The leader’s personal survival plan

“Everything I’ve worked so hard for is imploding and it’s just hopeless.” In recent days, that ‘overwhelm’ feeling may have come to you often.

We are leaders, but also human.

Follow this survival plan.

1. Manage your fear

Two experts, Mark McLaughlin a neurosurgeon and Scott Mann, former Green Beret, tell us how.

  • Defuse panic by remembering that it is biology. That sudden fear is your amygdala, the primitive part of your brain triggering self-preservation mechanisms. Just knowing that allows us to label and recognize the feeling, and to reject its ‘overwhelm’ effect.
  • Check-in with yourself: it’s chaos out there, but there are still things you can control. Realize that you decide what to prioritize – e.g. your family and your business family. Then make a quick inventory of your resources, such as a home to keep your family safe, good employees, A/Rs, maybe a line of credit.
  • Stabilize and re-evaluate: Breathing helps, Green Berets use deep, basal breaths to stabilize emotionally. Next, commit to execute a plan with your resources.

2. Put this quick plan in motion

Accept that your job is not to save the employment of every person in the company; your job is to save the company so it can offer employment and serve clients once this pandemic is over. It will be over.

  • Pick 2 or 3 bad and really bad scenarios for 2020 revenue: -30%, -50% and -75%
  • For each level of revenue, determine who is absolutely needed to run the company and how much money is available for payroll. Decide how you will match the available payroll to the indispensable positions: furloughs, reduced pay, layoffs, etc. Then decide what indicator(s) will trigger each scenario.
  • Communicate, communicate, communicate. Employees expect the worst, let them know where they stand even if it’s tough. You’ll be the leader they need.
  • Implement each scenario when the indicators say so – it may be now. Don’t wait!

3. Set a routine and move forward without expecting results

In chaos, you need structure. Set a balanced routine – e.g. work time, family time -, follow it, focus on the controllables and not on results. At present, we are not entitled to the fruits of our labor; we are entitled to the labor itself.

)Un(Comfortable with uncertainty

Frustrated with uncertainty? Keep reminding yourself that in the land of the blind, the one-eyed person is king.

In World War II Ken Arrow was an Air Force meteorologist creating 30-day forecasts with a team of statisticians. After comparing prior forecasts with actual weather, the future Nobel laureate informed his superiors that the forecasts were worthless. Arrow offered to dismantle the group, only to be told the “General is well aware that the forecasts are no good. However he needs them for planning purposes.”

Although 30-day forecasts were impossible, the never-give-up attitude of meteorologists were already starting to pay dividends in more reliable 24 to 48 hour forecasts. Just a couple of years later, this capability allowed Captain James Martin Stagg, a meteorologist attached to the Royal Air Force, to change history.

General Dwight D. Eisenhower had decided to invade Europe on June 5th 1944. The incredibly risky attack required clear moonlight and low tide to skirt German anti-invasion defenses. The window of opportunity was small and any delay would also risk losing the element of surprise. Yet they also needed low winds and calm waters to facilitate fast disembarkation under enemy fire. Captain Stagg met Eisenhower on June 4th and persuaded him to delay the invasion until a short stretch on June 6th because bad weather on the 5th would give the Germans the upper hand.

The Germans could only see bad weather ahead and thought an attack was impossible. Rommel, the German commander, decided to take a few days off to celebrate his wife’s birthday, even taking her a pair of shoes he bought in Paris.

Stagg’s forecast changed the course of war in favor of the Allies. When Eisenhower was President, he was asked why the Normandy invasion had succeeded. He reportedly answered, “Because we had better meteorologists than the Germans.”

When uncertainty frustrates us, we tend to forget that by forecasting, measuring and reassessing our forecasts we learn and improve, and that even a small advantage over a competitor or the market can make a big difference.

