1) When You Think Big, the Problems Are Bigger

Here are my observations of being in deep problems in business and dealing with a mountain of debt:

Fear is not a good motivator; it leads you into panic and that makes for bad decision making. Anger and resentment are also emotions which are never far away – and both will alienate all parties if you put them on display. So you need to try to work towards a much more positive mindset – one of hope and optimism – as quickly as possible.

Even if you are not particularly religious, it helps to call on a ‘higher power’ to send you the strength to get through your crisis, plus the solutions you need. You need to have absolute faith for this process to work (which actually feels like a deep sense of calm), and almost immediately you will find that new people, opportunities and invitations will start appearing out of the blue. When this happens, keep an open mind and explore everything that comes your way, even though you can’t immediately see the logic in doing so at the time.

Stay positive and see your situation not as a problem but as a challenge which has been sent to strengthen you, and from which you will learn valuable lessons.

Remember, you are on a life journey, and change is often sent to move you to the next phase of your life, even if it feels uncomfortable at the time. So, even if it all goes pear shaped, bear in mind this could just be life paving the way for something even bigger and better that it has in store for you. Take strength from this extract from Max Ehrmann’s famous poem, ‘Desiderata’:

You are a child of the universe, no less than the trees and the stars; you have a right to be here.

And whether or not it is clear to you, no doubt the universe is unfolding as it should. Therefore be at peace with God, whatever you conceive Him to be, and whatever your labours and aspirations, in the noisy confusion of life keep peace with your soul.

With all its sham, drudgery, and broken dreams, it is still a beautiful world.

Be cheerful.

Strive to be happy.

2) Rejection and Rip-Offs

I am often asked whether entrepreneurs are born or bred, and my answer is always that, in my view, there are just three key qualities that all successful entrepreneurs possess which make them stand apart from the crowd. Sometimes you are just born with these qualities, but more usually they are built in via a tough childhood. The qualities are:

SELF-BELIEF, DETERMINATION and DRIVE. If you possess these qualities you absolutely do not need anything else to be successful in business – no capital, no contacts, no experience – and indeed no real talent! All those things can easily be found if you have enough self-belief, determination and drive, because being an entrepreneur is just like being a magician: it is the ability to turn ideas into action, and then assemble all the resources you need to make your business idea a reality. And there is no better story to illustrate the truth of this than that of James Dyson, whose entrepreneurial journey is eloquently explained by the ghostwriter Giles Coren in James’s autobiography Against The Odds.  A journey so beset with issues and struggles and adversity it makes incredible reading!

Remember, the darkest hour is often just before the dawn.

Here are a few observations about persistence in the face of rejection:

• Read any successful person’s life story and you will soon realise that every single one of them – whether entrepreneurs or entertainers – endured many years of relentless rejection and humiliation before they finally found success. Think of it as the apprenticeship you need to serve if you want to succeed in business.
• Persistence is not just about relentlessly plugging away at something in the same way day after day, year after year. You need to trial every single way and approach that you can think of to find your breakthrough.
• If you are struggling with a go-no-where business it could make sense to focus on something else. But if the business you are currently struggling with is truly ‘The One’, then you will know deep in your heart that it is right to keep fighting on.
• Overnight success is extremely rare – success usually builds over time.
• Once you reach a tipping point, that is, when the offers, opportunities and cash really start to pour in, this is the glorious point at which you achieve ‘momentum’ in business – and everything can start to flow very fast and furiously. Momentum is very difficult to achieve – and is worth a huge amount of money precisely for that reason.

3) Knowing everything I know now, here’s what I would advise you to do if you want to sell your business:

• There are a few exceptions to this rule, but generally speaking your business is most likely to be bought if it is growing and profitable. So, whatever happens and right up to the point of doing the deal, growth and profitability should be your first focus.
• If you are contemplating selling your business, make sure that every aspect of it is rock solid, including its systems, strategy, IP, contracts, accounting policy and people. No area will be overlooked in the due diligence process, and if you aren’t proved squeaky clean you can be sure it will be used against you.
• Avoid any form of buyout clause. They are easily manipulated by your new parent company and could even act as a disincentive for your new parent to give you the support you thought you were doing the deal for in the first place.
• Yes, the best time to sell a business is at the height of its value – but how do you know when that time has come? A better yardstick is to sell your business the moment you have lost your passion for it. Selling out will give you the freedom plus the capital you need to do your next business venture.
• Get the best advice money can buy, including advisors to help you negotiate the deal. You’ll maximise the price that way, and sometimes creating distance from the negotiating table can be a powerful thing.
• Don’t be too eager or show too much enthusiasm. In the same way that a man will come on to a woman much harder if she holds back a little in the dating process, sometimes ‘going quiet on a deal’ for a few days or even weeks can make the other party even more hungry to complete. Sometimes there is nothing more effective than ‘radio silence’.
• The more options you have (including the option not to sell), the more powerful your hand.
• Try not to value your business based on what you think it is worth. Value it on what it could be worth to the acquiring party – frequently this is a much larger sum than the one in your own mind. Don’t sell yourself short.
• Remember, the deal is not done until the ink is on the paper. Until that moment, you cannot assume anything, whatever positive noises are being made or whatever assurances you may be given. To protect yourself in case the deal does go through, do not take your eye off the business ball, and always keep at least three options open.
• In paper-for-paper deals you will always be at the mercy of forces you cannot control, and your lock-in period will often prevent you from disposing of the shares for two years. Therefore always take cash, no matter how tempting the share-for-share option might seem.

