Jim Collins Publisher: New York: HarperBusiness, 2001.ISBN: 0066620996

This is a synopsis only.  RESULTS.com recommends you buy the original book.

Good is the Enemy of Great

The companies in the study had to satisfy the following criteria:

• 15-year cumulative stock returns at or below the general stock market

• Punctuated by a transition point

• Then cumulative returns at least 3 times the market over the next 15 years

• This weeded out the ‘one-hit-wonders’ and the average tenure of CEOs, removing the possibility that the company would crumble without the same leader.

• 6,000 articles, 2,000 pages of interview transcripts and about 10 people years of effort.

Research Findings:

• Majority of good-to-great company leaders came from the inside.

• They were not outsiders hired in to ‘save’ the company.

• Good to great companies focus on “what not to do” and what they should “stop doing”.

• Technology has nothing to do with the transformation from good to great. 

• Mergers and acquisitions do not cause a transformation from good to great.

• Good to great companies paid little attention to managing change or motivating people.

• Good to great transformations did not need any new name, tagline, or launch program.

• The leap was in the performance results, not a revolutionary process.

Three Stages of Breakthrough

1.    Disciplined People

• Level 5 Leadership

• First Who, Then What

2. Disciplined Thought

• Confront the Brutal Facts

• Hedgehog Concept

3. Disciplined Action

• Culture of Discipline

• Technology Accelerators

Level 5 Leadership

Level 1 Highly Capable Individual

• Makes productive contributions through talent, knowledge, skills, and good work habits

Level 2 Contributing Team Member

• Contribute individual capabilities to the group objective, works well in a group setting

Level 3 Competent Manager

• Organizes people and resources toward efficient and effective pursuit of objectives

Level 4 Effective Leader

• Catalyst, vigorous pursuit of vision, stimulates higher performance standards

Level 5 Executive

• Paradoxical blend of personal humility + professional will

• Humble, modest, self-effacing and understated

• Concern for the company’s success rather than one’s own personal fortune.

• Think in terms of “We” not “I”

• Do not want to be larger-than-life icons or heroes

• Ordinary people quietly working and producing extraordinary results

• Results-oriented. Do not tolerate mediocrity.

• Never allow nepotism or seniority.

• Will fire non-performing family members and friends.

• Are insiders. Worked many years inside the company or are from the family owners

• They are not saviors hired in from the outside.

• They are not show horses – rather they are plow horses

• Choose good successors because of their concern for the future of the company

• They want to see it endure for generations.

The Window and The Mirror

Level 5 Leaders:

• Give credit to outside factors when things go well, (looking out the window)

• Take full responsibility when things go poorly, (looking at the mirror).

Poor leaders of mediocre companies:

• Blame outside factors when things go poorly

• Take credit the company’s successes themselves

• Gargantuan personal egos that contributed to the demise or continued mediocrity of the company.

• Larger-than-life celebrity leaders who ride in from the outside are negatively correlated with going from good to great.

One of the most damaging trends in recent history is the tendency (especially of boards of directors) to select dazzling, celebrity leaders and to de-select potential Level 5 leaders.

First Who, Then What

Disciplined People:

First get the right people on the bus – and the wrong people off the bus

Then figure out what direction to drive the company

The right people will do the right things – regardless of the incentive system

• Good-to-great companies build deeply committed, strong management teams.

• Good-to-great management teams consist of people who debate vigorously in search of the best answers, yet who unify behind decisions, regardless of parochial interests.

• Mediocre companies = “genius with a thousand helpers” model - which fails when genius departs.

• No link between executive compensation – and the process of going from good to great.

• It is not how you compensate; it’s which executives you compensate in the first place.

• The right executives will do everything in their power to build a great company, not because of what they will get in terms of incentives and compensation, but because they simply cannot imagine settling for anything less. Their moral code is “Excellence for its own sake”.

• People aren’t your most important asset, the right people are.

• Place greater weight on character – rather than education, skills, or experience

• You can teach skills - but character, intelligence, work ethic, and dedication are ingrained

• People who did not fit the mold eventually quit or were told to find opportunities elsewhere.