Dysfunction in your shop? Here’s Why

A CEO friend observed that our daily work lives are just a series of request / response exchanges, which we often handle poorly. To illustrate the point, consider this request from Marla, a Sales Manager to a team member:

Marla: “I’m talking to Johnson Distribution, an attractive prospect who feels our inventory software module may not fit their business. Could you put together a report of our wholesale distribution clients in the area?” ____. Ron: “Sure, I’ve heard of Johnson.” ____. Later in the day Ron walks into Marla’s office. “Here’s the report.” ____. “Great, thanks. Do all these companies have at least $10 million in sales? Otherwise, Johnson probably won’t see them as peers.” ____. Ron (begrudging the new stipulation): “I didn’t factor that in. Too bad, as I did a lot of number crunching to break out the inventory software revenue. And excluding clients under $10 million may leave us too few companies in Florida.” ____. Marla (trying to hide her frustration that Ron missed the obvious): “Then just expand the search to the whole Southeast Region.” ____. Ron stayed late to finish the report. The next morning he called his customer, Brann Inc. to say their promised quote was delayed ‘due to an urgent matter that came up.’

Marla’s seemingly simple but unclear request as well as Ron’s reflex response resulted in much unplanned work and a missed a client deadline. Poor request / responses are incredibly common, and as they multiply throughout the organization dysfunction spreads likes a virus.

To eliminate dysfunction you need a system that first gets all team members to agree and align on priorities, so the organization’s available capacity for deliverables matches the greatest business needs and opportunities. Next, the same system should help people and teams maximize their output on those priorities.

That’s what EOS® really is, a system to optimize human energy.

If OKRs built Google, why do I advocate EOS® instead?

Last week I attended an event where John Doerr, the legendary venture capitalist from Kleiner Perkins, discussed his new book Measure What Matters. John explained a simple management tool called Objectives and Key Results (OKRs), which he credits for the success of Google and many of the transformative companies he funded. OKRs ask that you set a small number of challenging Objectives (“What”), and that for each one you list Key Results that will be evidence that you have met the objective (“How”). As an alumnus of Intel, the birthplace of OKRs, I know the practice well.

OKRs have a lot in common with some tools used in the Entrepreneurial Operating System (EOS®). Under both systems, objectives are set quarterly to keep the organization focused, they are visible to everyone so there is transparency and accountability, and they are kept to no more than five because less is more. But that is pretty much where OKRs end. When it comes to guidance for the nuts and bolts of running the business, such as defining what makes for a good marketing strategy, or how to get everyone in the organization aligned and rowing in the same direction, OKRs remain mum.

Why? In every success case John presented, OKRs were paired up with an exceptionally talented – and exceptionally expensive – operator. At Google, Eric Schmidt used OKRs to take the company’s value from $0 to $460 billion in about a decade. Eric’s share: $13.2 billion. Sheryl Sandberg took the OKR tool from Google to Facebook, and her performance has earned her $1.6 billion. If you can afford to bring an Eric or a Sheryl into your organization, OKRs are probably all you need.

For the rest of us, fortunately there is EOS®. By strengthening the six key components of the business – Vision, People, Data, Issues, Process and Traction –, EOS® provides you the shorthand to best management practices and, most importantly, how to apply them. So you can take your organization to the next level with a system that includes the benefits of OKRs, but also gives you a roadmap for how to best implement every building block of your business.

Innovation needs a base to stand on

Take five seconds and name companies in your industry that you admire for their innovation. How many names came quickly to mind? My guess is few, if any.

Nowadays, it seems that every business leader recognizes innovation as a top priority, and as one of the few viable paths to sustainable growth. Why is it then that so few organizations seem to do it well? Often times, it’s just that innovation doesn’t have a base to stand on.

Our work has revealed that many times even straightforward growth ideas, the low hanging fruit of innovation, don’t take off. Expand into a new geography, go into this new market segment, develop a high-end version of your product… Some of these simple ideas may be viable growth ‘innovations’, but all too often the organizations behind them can’t get out of their own way to make them happen.

Ask yourself the following questions: How much of your week is spent ‘putting off fires’? After you fix problems, do they keep coming back? Do things get out of control often? Do you feel the organization is stretched to the limit?

If you don’t like some of your answers, be aware that adding innovations won’t fix them. Furthermore, innovations and growth initiatives will look like distractions that only deteriorate the situation. More likely than not, you will conclude that the growth initiative has failed and shut it down. In reality, the initiative was doomed to fail because it lacked a healthy operating platform to stand on, to be nurtured and tweaked until it perfected the formula.

How do you fix this? What you need is an effective operating system to run your company on. In the same way a computer operating system orchestrates a lot of complexity – millions of lines of code, memory, processors, etc. – there are operating systems that will help you smoothly orchestrate your business functions. For midsize organizations, a great example is the Entrepreneurial Operating System® (EOS®).