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Do You Have Business Management Skills?
To help you identify where you may need to develop your managerial skills,
complete MANAGEMENT SKILLS CHECKLIST below and see how you score. Do you have what it takes? You need to answer yes to these twelve important questions.
If you didn’t answer yes to all the questions, you now have a guide as to where to focus your management training efforts. Some of these skills will take time to learn while others increase with experience.

MANAGEMENT SKILLS CHECKLIST
Using the following questions, determine whether you have the management skills necessary to run your own business.

1. Could I cope with constant pressures and deadlines?
2. Could I handle stressful situations without “losing my cool”?
3. Could I fire an incompetent employee?
4. Could I maintain strict credit control?
5. Could I refuse credit to a good but slow-paying client?
6. Could I adapt to constant change?
7. Could I maintain control of my daily, weekly, and monthly finances?
8. Do I understand how my business is taxed?
9. Do I know what a break-even point is?
10. Could I delegate responsibilities to others?
11. Am I willing to increase my skills in the areas that are lacking?
12. Will I use a business plan and regularly revisit it?

Why Do Businesses Fail?
No one likes to think of failure, yet business failure statistics are high. If you know why businesses fail, you can avoid making these mistakes. There are seven main reasons why the majority of businesses fail:

1. No planning and poor management
2. Lack of cash flow and capital
3. Wrong location
4. Inadequate marketing plan
5. Competition not researched
6. Wrong choice of business
7. Business grows too quickly

WHAT IS GOOD BUSINESS MANAGEMENT?

1. Providing the right service or product at the right time, in the right location, at the right price
2. Knowing that profit margins can support overhead, pay salaries, and meet personal commitments
3. Ensuring that the business provides a steady year-round income and that you have a plan B for quieter months
4. Astute inventory management to ensure a regular turnaround
5. Keeping accounting records up-to-date and closely monitoring financial figures
6. Regularly reviewing marketing strategies for their effectiveness
7. Changing with consumer trends, technology, and the changing economy
8. Making time daily for follow-up, marketing, and paperwork
9. Monitoring accounts receivable and keeping in touch with slow-paying clients
10. Understanding all aspects of your business and the industry
11. Providing a better service than your competitors
12. Becoming known as the expert in your field
13. Being an active member in your community
14. Diversifying—not putting all your eggs in one basket
15. Continual networking and follow-up
16. Planning for growth and having an exit strategy

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From my observations and experience as an owner-manager and in training and advising other owner-managers over the past few years, I have observed a three-phase pattern of small business development. This is by no means a universal model but it does help to understand the development process. In some cases, new firms fold or their owners withdraw or give up before even reaching the end of the first phase, and in others the business is only started when an established and growing market is already in place – effectively skipping straight to the third phase. Some others with less ambitious objectives simply decide to stop at the second phase. However, I would estimate that the vast majority – say 80 per cent or more – move through these phases during their development.

Phase 1 – Business start-up
In the initial start-up phase of a new small business, the emphasis is primarily on survival and the struggle to reach break-even level and profitability before the limited working capital runs out. Typically, this phase will last between six months and three years, although in extreme cases some small firms will struggle on for five years or more before reaching stability. The entrepreneur’s personal objectives are focused on reducing personal financial exposure – especially if the family home has been offered as security against borrowing – but there is also the desire for a sense of achievement or accomplishment. The tendency during the first phase is to accept any business which offers even the smallest contribution to overhead costs and profit. This marginal approach can often result in the owner-managers and staff running around like headless chickens in the pursuit of marginal contributions to profit, resulting in a deleterious affect on profit margins (and the owner-managers ending up totally knackered – its no joke, I have seen it more than a few times!). What is essentially happening is that management decisions are being made at a purely operational level on the basis of short-term returns, and with little or no strategic thinking. Then as the owner-managers have no staff to delegate the marginal work to, they end up working extra, and relatively unproductive hours, doing the work themselves, to the neglect of the overall management of the business. We call this the headless chicken syndrome.