Hiring Disciplines

• When in doubt, don’t hire. Keep looking.

• A company should limit its growth based on its ability to attract enough of the right people.

• When you know you need to make a people change, act.

• First, make sure you simply don’t have someone in the wrong seat.

• Move people to different seats to see where they might blossom

• Put your best people on your biggest opportunities, not your biggest problems.

• If you sell off your problems, don’t sell off your best people.

• Letting the wrong people hang around is unfair to all the right people

• Ask yourself, would you hire that person again?

• If they came to you saying she was leaving to pursue a new and exciting opportunity, would you be greatly disappointed or secretly relieved?

Confront the Brutal Facts (Yet Never Lose Faith)

Disciplined Thought

• Disciplined thought = confront the facts.

• When the effort to determine the facts is made, decisions become self-evident.

• People filter the brutal facts from a charismatic leader.

• They worry about how the leader will react rather than speaking up for the good of the company.

• Create a climate where the truth is heard

• Lead with questions, not answers. In order to gain an understanding of the facts,

• Use questions to gain information, not as a way to manipulate or put down others.

• Hold non-agenda forums or informal meetings to let current realities bubble to the surface.

• Engage in dialogue and debate, not coercion.

• Conduct autopsies, without blame.

• Build ‘red flag’ mechanisms = anything that will warn you before you lose your customers.

• The key lies not in better information, but in designing information that simply cannot be ignored

• Catalytic mechanisms (e.g. Granite Rock – “You pay us what you think the invoice is worth”).

The Stockdale Paradox

• Named after Admiral Jim Stockdale, the highest-ranking US officer to be taken prisoner in Vietnam

• Face the harshness of your current reality, but never lose faith you will prevail in the end.

• What separates great people or companies from the mediocre is not the absence of difficulties

• It is how they deal with the inevitable difficulties of life.

• If you have the right people, they will be self-motivated.

• The key is not to de-motivate them by ignoring the brutal facts of reality.

The Hedgehog Concept (Simplicity Within the Three Circles)

The 3 Circles

1. What can you be the best in the world at?

2. What drives your economic engine?

3. What are you deeply passionate about?

To achieve greatness, the three circles need to intersect (= BHAG)

• Focus on one simple, unifying concept, everything else is irrelevant.

• The fox, despite his cunning, fails to make prey out of the hedgehog.

• When the fox comes along, the hedgehog simply rolls up into a spiked ball.

• Foxes pursue many ends at the same time, and see the world in all its complexity

• Foxes are scattered - rather than focused on one simple organizing idea or principle.

• Hedgehogs simplify a complex world into a single basic organizing principle

• Everything else outside this basic concept is irrelevant and not worth wasting energy on.

• The key is to simplify - hedgehogs see what is essential, and ignore the rest.

• Good-to-great companies are hedgehogs - mediocre companies behave like foxes

• Stick with what you understand, and let your abilities, not ego determine what to attempt.

• Just because something is your core business doesn’t mean you can be the best in the world at it.

• If you cannot be the best in the world, then your core business cannot be your hedgehog.

Mediocre companies never asked the right questions

• Their strategies were based on bravado - not deep understanding.

• A hedgehog concept is a process, not an event.

• It took good-to great companies many years to clarify their hedgehog concepts.

Leadership Council: 

• Formed to gain understanding about important issues facing the organization.

• Each member has the ability to argue and debate in search of understanding

• Not from the egotistic need to win a point or protect a parochial interest.

• Each member retains respect for every other member without exception.

• 5- 12 people. Members come from a wide range of perspectives

• Not limited to members of the management team, nor is every executive automatically a member.

• The council is a standing body, not an ad hoc committee assembled for a specific project

• Does not seek consensus. Consensus decisions are often at odds with intelligent decisions.

• The responsibility for the final decision rests with the leading executive.

• Informal body - not listed on any formal organization chart or document.

A Culture of Discipline

Disciplined Action

• Requires people who adhere to a consistent system, yet the freedom to act within that framework

• Avoid bureaucracy and hierarchy.