I used to think that organizations failed at innovation solely because they went about it the wrong way, or plainly without a method. Indeed, “Think outside the box!” is frustrating advice without a how-to guide. There is truth in this – Zermatt Dusk was born out of this opportunity. But for innovation to succeed, you also need a strong operating platform to stand on.

Can you ‘engineer’ innovation?

Ask people what is most important to them in a shrimp dish, and almost universally they will reply, “Freshness!” It turns out that this is not true.

A few years ago I had lunch with the CEO of the largest supplier of shrimp to the United States. When our conversation turned to his success he quipped, “It’s got nothing to do with shrimp!” He went on to explain that his secret lay in consistency of delivery. It began with the company’s trucks being at the door of each Red Lobster restaurant every morning at 5 AM, without fail. Next, the shrimp had to meet exacting standards of size, weight and color–customers at Red Lobster expect their shrimp linguini to be the same every time. And since repeat customers demand predictable bills, the company had to provide stable prices despite daily market fluctuations.

“So what about freshness?” I inquired. The shrimp were fresh enough, the CEO argued, as they are flown in from Asia daily. In fact, importing shrimp bred in large Asian farms by plane was the real innovation that allowed him to win in the marketplace, since only that way he could give customers the consistency that they take for granted–and drives their spending.

The story illustrates a key challenge we address when seeking new revenue sources for our clients: differentiating what customers will say from what they will actually pay for. The answers won’t come from traditional focus groups and surveys, as these rely on past information or opinions on existing products. Instead, by seeking what customers can’t tell you but would love you to know, we can view innovation as a process of discovery. At Zermatt Dusk we have adapted elements of Design Thinking, a framework pioneered at Stanford, for a better approach to identify actionable demand that will lead to innovation and new revenue streams. Here’s an outline for how it works:

  1. Uncover underlying needs, motivations and problems. Get customers and prospects talking to each other in the proper context, and listen. Don’t ask them about shrimp! Let them discuss why they wanted to eat out that day, and how they ended up at Red Lobster – or didn’t.
  2. Find patterns. From multiple observations, patterns of needs and problems will emerge. Don’t attempt to solve them yet.
  3. Design principles. Develop a small set of ‘rules of thumb’ that will guide the ideation of solutions for the needs and problems.
  4. From the principles, design potential solutions to the needs and problems.
  5. Pre-prototype. Find ‘quick and dirty’ ways to test solutions and continue to learn.
  6. Iterate and re-iterate. Cycle through all or part of actions 1 to 5 multiple times, as you continue to identify and modify patterns, principles and solutions. As the best route to market is often unpredictable, more learning will come from increasing the number and speed of iterations than from the completeness of solutions.

By shifting the lens from customer response to underlying needs and motivations, you broaden the opportunity for growth while simultaneously sharpening the focus on productive innovation.

Competing against giants

Southwest Airlines, probably the best-run airline in history, was born out the idea that they could offer a better alternative to driving for short haul routes. Indeed, Southwest was created not to compete against airlines but against cars, and as a result Southwest did many things differently. Life as a startup wasn’t easy for Southwest – the large airlines took them all the way to the Supreme Court to prevent them from flying. And when that didn’t work every major airline launched a competing service, yet they failed miserably.

The lesson for CEOs is that you can venture successfully into the land of giants as long as you’re not planning to fight on their terms. CPO Commerce is a company that heeded this lesson. Started in 2004 by founder and CEO Rob Tolleson, CPO is an online retailer of power tools (drills, saws, sanders, etc.) that carries all major brands such as DeWALT, Makita and Bosch. CPO’s website has all the expected features of a good e-tailer: product pictures, descriptions and reviews; competitive prices with the promotion du jour; recommendations for add-ons and a streamlined check-out process.

From a business standpoint however, these features hardly make CPO unique. Power tool retailing is very competitive, with gross margins rarely exceeding 20%. So how can CPO succeed against Home Depot, Lowe’s or Amazon’s online stores? In the land of these giants, CPO has been named to Inc. Magazine’s prestigious list of fastest growing companies five years in a row, and they have already exceeded $100M in sales. They have also refused to fight on the giants’ terms.