Phase 2 – Relative stability
Once a new small firm has consistently achieved a level of trading above that of the break-even level for a few months, a sense of relief occurs with the owner-managers. A major hurdle has been jumped, and there is now the opportunity for a period of stability and consolidation within the business. Typically, this phase will last between one and two years, by which time most spirited entrepreneurs will be looking to further growth. The key features of this stage involve the review at operational level of the processes of the business. The owner-manager is concerned with improving  profitability, reducing operating costs and waste, and is now, for the first time, in a position to make decisions about which customers to retain, and which (e.g. the bad or slow payers) to relinquish.
The emphasis is now less on survival and more on the increase of profit and the reduction in personal financial exposure. The owner-manager is looking for a return on capital invested plus a premium for the personal effort which has been put into the business. As a result, there is much more focus on profitability and the maintenance of healthy profit margins, coupled with a more selective attitude towards customers. This heralds the first opportunity to say ‘No, I don’t want or need your business or the aggravation associated with it’ – at last slow or bad payers can be rejected in favour of good steady customers, or low-profit work can be turned down. There is also a focus on customer needs to ensure the long-term retention of regular customers, and along with this goes a positive effort to improve standards of quality within the business.
Unfortunately for some small firms, this stage becomes their primary objective, and in some cases a sense of complacency ensues. I am not saying that there is anything wrong with not wishing to expand a business beyond a basic level of comfort, but for most modern cultures there is a desire to push beyond this stage. It is also argued that in a constantly changing technological and economic environment, no business can afford to stand still without the risk of losing its place in the market. I would think, however, that at the bottom end of the SME spectrum there are many micro firms and self-employed individuals who simply do not wish to continue expanding, particularly if they are personally financially stable.
What really characterizes the second phase is the progressive switch from operational to tactical thinking. There is still not a great deal of strategic thinking involved, but as the desire to expand becomes more predominant, then the switch to strategic thinking must occur as an essential prerequisite of the next phase – basically, without ambition and forward thinking the next phase will not be achieved.

Phase 3 – Growth and development
This is an ongoing process for future years, involving a planned expansion to increase market share, sales turnover and profit. Apart from expansion, the other key objective will usually be that of the capital growth of the business. Both the owner-manager and the business (which by now may be a corporate entity) are looking for an expansion of market share and increased profits, and a consequent expansion of their personal power and influence. The entrepreneur’s personal financial risk is less of an issue at this stage. The overall confidence achieved from the second phase provides for a more adventurous attitude to the marketplace – what other markets exist that have not yet been exploited? There is also much less financial pressure on the business as funds for future development are becoming available. Typically, the recognition of the need for change in management practices to facilitate future growth results in increased levels of delegation. This is the one fundamental factor without which future expansion cannot proceed, and this is usually accompanied by the importation or development of new and additional management and staff skills, giving the opportunity for improved systems of delegation. At this level, decisions are primarily strategic and tactical, with operational decisions being increasingly delegated to supervisory levels of management as the business grows.

The key to future growth and expansion requires a basic change in attitude and thinking – a veritable cultural shift – by owner-managers. It is the transition from direct involvement in all aspects of the operational control of the business, to a position and attitude of more senior management responsibility, wherein the operational aspects are delegated to allow more time to focus on the strategic planning and development of the business. By working through the various stages of the strategic planning process, the owner-manager can make the necessary culture shift to improve the performance and focus on the direction in which the business is to go.

The culture shift

This is the essential change in small business culture and owner-manager attitude that is the prerequisite to the future growth and development of the business. Essentially it is necessary for the entrepreneur to make a positive shift from just making tactical decisions and day-to-day operational decisions, into a proactive higher gear which will involve strategic planning for the future of the business. Unfortunately, this is one of the hardest moves which owner-managers are faced with, as it involves relinquishing many of the ‘comfort-factor’ management responsibilities which have evolved alongside them during the early days of the business. In the infamous Video Arts training video ‘The Unorganized Manager’, John Cleese, playing St Peter the custodian of the Pearly Gates, described this as the process of ‘growing up’. Invariably it involves delegating some of the control and responsibility previously associated with the early growth of the business, which because of those associations can often be a painful process. For example: ‘I want to keep maintaining the sales ledger to keep in touch with the business revenue’ – irrespective of the fact that an accounts clerk can do the job in half the time, with better accuracy, and at a significantly lower hourly rate! And while the manager is dabbling with the sales ledger, who makes the strategic decisions – are they left to the accounts clerk or do they just get postponed until he has some spare time?
It is very easy for owner-managers to underestimate the effects their own personalities have on their businesses and in particular on the staff they employ. The fact that they occupy such a singularly dominant and  influential role within the business means that the culture that operates within the business inevitably tends to reflect their own attitudes and personalities. In turn, that reflection is projected to the outside contacts, the customers and suppliers. An aggressive and autocratic style can often evoke a defensive attitude or blame culture amongst the staff, and  conversely, a caring and democratic style can generate a positive and congenial attitude in staff. Such attitudes and cultures are more than visible to any outsiders who come into contact with the business, and naturally, many of those outsiders are customers. Part of the culture shift therefore involves the owner-managers in becoming aware of the impact their own personalities have on the firm, and in ensuring that the impact does not have a negative influence.

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BUSINESS KNOWLEDGE
This section considers the range of business knowledge and understanding that is essential as a background and foundation for the business analyst’s work.

Finance and the Economy
The universal language of business is finance. Even in the public and not-for-profit sectors of the economy, finance plays a key role in deciding what funds are available and what can and cannot be done. A business analyst needs to have a good working knowledge of the economy and of the basics of business finance. This includes a general understanding of financial reports such as the balance sheet and profit-and-loss account, of financial analysis tools such as ratio analysis, and of the principles of costing.