• Create a culture of discipline with an ethic of entrepreneurship.

• Hire self-disciplined people willing to go to extreme lengths to fulfill their responsibilities.

• Create a “Stop Doing” list as well as a “To-do” list.

• Unplug any extraneous activities. Have clear constraints.

• Hire people who don’t need to be managed, so you manage the system, not the people.

• Disciplined People 􀃆 Disciplined Thought 􀃆 Disciplined Action

Technology Accelerators

• If you think technology alone holds the key to success, then think of the Vietnam war. The Americans lost to the Vietnamese despite superior technology.

• Good-to-great companies react to new technology with calm, quiet, and deliberate steps in the right direction, sticking closely to their hedgehog concepts.

• Mediocre companies react in a frantic, fearful, Chicken Little manner.

• Great companies respond to technology with creative thinking as to how to create greater results, mediocre companies react to technology with fear of being left behind.

• Great organizations avoid technology fads and bandwagons, yet they become pioneers in the application of carefully selected technologies.

• Does the technology fit in with your Hedgehog concept? If yes, you need to pioneer in the application of that technology. If no, then you can ignore it entirely.

• Good-to-great companies use technology as an accelerator of momentum, not a creator of it.

• Use technology to accelerate momentum (of your hedgehog concept), not create momentum where there was none. Crawl – walk – run!

The Flywheel and the Doom Loop

The Flywheel:

• Like pushing a massive flywheel to acceleration is how good-to-great companies progress

• There was no defining action, innovation, launch event, clever tagline or miracle moment.

• The breakthrough came from an accumulation of consistent effort over time.

• An overnight success is usually the result of a decade of hard work

• People will naturally keep pushing the wheel in 1 direction when they see the tangible results

The Doom Loop:

• A new direction, new leader, new acquisition comes in

• Flywheel comes to a screeching, grinding halt.

• The company then changes direction, pushing it the other way.

• The results are disappointing, which leads to reaction without understanding what went wrong

• Then a new fad, leader or event appears to try save the company

• They push the wheel another way, and so forth.

• Mergers & Acquisitions – 2 mediocre companies joined together does not make 1 great company

• You cannot buy your way to greatness

From Good-to-Great to Built to Last

• Good-to-Great is not a sequel to Built to Last. It is actually a prequel.

• Discover your core values and purpose beyond just making money

• Combine this purpose with the dynamic of: preserving the core + stimulate progress,

• What is the difference between a good BHAG (big hairy audacious goal) and a bad BHAG?

• Great companies don’t exist merely to deliver returns to shareholders – they want to be GREAT!

• To aspire to greatness is to have the satisfaction that your time on earth was well spent

• If you have to ask “why should we make it great?” you are in the wrong line of work

• Clock building not time telling – great leaders build a company that can tick along without them, rather than being needed to tell the time.

John L. Nesheim
Publisher: Saratoga, CA: Electronic Trends Publications
ISBN: 0914405713

Business Plan:  

• Confidentiality of your Intellectual Property is a big concern

• Venture Capitalists won’t sign Non Disclosure Agreements yet they are a major source of leaks

• VC’s may be just interviewing you because they have invested in a competitor already

• Be careful of who you give business plan to and ask for its return (un-copied) 

Dealing with Venture Capitalists 

• Choose VC’s as carefully as you would top employees – you need to have complete faith in them

• Make sure they are experienced and focused in your area of business (not generalists) Check their references (vital) – talk to other startup CEO’s they have worked with to get a warts and all appraisal of their professionalism (don’t let yourself be fooled by their flattery or by the first one that shows you interest – reference check all firms you do business with – including investment bankers etc when preparing for IPO’s)

• Start looking for capital well before you need it!! (Don’t wait until you are under pressure to pay salaries)

• Get a personal introduction to VC’s if possible

• Visit them first – do not provide business plan until after 1^st meeting

• Query them for conflicts of interest – be suspicious

• Tell your story verbally only – you can control the information flow

• Keep handouts to a minimum

• Never leave any proprietary material

• Focus on the executive summary only

• Negotiate – don’t teach!  If they do not understand your concept straight away they will not fund it so don’t waste your time

• Treat every meeting as if it were a future negotiation for money and answer questions accordingly (ie if they get you to admit any weaknesses, they will use your admissions later as bargaining chips for a lower share price or greater ownership %)

• Make them think they are under pressure to act as you have hot interest from other VC’s (get as many as possible chasing you!)

