there is a logical and easy to follow methodology that will help to significantly increase your motivation in achieving your goals.
Here's one hint: money is RARELY enough to motivate someone to follow through. Why? Well, if money is your only motivation to follow through with a task then how quickly will you switch to another task when that task gets hard?
What's an alternative? What's more motivating then JUST money? How about helping people, how about gaining significance or fame?
The takeaway: Don't just focus on "executing" the idea, also focus on "designing" the idea to be more.. executable.
Issue #2:
The power of momentum.
Momentum is quite possibly the most important driver of business success. What creates momentum? One word: SALES... and here's why.
Having sales puts up a significant barrier to getting out of a business. The moment you make your first sale you create an asset. This asset is similar to having an asset such as a car, house, etc. It has real value.
What happens if you decide to quit your business? The same thing that happens if you decide to quit your car.. you lose it. You lose an asset.
Do you enjoy losing a car? In the same way, we are naturally disinclined to "lose" a business.
This means that the moment you have momentum you put up a mental wall that makes it harder to quit the business.
Trust me, there are days when I want to quit my business, every entrepreneur goes through this at some point. What keeps me from quitting? Other then knowing that this is just a temporary phase (or a bad day) the one thing that ENSURES that I do not quit is the fact that my business is an asset that brings me money.. by nature it is hard for me to part with it.
In fact, all humans are naturally loss averse. For us humans it is an evolutionary defense.
Let me ask you a simple question: which event make you more emotional, making $100 or losing $100? For most, losing $100 brings more pain then making $100 brings in pleasure. One of my favorite authors, Tim Ferriss, once commented that for him it is a 7-1 ratio, the intensity of emotion is the same when multiplied by 7.
This means that making $700 brings as much pleasure as losing $100 brings pain.
We can use this understanding of momentum to "lock ourselves" into good opportunities as well as make sure we don't get locked into bad opportunities. Again, it requires more foresight and conscious consideration regarding what opportunities we want to lock ourselves into.
What also starts to happen is that by starting and beginning to make a profit you save yourself from wasting energy on fighting the intertia of constantly asking the question, "should I quit or should I keep going?" Instead you can channel that energy into increasing sales and making a better profit.
Takeaway: Use momentum wisely. Avoid momentum in situations you do not want in the long term and use momentum to lock yourself into situations that will be good in the long term.
Issue #3: Dismomentum.
What is dismomentum? Well, it's a word that I made up.. so guess what.. I get to define it.
Dismomentum is the opposite of momentum. The way momentum/inspiration brings us to think of all the possibilities of our idea, dismomentum makes us think of all the boundaries to our idea.
What naturally happens is that the first 24 hours of a great idea we think of opportunities. Then, what happens is that you start to think about all the hurdles. You go from being the biggest optimist to being the biggest pessimist.
Let me give you an example.
Let us examine dismomentum in the online information space. You can gain a lot of dismomentum by thinking about everything you "need" to do: pay per click advertising, partnerships, affiliate marketing, etc.
Here is how to overcome this natural inclination to dismomentum:
Understand the concept of momentum. Know that as your business gets bigger you will simultaneously require LESS motivation yet have MORE motivation?
What do I mean? Why will you gain more motivation as your business grows? Other then the fact that you lock yourself in, you also start to prove to your brain the obvious benefits of your business.
Once your brain sees that you are getting paid for taking action it is much more "motivated" to do more action. The brain is a value maximizing machine, the more it sees that what you are doing is working the more naturally motivated you will become.
Let me give you an example, let's compare the following statement: "If you run to the grocery store I will give you $500." Now think about your motivation to go to the grocery store if your most trusted friend would say this to you vs. the person you trust the least. Suddenly, you have levels of "motivating" to act... Interesting.
Back to the topic at hand.. dismomentum.
Dismomentum paints an UNREALISTIC picture of how things work. The idea that you will have to do 100's of little things to get ONE payoff is simply not true.
Here is how it happens:
You start out with a little pay per click advertising. Great, it starts to make you a little money. Maybe you make $100 a day in passive income. You are inspired and more motivated. What happens next is you use this new found motivation to start doing some affiliate marketing, now you are making $500 a day, even better...your motivation starts to increase. Isn't that just what momentum is?
Here's the great part: as soon as you get big enough you are able to leverage the talent of other people and get them to spend their time (and sometimes money) to help you. That's right, you start to bank on the talent of other people.. we call them experts. Everything becomes easier.
This is how business grows. In fact, this is how every enterprise in the history of the world has grown.
Takeaway: DO not buy in to the concept of dismomentum. It is as unrealistic as the idea that you won't run into any problems as you grow your business. DO we have problems? Yes, but it's OK because you are compensated along the way.. Remember, wouldn't you run to the grocery store for $500? Isn't going to the grocery store technically a task? Yes, but we do it because we are rewarded. That is how we are motivated.
Video from one of the most brilliant Internet Marketers of our Generation
http://gurumastermindvideoblog.com/2008/05/behind-the-scenes-of-a-20-mill.php#comments.
This guy makes $20MM/year off of internet businesses. My best friend knows his lawyer in Cali and confirms this. Watch this video, Eben is brilliant!