Business Case Development
Much of the business analyst’s work will be to assess the costs and benefits of delivering a project to the organisation.
Thus, when communicating analysis findings, you will need to ensure that you have a view on the financial impact that the project will have. IT in its own right is only an enabling tool for business benefits to be achieved, and a business analysis project may involve other specialists such as management accountants to understand and model the business activities and determine how IT can deliver financial benefit. To develop the business case, a basic understanding of finance is required along with the financial workings of the business area being considered. Business analysts involved in business case preparation will need to understand basic investment appraisal techniques and work closely with the finance department. Over recent years many business analysts have developed a greater understanding of the benefits and costs of technical solutions.
This is a positive development, since it enables analysts to discount costly options quickly, and appreciate the true value and impact of their work on their organisations.

Domain Knowledge
This is a good general understanding of the business domain, or sector, in which your organisation operates, be it private, public or not-for-profit. Apart from the general domain, there is more specific domain knowledge, for instance of the supermarket or local government sectors. The reasons why this knowledge is required are threefold:
 It enables you to talk sensibly with the business people involved in the project, in a language that they can understand. (The personal qualities of communication and relationship-building also help here.)
 It will help you to understand what would and would not be acceptable or useful in this business domain. Issues of profit, for instance, are unlikely to be of interest when working in a social-security department.
 It may enable you to take ideas, particularly those relating to best practice or ‘best value’ (a UK government term), from part of a sector and apply them elsewhere.

Subject Matter Expertise
This takes the domain knowledge to a lower level of detail. A good understanding of the business area in which you work is important in order to establish credibility with your customer. The level of expertise required will again depend on the type of work being done; for example, if the project is concerned with strategic matters, this will require an understanding of industry structures, organisation design, business models and business drivers for strategic change. At a more operational level, a discussion on the replacement of existing systems will require an understanding of how the existing systems are configured to meeting current business needs. Business analysts may be specialists in particular business domains, with a strong and detailed understanding of the subject area, who can pinpoint very quickly areas for improvement, and identify what needs to change or to be analysed by using existing knowledge and contacts. Alternatively, they could be generalists with outline knowledge about individual business areas who rely on others to bring the relevant detailed knowledge. There is no right or wrong answer to being a specialist or a generalist. Both are valuable, depending on the organisational context. The key point is to assess how well your competencies meet the needs of the current situation and to recognise your strengths and weaknesses. You can then take any necessary actions such as developing specialist knowledge, requesting input from specialists or asking for a new perspective from a generalist who can take a broader view.

Principles of IT
Many business analysts do not come from an IT background and say—rightly—that their job is not to be expert in IT-related issues; that, after all, is why there are systems analysts, software engineers and so on. However, as so many business analysis projects result in the use of IT in some way, a general understanding of the field seems necessary so that business analysts can communicate meaningfully with the IT professionals.
The extent to which you will need technical knowledge will depend on the nature of the analysis work being undertaken.
Although strong technical knowledge is often useful, this may be better obtained from those with specialist skills, for example systems analysts, developers or external suppliers. The key requirement is that the business analyst can understand the technical terms used by IT specialists and help the business users to appreciate any impacts on the organisation.
However, since business analysts often investigate IT solutions, they should also possess an understanding of IT fundamentals, including areas such as:
 how computers work, including operating systems, application software, hardware and networks;
 systems-development lifecycles, for example the ‘V’ model or the unified process;
 systems-development approaches, for example the dynamic systems development method (DSDM), agile development and the unified modelling language (UML);
 the relative pros and cons of developing systems and of buying them ‘off the shelf’;
 trends and new opportunities that IT brings. such as ecommerce, grid computing and mobile technologies, and how these impact systems development.

Organisation Structures and Design
As well as involving processes and IT, many business analysis projects involve restructuring organisations to a greater or a lesser degree, for example to remove handoffs, to centralise a process or to improve the customer service. Because of this, it is important for a business analyst to have a good understanding of the various organisation structures that may be encountered—functional, project, matrix and so on—and of their relative strengths and weaknesses.

Supplier Management
Many organisations use external suppliers to deliver their IT systems, either on an ad-hoc basis or perhaps through a more comprehensive outsourcing arrangement. In recent years, outsourcing arrangements have been extended to cover whole business processes or even an entire business function. For example, many organisations have outsourced payroll activities for several years, but some have now extended this to cover much of the human resources (HR) work, from recruitment to HR record keeping.

The selection and contracting of suppliers tends to fall within the domain of the supplier management function. However, for some outsourcing contracts the business analyst may carry out or be involved in this work, and so needs a broad understanding of procurement and supplier management processes. As a minimum, business analysts should be aware of the different contractual arrangements that are available, for example:
 Time and materials: where the contracted party is paid on the basis of the time worked.
 Fixed price delivery: where the contracted party is paid the price that they originally agreed for the delivery of piece of work according to the precise specification.
 Risk and reward: where the contracted party has agreed to bear some or all of the risk of the project, for example by investing resources such as staff time, materials or office space, but where the potential rewards are greater than under other contractual arrangements.
Business analysts should also understand the supplier management process, and should be able to engage with suppliers to ensure that they deliver their services effectively.