• Never count the cash until you see it in your bank account – promises mean nothing!

• Expect a lot of “No’s” VC’s only fund 6/1000 plans they see

• 10% of startups that succeed make up for the 90% that fail in the VC’s portfolio. You are paying for their bad investments – hence why they are looking to highly dilute your ownership to maximise their gain

• They are looking for a Return On Investment of 20%+

• They get preferred shares (preferential tax treatment / first call on assets in bankruptcy) which are converted to common shares at IPO or sale of company

• If you suspect that they desperately need a winner (ie your company’s hot future prospects) then you have a better chance of retaining more of your company in the negotiations (thus reducing your cost of capital)

What Venture Capitalists are looking for: 

• A large, rapidly expanding market

• Competent management

• A revolutionary / unique idea or technology that can be commercialized

• Sustainable competitive advantage

• Reasonable purchase price per share
  

• They are looking for a complete, high calibre management team with proven track record or startup experience (they will do reference checks etc)

• They may aim to appoint their own CEO and want to get control of board of directors to manage their risk (You will need to fight for your own interests unless you agree it is in the company’s best interests. This can be difficult to let go of leadership when you are emotionally attached)

• The flip side is that they often have vast expertise and contacts to share that can make a positive difference, and can help you avoid mistakes – and they want the kudos of backing a winner

• When things are going great they are supportive and can expedite growth

• When times are tough they can be ruthless (“vulture” capitalists) and will do whatever it takes to protect their money (including replacing the founders)

• They will want to get you to IPO – or sell as fast as possible to get their money back (even though this may be a distraction, or not in its best interests of the business at that particular time)

• They will endeavour to exert control over the following:  salaries / employee share options / structures of deals with suppliers and customers / veto over & timing and pricing of additional capital rounds / choice of CEO & CFO / monthly cash burn rates / approval of budgets and operational plans

  
  

• Strategy – they will want to know:

  • Product Development

  • Positioning

  • Size of the market

  • Path to market

  • How you are going to get ahead

  • How you are going to stay ahead when large competitors enter the market

  • Product evolution / development pipeline 

  • 5 year financial projections

Presenting to Venture Capitalists  

• Be persistent – expect to have to call/email them 6 x before reply for appointment

• May have to present to 20 VC’s before you get real interest

• Don’t rely on one source – stimulate competition amongst several VC’s

• Brush up on your negotiation skills / get professional advisor to accompany you if necessary

• Do not present anything proprietary at the first meeting

• Present executive summary – 15-20 PowerPoint slides max

• Be able to discuss your presentation in detail and be able to back your financial projections

• Most sales estimates are overly optimistic and VC’s will grill you on these

• Most capital estimates and development times are grossly underestimated (VC’s will double your estimates in their valuation calculations)

• Expect them to ask a lot of negative sounding questions

• Be able to back your share price valuations but be willing to negotiate

• Rehearse and prepare your presentation and likely question responses prior to the real thing (don’t wing it – they are seeing great presentations every day)

• Ask for double the funding you want or think you are going to get

• Even if you get a refusal, ask for their feedback on how the business plan can be improved

• Get your business plan back!

The Core Team:  

• Pick the most outstanding talent that you can afford in sync with your company culture

• Talent attracts talent

• Try to get a “name” CEO

• Try to get “name” investors

• Team is usually built in the following order; Technical experts, CEO, Marketing, Sales (business development) , Operations, Finance

• Outsource key roles / contractors if necessary – consider using share options to keep costs down

Ownership / Dilution / Negotiation / Valuation: 

• Make sure your lawyer is very experienced in venture capital and can structure a deal today that will take into account likely scenarios tomorrow