This guy makes $20MM/year off of internet businesses. My best friend knows his lawyer in Cali and confirms this. Watch this video, Eben is brilliant!
"Skin" In the Game
What does private equity do that public companies do not do to incentivize management? Make them have skin in the game.
That means that the top managers that get taken over are expected/required to invest into the company and have downward risk. This has proven, through research provided by Private Equity Edge (a great book), to be more effective then just giving manager's upside?
Why? I think for two reasons: 1) It keeps people from gambling with house money and gambling with the "house" money 2) It goes back to Tony Robbins' concept that everyone is motivated by a desire for gain or an aversion to loss, both are effective. We put in effort into situations where there is a lot to gain AND there is a lot to lose. Also, research has shown that our desire to avoid loss is much greater then our desire to gain (Tim Ferriss of 4 hour work week says his person is 7-1).
Bottom line: if you want people to be optimally motivated make sure they have something to gain AND something to lose.
That means that the top managers that get taken over are expected/required to invest into the company and have downward risk. This has proven, through research provided by Private Equity Edge (a great book), to be more effective then just giving manager's upside?
Why? I think for two reasons: 1) It keeps people from gambling with house money and gambling with the "house" money 2) It goes back to Tony Robbins' concept that everyone is motivated by a desire for gain or an aversion to loss, both are effective. We put in effort into situations where there is a lot to gain AND there is a lot to lose. Also, research has shown that our desire to avoid loss is much greater then our desire to gain (Tim Ferriss of 4 hour work week says his person is 7-1).
Bottom line: if you want people to be optimally motivated make sure they have something to gain AND something to lose.
Wednesday, June 3, 2009
Zero Based Thinking - how to improve your decision making
Many decisions can be improved if we asked ourselves the following question: "If I had it to do all over again, would I take the same action?"
"Would I: hire the same employee, date the same girl, be in the same business."
Before we truly understand zero based thinking we must understand its antithesis. What is the opposite of zero based thinking? Well, there is no current word that describes it so let's call is anti-zero based thinking.
More importantly, let's examine why people apply anti-zero based thinking and in what forms it is manifested. Here are some forms:
1) Fear of looking stupid and an attempt to salvage a situation. Most people, after a failed business choose to go into a new related project that brings them a little money rather then close the company and move on. This helps them "save face".
2) Once you are in a certain industry or project it is very hard to keep your head above water and see other opportunities, you become too close to even realize that you are using anti zero-based thinking.
3) Lack of understanding of sunk cost.
We can truly become significantly better decision making by applying zero based thinking.
"Would I: hire the same employee, date the same girl, be in the same business."
Before we truly understand zero based thinking we must understand its antithesis. What is the opposite of zero based thinking? Well, there is no current word that describes it so let's call is anti-zero based thinking.
More importantly, let's examine why people apply anti-zero based thinking and in what forms it is manifested. Here are some forms:
1) Fear of looking stupid and an attempt to salvage a situation. Most people, after a failed business choose to go into a new related project that brings them a little money rather then close the company and move on. This helps them "save face".
2) Once you are in a certain industry or project it is very hard to keep your head above water and see other opportunities, you become too close to even realize that you are using anti zero-based thinking.
3) Lack of understanding of sunk cost.
We can truly become significantly better decision making by applying zero based thinking.
Monday, June 1, 2009
Careful who you talk to..
I am often reminded of timeless rules.
Today, I was reminded that many people are entrepreneur-crushers. They crush entrepreneurial ideas.
These people are not bad or good, it is simply in their nature to be cynical and to crush entrepreneurial ideas. Often times, these are the most intelligent people.. rarely are they the richest.
Tony Robbins calls these people mis-matchers (approximately 30% of the population).
Mismatchers have their use, and they can prove to be incredibly valuable. It is wisest to use mismatchers after much initial work has been done and your plan is on solid footing. This is the time to bring in mismatchers and have them poke holes in your plan, but not before.
Mismatchers get way too caught up in the details early on. Mismatchers fail to understand that no business starts out perfect and that entrepreneurial success is an iterative process. In fact, most entrepreneurs start out with a lot of naivety, and many (such as myself) would not have started their businesses had they known all the problems they would have encountered (however, the problems are much more easily surmountable when taken in bite sized chunks over time).
Use your mismatchers wisely or they will sap your energy and ambition.
Today, I was reminded that many people are entrepreneur-crushers. They crush entrepreneurial ideas.
These people are not bad or good, it is simply in their nature to be cynical and to crush entrepreneurial ideas. Often times, these are the most intelligent people.. rarely are they the richest.
Tony Robbins calls these people mis-matchers (approximately 30% of the population).
Mismatchers have their use, and they can prove to be incredibly valuable. It is wisest to use mismatchers after much initial work has been done and your plan is on solid footing. This is the time to bring in mismatchers and have them poke holes in your plan, but not before.
Mismatchers get way too caught up in the details early on. Mismatchers fail to understand that no business starts out perfect and that entrepreneurial success is an iterative process. In fact, most entrepreneurs start out with a lot of naivety, and many (such as myself) would not have started their businesses had they known all the problems they would have encountered (however, the problems are much more easily surmountable when taken in bite sized chunks over time).
Use your mismatchers wisely or they will sap your energy and ambition.
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