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Cost-Benefit Analysis
Overview
Cost-benefit analysis is the weighing-scale approach to reaching business decisions: all the pluses (the benefits) are put on one side of the balance and all the minuses (the costs) are put on the other. Whichever weighs the heavier wins. If the costs weigh more, the proposal gets the thumbs down; if the benefits weigh more, it gets the thumbs up. A company considering whether to buy new computer systems, for example, might attempt a cost-benefit analysis to help it make up its mind. On the cost side would be things like:
 the price of the computers themselves;
 the cost of hiring people to install them;
 the cost of training staff to use them.
On the benefits side would be things like:
 greater speed in carrying out the company’s operations;
 greater efficiency in organising data;
 a boost to staff morale from using the latest equipment.

All of us do intuitive cost-benefit analyses every day of our lives. For example, “Shall I take a taxi to my next meeting or will I not save enough time for it to be worth my while?” The technique is also used extensively by industry and commerce.

Nevertheless, this comparatively simple idea has complicated ramifications. The pluses and minuses are not all immediately obvious, and many of them are not easily measurable in monetary terms. How, for instance, do you quantify an increase in staff morale?
Moreover, decisions cannot be made in isolation. There are usually several competing options: if you do not invest in a new plant in west Africa you can increase capacity at your existing plant, or you can take over a new business, or you can just leave the money in the bank. It is the proposal with the highest net benefit that gets the go-ahead.

A brief history
Benjamin Franklin, inventor of the lightning conductor and co-author of the American Declaration of Independence, was a practitioner of cost-benefit analysis. In 1772, he wrote:
When difficult cases occur, they are difficult chiefly because while we have them under consideration, all the reasons pro and con are not present to the mind at the same time … To get over this, my way is to divide half a sheet of paper by a line into two columns; writing over the one “Pro”, and the other “Con”. Then … I put down under the different heads short hints of the different motives … for and against the measure … I endeavour to estimate their respective weights; where I find one on each side that seem equal, I strike them both out. If I find a reason pro equal to two reasons con, I strike out three … and thus proceeding I find at length where the balance lies … And, though the weight of reasons cannot be taken with the precision of algebraic quantities, yet when each is thus considered, separately and comparatively, and the whole lies before me, I think I can judge better, and am less liable to take a rash step.
In recent years, cost-benefit analysis has been widely used for analysing public-sector projects, as a tool to help answer questions such as: “Should we subsidise the sale of things like unleaded petrol and solar panels?” or “Shall we turn this busy urban street into a pedestrian zone?” In these examples, the social costs are the most important ones. What are the benefits to human health of reducing the levels of lead in the atmosphere? And can you measure this – in terms, for example, of the medical facilities that will not be required as a result of the better health of the population?

Zero-Base Budgeting
Overview
Once upon a time a business’s annual budget was drawn up on the basis of the previous year’s budget. To each item that appeared last year, managers would add a certain percentage. The percentage would be determined more or less arbitrarily, although it would probably be related in some indeterminate way to the rate of inflation, the company’s overall strategy and the manager’s frame of mind that day.
For many years it was widely recognised that this was not an ideal way to allocate a company’s scarce financial resources. It encouraged managers to focus on the cost increases from year to year rather than on the underlying costs themselves. It also inadequately took account of the rapidly changing environment in which a company operated. For example, increasing last year’s expenditure on IT by the rate of inflation “plus some” was, at some stage, sure to leave a business way behind its rivals.

Nobody came up with anything better until Peter Pyhrr, a manager at the Texas Instrument company in Dallas, developed the idea of zerobase budgeting. Each year he prepared his budgets as if last year’s figures had not existed. Every assumption had to be rethought from scratch and then justified. It was not acceptable to use last year’s expenditure as a benchmark for this year’s budgeted costs, and then only to have to justify the increase in that expenditure. In effect, zero-base budgeting treats all claims on financial resources as if they were entirely new claims for entirely new projects.
A basic requirement of zero-base budgeting is that managers prepare budgets for the cost of running their operations at a minimum level. They are then required to calculate the costs and benefits of making a business decision that would lead to an incremental increase from that level. Breaking the budget down into different decision packages in this way makes it easier for senior managers to make choices among competing claims on scarce resources.
The idea was rapidly adopted by other companies. It has also been used extensively by local and national governments and by health and education authorities, areas where the budgeting process has traditionally rolled over from one year to the next with its underlying assumptions rarely questioned.
Criticism of zero-base budgeting focuses on the practical difficulties of implementation, and on the fact that it is time-consuming. Traditional incremental budgeting retains the great advantage of simplicity. Another author claims that “recent history has indicated that zero-base budgeting is very susceptible to political influence and pressures”.

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Manage Yourself and Then Your Company

All management books, including those I have written, focus
on managing other people. But you cannot manage other
people unless you manage yourself first.

The most crucial and vital resource you have as an executive
and as a manager is yourself; your organization is not going to
do better than you do yourself. So the first thing to say about a
country like yours or companies like those represented in this
room today is: development. That is a very general term. Development
is, foremost, dependent on how much you get out of
the one resource that is truly under your own command and
control—namely, yourself.