  • What % of the company the founders will own at IPO time

  • What each share will be worth at IPO time

  • How many shares will be available to the public at IPO

  • (Ownership%) x (total # of shares outstanding) x ($/share) = $wealth

• Create classes / layers of jobs to determine share options allocations for new hires

• Founders on average own only 4% of their companies by the time they get to IPO (can be higher in companies with low capital requirements)

• Get agreement from founders how much they are willing to dilute their ownership prior to starting any funding negotiations

• Founders get greater % of ownership than those joining later (regardless of how much more experienced or capable the new hires may be), to compensate for the founders’ risk (personal funds invested / leaving employment before money is raised / creating business plan / convincing others to invest in or join their quest / staking their reputations on the business outcome)

• Ensure enough shares are set aside to attract talented employees later and tie them in to the success of the company with share options

• Get agreement on how much ownership you are willing to give up to VC’s in return for what level of investment

• The greater amount of capital to be raised = the lower the % of ownership retained by the founders

• VC’s typically own 60-70% of a company by IPO time (but negotiate your own terms)

• The quicker you can get to IPO, typically the less ownership is given away

• Each round of funding typically adds another VC investor to the board

• Be wary of any veto rights VC’s may insist on as they can be restrictive later on

• The founder/CEO should be responsible for securing (additional) funding. Do not count on lead VC’s to do it on your behalf, they have other interests

• Be honest - keep VC’s informed of slippage in terms of development times & budgets and payroll requirements to maintain your credibility with them

• It is dangerous (and bad form) to raise money prior to releasing hidden bad news – you expose yourself to legal action and investor resentment all round

• Aim to exist on low salaries until the company becomes profitable (keep lean and mean) 

Jim Collins,
Publisher: Jim Collins
ISBN: 0977326411 

This is a synopsis only.  RESULTS.com recommends you buy the original book.

Every institution, no matter how great, is vulnerable to decline.

There is no law of nature that the most powerful will remain at the top. Any company can fall and most eventually do.

Decline is largely self-inflicted, and the path to recovery lies largely within our own hands.  Whether you prevail or fail, endure or die, depends more on what you do to yourself than on what the world does to you.  

Some companies do indeed recover - in some cases coming back even stronger

Decline can be avoided.  Decline can be detected. Decline can be reversed.

By understanding the symptoms of these 5 stages of decline, leaders can use them as a diagnostic to take remedial actions to reduce their chances of falling to the bottom.

The 5 stages of decline:

Stage 1: Hubris Born of Success

Stage 2: Undisciplined Pursuit of More

Stage 3: Denial of Risk and Peril

Stage 4: Grasping for Salvation

Stage 5: Capitulation to Irrelevance or Death

Stage 1: Hubris Born of Success

Success, Entitlement, Arrogance

• Success is viewed as “deserved” rather than fortuitous, fleeting, or even hard earned in the face of daunting odds

• People believe that success will continue no matter what the organization decides to do, or not to do.

Neglect of a primary flywheel

• Company becomes distracted by extraneous threats and opportunities

• Neglects to focus on keeping a primary flywheel turning

“What” replaces “Why”

• Thinking, “We’re successful because we do these specific things”

  • When they should be thinking, “We’re successful because we understand why we do these specific things - and under what conditions they would no longer work”

Decline in learning orientation

• Leaders lose their inquisitiveness and learning orientation

  • Great leaders, no matter how successful they become, maintain a learning curve as steep as when they first began their careers.

Stage 2: Undisciplined Pursuit of More

Unsustainable quest for growth / confusing big with great

• Success creates expectations for more and more growth

• Puts strain on people, culture, and systems

• Firm is no longer able to deliver excellence consistently

Undisciplined, discontinuous leaps

• The firm makes dramatic moves that fail at least one of the following three tests:

1. Do they ignite passion and fit with the company’s core values?

2. Can the company be the best in the world at these activities?

3. Will these activities help drive the company’s economic or resource engine?

Declining proportion of right people in the right seats

• Losing the right people and/or

• Growing beyond the organization’s ability to get enough of the right people to execute with excellence

Easy cash erodes cost discipline

• The organization responds to increasing costs by trying to grow revenues rather than increasing its financial discipline.