One unusual aspect of CPO is that they offer not one, but rather 40+ different web stores, one for each brand they carry. Wouldn’t that be too complicated for visitors to figure out? To understand why this makes sense you must first understand what power tool users are really trying to accomplish. For example, let’s look at one large group of CPO’s customers that we may call ‘tool enthusiasts’. What are they trying to get done? Of course, they are value-oriented do-it-yourselfers who save money by building a closet shelf or repairing appliances. Just as importantly though, they are people who take great pride in completing a project and being able to say, “I did that.” They treasure their most expensive tools, and get satisfaction from how their tools help do the job effectively. Enthusiasts are brand-conscious when it comes to power tools and they usually purchase within the same brand, among other reasons because each manufacturer makes the batteries of cordless units interchangeable. Thus it is natural for tool enthusiasts to prefer a web store that is exclusive to their brand. This also makes CPO’s websites more personal and easier to navigate. Needless to say, manufacturers love CPO’s branded web store approach that reinforces their ‘brand integrity’ – and their attempt to lock tool enthusiasts into their brand.

As value-oriented consumers, tool enthusiasts are always looking for a good deal. Yet power tools don’t get heavily discounted since their margins are thin to begin with: retailers such as Home Depot will typically offer just four sales a year with discounts of 15%. CPO comes to the rescue by offering refurbished units, inspected by factory trained technicians and backed by full manufacturers’ warranties, at every day discounts that can exceed 30%. Tool enthusiasts, who will often wait months for the right project to ‘justify’ the expense of a power tool purchase, can get a great deal any day of the year through refurbished equipment. Once again, manufacturers are delighted that CPO satisfies consumers’ craving for a deal without resorting to destructive price wars, and also offers an outlet for their returns inventory. Customer Ryan A. comments, “This is my third purchase from CPO and I have been very satisfied all three times. Excellent delivery time, excellent price & the reconditioned tools looked and worked like new. A true value.” It’s a win-win all around, as CPO enjoys superior margins on refurbished product sales.

The classic manufacturer/retailer relationship is characterized by an ongoing tug-of-war for margin between the manufacturer’s sales organization and the retailer’s purchasing team. CPO has transformed the relationship to one of partnership by offering brand-exclusive websites and outlets for refurbished products. The significant amount of promotions on CPO’s web stores is evidence that manufacturers reciprocate. As CEO Tolleson puts it, “We’re not in the power tools business; we’re in the business of partnering with vendors to sell their distressed inventory.” Sound like Southwest?

Case Study: Value Creation in the Recycling Industry

The announcement of Waste Management’s acquisition of Greenstar Recycling provides perspective on the value created by the transformation work at Hudson Baylor executed by its leadership team and Zermatt Dusk. Based on the published figures of the press release, it appears that Hudson Baylor was acquired for a price per processed ton that was approximately 150% that of Greenstar, even when you account for the earnout that Waste Management included in the deal.

How was such a premium achieved? We believe there were 3 elements in our work that were differentiating. First, we developed a Capital Aware Growth Strategy for Hudson Baylor, a tailored strategy for growth that meets the benchmark of outside investors by optimizing the risk profile of the enterprise and by being sustainably profitable. When Hudson Baylor presented its strategy to the prospective acquirers, they stated that this was the direction they wanted to pursue as a firm and they raised their offer substantially.

The next step was to provide the organizational and operational alignment that would make the strategy feasible. Here’s where the consultant / leadership team partnership between Zermatt Dusk and Hudson Baylor was most evident. Together we redesigned the organization, introduced new performance metrics, implemented new functions such as research, and made significant improvements to marketing, and to operational and information systems.

The third element was to provide the firm with relative financial independence to pursue its growth strategy. Note the word ‘relative’: it is a fact that outside financing, whether debt or equity always comes with strings attached. The key is to execute financing that optimizes capital structure and that provides increasing financial freedom as the strategy develops. This is exactly what Hudson Baylor achieved through it’s low cost debt financing. Furthermore, its financial independence gave the company a strong bargaining position when it sat at the table to discuss M&A.

It is important to note that the 3 elements, Capital Aware Growth Strategies, organizational and operational alignment, and relative financial independence complement and reinforce each other to deliver a differentiated strategy that is more than the sum of its parts. When Hudson Baylor’s suitors realized that the company had a strong growth plan underway, an organization that had been streamlined to execute the plan, and the financial wherewithal to carry it out their only choice to pursue an acquisition was to offer a very substantial premium.