When I look at all the organizations I have worked with over
a long life, there is a difference between the successful ones and
the great majority that are, at best, mediocre. The difference
is that the people who are running the successful ones manage
themselves. They know their strengths—and it is amazing how
few people really know what they are good at.

Most of the people I know who have done an outstanding
job—and the number is not very large—have systematically organized
finding out what they are really good at. You do it, by the
way, by using a very old method that has nothing to do with modern management and that goes back thousands of years.

Whenever you do something of significance, whenever you are making
an important decision, and especially whenever you are making
a decision about people (that is your most important decision),
you write down what you expect the results will be. Then, nine
months later or a year later, you look at it. And then you will see
very, very soon what you are good at. You will see very, very soon
what you need to learn, where you need to improve. And you can
also see very, very soon where you are simply not gifted.

There are no universal geniuses, but a person can be very
good. For instance, I have seen people who can just look at a
market and understand it. They do not need any tools or research.
But they are very often hopeless when it comes to managing
people. So find out what you are really good at and then
make sure you place yourself where your strengths can produce
results. Yes, one has to work at overcoming weaknesses. But even
if you work very hard and you manage to become reasonably
competent in an area in which you really are not gifted, you are
not going to be a top producer. You will be a top producer if you
put yourself where your strengths are and if you work on developing
your strengths.

The second thing to pay a great deal of attention to is how
and where you place other people. Again, place people where
their strengths can produce results. When you look at an organization,
everybody has access to the same money. Money is
totally impersonal; everybody has access to the same materials.
What differentiates a successful organization from most others
is the way they place their people. It is not only that they
keep on developing their people, but they first place them where
the strengths of the people can produce results and where their
weaknesses are irrelevant.

One cannot stress it enough in a country like yours—which
is trying to catch up and does not have too much time—that the people at the top set the example. Your company may be very
small, quite unimportant. But within that small company you,
the executive, are exceedingly visible. Most management is by
example. And whenever you look at truly outstanding organizations
there is one person, or maybe two or three people, who set
an example. And that also is tremendously convincing. Here is
a top executive who performs, and then other people know that
they can do it, too. This is especially important in a country like
yours, which has to do so many things at the same time because
you have to catch up with most of the history of this century.

The most crucial area of all, meanwhile, may well be personal
behavior, the area of ethics. I am always asked what I mean
by that. The answer is a very, very old one; it goes back to the
ancient Greeks. I call it the mirror test. Every morning when
you look in the mirror, when you shave or when you put on your
lipstick, you ask the question: Is the person you see in the mirror
the person you want to see? Do you want to be the kind of
person you see? Maybe “ashamed” is too strong. Are you uneasy
because you cut corners, because you break your promises, because
you bribe, because you do something for immediate shortterm
benefits? Are you that kind of a person? Do you want to
see, in the mirror, what you actually see? That is the mirror test,
and it is vital simply because you may be able to fool people outside
your organization, but you cannot fool people inside your
organization. As you behave, they will too. You will corrupt the
whole organization.

The next thing to remember is to spend enough time and
effort on the outside of your business. A great danger in an organization,
and not only a big one, is that you disappear in it. It
absorbs you, so that you spend all your time, energy, and ability
on internal problems.

The results of any organization, and especially of a business,
are on the outside. This is not only where the customers are but also where the noncustomers are. Even if you are the

dominant business in your field, you very rarely have more than one-third of the market, which means that two-thirds of potential customers do not buy from you. You should make sure that you have enough time to look at these noncustomers. Why do they not buy from
you? What are their values? What are their expectations?

Change practically always starts with the noncustomers. Today,
almost all of the industries that dominated the industrial
landscape in the developed countries in the 1950s and 1960s—
the automobile industry, the commercial banks, and the big steel
companies—are on the defensive, and in every single case the
change started on the outside among the noncustomers. The
department stores in the United States and Japan are in terrible
trouble, whereas 40 years ago they dominated retail distribution.
The change there also started with noncustomers. The basic theory
of the department store is that the husband is at work, the
children are at school, and so the wife can spend a lot of time
there and get a feeling that she is doing something for the family,
for herself. Suddenly, women—first in the United States and now
increasingly all over the developed world—have jobs and they do
not have the time. But these educated women were never department
store customers in the first place. And so the department
stores, which of all our businesses probably have the best statistics
on their customers, did not even realize that the next generation
did not shop in their stores until they suddenly lost the market.

So the first thing to do is make sure you are close enough to
the outside that you do not have to depend on reports. The best
example I know: Many years ago a man built one of the world’s
major businesses, the first business that really took advantage
of the great change in medicine when the practice shifted from
the individual practitioner to the hospital. (That happened after
the Second World War in the developed countries.) And he
had a simple rule: Every executive in that company, from the time it was very small to when it became a huge multinational,
spent four weeks a year outside the company. Whenever a salesman
went on vacation, an executive took his or her place for two
weeks, twice a year, and called on customers and sold to customers
and introduced new products into the hospital market. As a
result, that company understood the rapidly changing market.

Another thing you need to understand is what we now call
the “core competencies” of your organization. What are we really
good at? What do our customers pay us for? Why do they
buy from us? In a competitive, nonmonopolistic market—and
that is what the world has become—there is absolutely no reason
why a customer should buy from you rather from your competitor.
None. He pays you because you give him something that is
of value to him. What is it that we get paid for? You may think
this is a simple question. It is not.

I have been working with some of the world’s biggest manufacturers,
producers, and distributors of packaged consumer goods. All of you use their products, even in Slovenia. They have two kinds of customers. One, of course, is the retailer. The other
is the housewife. What do they pay for? I have been asking this
question for a year now. I do not know how many companies in
the world make soap, but there are a great many. And I can’t tell
the difference between one kind of soap or the other. And why
does the buyer have a preference—and a strong one, by the way?
What does it do for her? Why is she willing to buy from one
manufacturer when on the same shelves in the United States or
in Japan or in Germany they are soaps from other companies?
She usually does not even look at them. She reaches out for that
one soap. Why? What does she see? What does she want? Try
to work on this.

Incidentally, the best way to find out is to ask customers not
by questionnaire but by sitting down with them and finding out.
The most successful retailer I know in the world is not one of the big retail chains. It is somebody in Ireland, a small country about the size of Slovenia. This particular company is next door to Great
Britain with its very powerful supermarkets, and all of them are
also in Ireland. And yet this little company has maybe 60 percent
of the sandwich market. What do they do? Well, the answer is
that the boss spends two days each week in one of his stores serving
customers, from the meat counter to the checkout counter, and
is the one who puts stuff into bags and carries it out to the shoppers’automobiles. He knows what the customers pay for.

But let me go back to the beginning: The place to start managing
is not in the plant, and it is not in the office. You start with
managing yourself by finding out your own strengths, by placing
yourself where your strengths can produce results and making
sure that you set the right example (which is basically what ethics
is all about), and by placing your people where their strengths
can produce results.

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The Guiding Principles of the High-Impact Middle Management System

Every management system is built on a set of assumptions and principles. These values form the foundation for each philosophy, technique, and tool included in the system. The High-Impact Middle Management System was designed with eightbasic principles in mind. These principles speak to what is unique about middle management and how middle managers produce great results. These guiding principles apply to organizations of any size or in any industry. In addition to providing a theoretical backdrop for the system, the guiding principles of high-impact middle management can be powerful catalytic tools when used as part of a middle manager’s definition of success. Let’s look at each principle.

Principle 1: Being a Middle Manager Is Exciting

In almost any company, the most challenging and rewarding jobs will be in middle management. Why? Because middle managers are close to the action, but they also take part in shaping the future strategy and direction of the company. Top executives rarely get to see the action in which middle managers take part, and they also must deal with more bureaucracy and politics.

Frontline managers get to see the action but rarely help determine the company’s future. As a middle manager, you have your finger on the pulse of the company and can make things happen. Senior executives trust talented middle managers to implement the organization’s vision and deliver on its business proposition. And because, in most companies, there are several layers of middle management, most middle managers can enjoy the benefits of this fascinating work while progressing in their career.

Principle 2: Middle Management Is a Craft

The middle manager’s job is complex and dynamic, and thus requires focus to deliver results. Weighing competing demands and making choices about how to manage time takes practice and development. As managers grow and mature, they hone their craft and create a style that is effective and unique to them. Along the way, they also learn techniques and practices via mentoring, training, and coaching. The purpose of this book is to help you hone your management skills.
Principle 3: Great Managers Do What Others Don’t or Won’t

A middle manager’s job is littered with tasks that are undesirable, tiring, mundane, or even frightening. Great managers do things that others put off, procrastinate, or ignore. Mediocre managers don’t. Not everyone likes to counsel employees or create work plans, but these tasks are necessary and time sensitive.
Principle 4: Beliefs Determine Behavior

Managers act on what they think about most and on what they believe to be true. Their actions come from a set of beliefs formed about job responsibilities, expectations, and reinforcement. To create a different result, you need to adopt a different mindset. Breakthroughs can occur when beliefs line up with efforts to achieve the desired outcome.
Principle 5: Relationships Influence Results

Relationships developed with team members, peers, managers, and customers are important. If you discount relationships, you won’t garner the cooperation and support you need from others to produce ideal results— and you are more likely to see your career derail. Great managers develop and maintain positive relationships. Managers who are poor team players or unpleasant to work with are less successful. Many eventually lose their jobs, and most will not progress far. The old admonition rings true here: Never burn your bridges.
Principle 6: Managerial Strengths and Weaknesses Are Known

People notice who is charismatic, who gets defensive, and whether someone is likely to pass the buck. Management is public work, and it is noticed by employees and coworkers every day. Everyone knows who is the best negotiator and who is the underperformer. Because strengths and weaknesses are known, there is no disadvantage to openly discussing them. As a manager, you have a choice to make. You can take an interest in and deal with development needs, or you can ignore them and hope no one notices. But the latter strategy is flawed because people do notice. The only practical and helpful approach is to see faults and failings for what they are and openly discuss them so improvement can occur. Managers should never want to be the last to know if they have a personality trait that is driving people nuts or derailing the work. Those managers who acknowledge the areas where they need to improve will enjoy more support and respect from others than will those who do not.

Principle 7: Great Middle Management Can Be Learned, but One Must “Get It”

Middle management is a craft, a set of practices, and a job that managers can learn with the right training and guidance. Good middle managers are cultivated, not born. Great managers come in wildly different styles and personalities. However, it is essential that all middle managers fully understand their jobs and accountability. Managers who don’t take on their role are not likely to succeed and will often see their careers stall or dwindle.
Principle 8: Middle Managers Exist to Make Things Happen

Middle managers are not there to simply oversee what is going to occur on its own. They make a huge difference and play a vital role in improving the business. It is in the face of defeat, during an impending failure, or on the verge of an exciting opportunity that a middle manager’s role kicks into high gear. Great middle managers know they exist to make a positive difference and seek out opportunities to make an impact.

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Business Corporation
A corporation is one of the few business entities that actually takes on a separate legal persona. Although a corporation is not a living being, like Joey, or Hewlett and Packard, it has legal rights like a person. A corporation is considered a “legal or fictional person” that has a perpetual lifetime. It can own property, sign contracts, pay taxes, and otherwise participate in society (but a corporation cannot vote for mayor or the president of the United States like a human citizen can). A corporation usually has a board of directors who supervise and advise the chief executive officer (the CEO, who is often a member of the board of directors). The board of directors has a fiduciary duty to protect the corporation’s interests and livelihood, as well as the interests of the shareholders (sometimes those are not the same). Corporations sell ownership shares to people, trusts, and other corporations. Unlike a proprietorship or partnership, owners of the corporation are not personally liable for actions of the corporation, and their personal losses are only as large as their investment in corporate stock (shares). But officers of a corporation are increasingly being held accountable for corporate misdeeds. The Sarbanes-Oxley Act of 2002 now requires corporate officers to sign off on the financial statements and guarantee that no one has been cooking the books.

Most corporations are publicly traded corporations whose shares are bought and sold on an exchange, like the New York Stock Exchange or NASDAQ. Some corporations are private or closely held, and the stock of these entities is rarely traded, and if so, only directly when a seller has a ready buyer (that is, not on an open and public stock exchange).

There are several benefits to a corporation: limited liability, perpetual lifetime, the idea that it is a separate entity or “fictional person,” and the ability to raise large amounts of capital (cash) from a wide variety of places. There are also some downsides to incorporation (the act of turning a business into a corporation): lots of paperwork (a corporation, especially one that is publicly traded, must produce reams of paper for government regulators, stockholders, and anyone else who is interested), double taxation (the corporation is taxed on its profits, and shareholders are taxed again on any dividends they earn), and market oversight (the company’s value will vary day to day depending on the price of the shares).

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Although today�s global business environment is fraught with unprecedented challenges, it provides organizations with one tremendous opportunity�the opportunity to reinvent. With a new business epoch upon us, existing organizational models, operating policies, workflows, trading practices, reporting structures, and even the goods and services offered should all be rethought and redefined.
By considering the best practices, organizations can choose to exploit the opportunity to change and drive their enterprises to unparalleled success. Those that choose not to reinvent themselves will fall behind.

What follows is a set of Best Practices Business Principles. They frame the new agenda. Indeed, they encompass it. If adopted, these business principles will guide direction and encourage the behaviors that are needed to deliver unmatched performance.

The business principles include:
1.�� �The Best Practices Enterprise � will place �laser-like� focus on establishing a work environment that supports continuous transformation.
2.�� �Processes will be broadened to include all related responsibilities and tasks, free of existing organization design or �chain of command.�
3.�� �Processes will be designed to be independent of current work locations and physical plant.
4.�� �Strategic planning will be a continuously performed process, and all new initiatives will be evaluated via this process before inclusion in the strategic plan.
5.�� �All work to be done within the firm must be included in the strategic plan before commencing.
6.�� �Work will be managed as a portfolio of projects and programs.
7.�� �The information technology environment will be architected with resilience and flawless integration in mind.
8.�� �The Best Practices Enterprise � will aggressively leverage the emerging free agent market.
9.�� �Diversity and inclusion efforts will be aimed exclusively at establishing a culture in which individual differences among workers are recognized as valuable ingredients in achieving the best business outcomes for the organization.
10.�� �Communication will be recognized as a vital process that must be managed deliberately.

11.�� �With increasing business variability in mind, the work environment will be constantly monitored to identify opportunities to outsource routine activities to best-of-breed vendors.
12.�� �The organization will seek to establish new types of vendor relationships that clearly define mutual gain for the parties involved.
13.�� �The Best Practices Enterprise � will adopt �continuous employee improvement� behaviors.
14.�� �Performance measurement programs will focus on results and not effort.
15.�� �A team-based management model will be adopted by the company to enhance the ability to better respond to emerging market opportunities.

Keep in mind that these business principles are nothing more than statements of executive management�s preferences regarding the way in which an enterprise should conduct its affairs in the execution of its mission. Once fully institutionalized, these principles must be considered �rules of the road� for how personnel should plan, manage, and work within the concern. Together they forge the agenda needed to introduce the level of rigor and discipline that is required to reinvent the organization.

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