Bureaucracy subverts discipline

• Bureaucratic rules subverts the ethic of “freedom and responsibility” that marks a culture of discipline

• People increasingly think in terms of “jobs” rather than responsibilities.

Problematic succession of power

• Leadership - transition difficulties

• Poor succession planning

• Failure to groom excellent leaders

Stage 3: Denial of Risk and Peril

Amplify the positive, discount the negative

• Tendency to discount or explain away negative data

• Failing to see that the data indicates something may be wrong with the company;

• Leaders highlight and amplify external praise and publicity.

Big bets and bold goals without empirical validation

• Leaders set audacious goals and/or make big bets that aren’t based on accumulated experience,

• Or worse, they make bets that fly in the face of the facts.

Incurring huge downside risk based on ambiguous data

• When faced with ambiguous data and decisions that can have a potentially severe or catastrophic downside, leaders take only a positive view of the data and ignore the downside risks

Erosion of healthy team dynamics

• Decline in the quality and amount of dialogue and debate

• Shift toward either consensus or dictatorial management

  • Rather than the ideal which is a process of argument and disagreement followed by unified commitment to execute decisions.

Externalizing blame

• Rather than accept full responsibility for setbacks and failures, leaders point to external factors or other people to affix blame.

Obsessive reorganizations

• Rather than confront the brutal realities, the firm chronically reorganizes

• People become preoccupied with internal politics rather than external conditions.

Stage 4: Grasping for Salvation

A series of silver bullets

• Tendency to make dramatic, big moves, such as:

  • a “game changing” acquisition

  • a discontinuous leap into a new strategy

  • an exciting innovation, in an attempt to quickly catalyze a breakthrough

  • lurching about from program to program, goal to goal, strategy to strategy, in a pattern of chronic inconsistency.

Grasping for a savior leaders

• The board responds to threats and setbacks by searching for a charismatic leader and/or outside savior.

Panic and haste

• Instead of being calm, deliberate, and disciplined - people exhibit hasty, reactive behavior, bordering on panic.

Radical change and “revolution” with fanfare

• The language of “revolution” and “radical” change characterizes the new era

• New programs! New cultures! New strategies!

• Leaders spending a lot of energy trying to align and “motivate” people, engaging in buzzwords and taglines.

Hype precedes results

• Instead of setting expectations low - underscoring the duration and difficulty of the turnaround - leaders hype up their new visions

• They “sell the future” to compensate for the lack of current results, initiating a pattern of overpromising and under delivering.

Initial upswing followed by disappointments

• There is an initial burst of positive results, but they do not last

• The organization achieves no buildup, no cumulative momentum.

Confusion and cynicism

• People cannot easily articulate what the organization stands for

• Core values have eroded to the point of irrelevance

• The organization has become “just another place to work” or get a paycheck

• People lose faith in their ability to triumph and prevail.

• People become distrustful, regarding the company visions and values as little more than PR and rhetoric.

Chronic restructuring and erosion of financial strength

• Each failed initiative drains resources

• Cash flow and financial liquidity begin to decline

• The organization undergoes multiple restructurings

• Options narrow & strategic decisions are increasingly dictated by circumstance.

Stage 5: Capitulation to irrelevance or death

-------------

APPENDIX 5: What Makes for the “Right People” in Key Seats?

The right people fit with the company’s core values

• Great companies build almost “cult-like” cultures

• Those who do not share the institution’s values find themselves surrounded by antibodies and are ejected like a virus

• People often ask, “How do we get people to share our core values?” The answer: you don’t.  You hire people who already have a predisposition to your core values, and hang on to them.

The right people don’t need to be tightly managed

• The moment you feel the need to tightly manage someone, you have made a hiring mistake.

• If you have the right people, you don’t need to spend a lot of time “motivating” or “managing” them.

• They’ll be productively neurotic, self-motivated and self-disciplined, compulsively driven to do the best they can because it’s simply part of their DNA.

The right people understand they do not have “jobs”; they have “responsibilities”

• They grasp the difference between their task list and their true responsibilities.

• The right people can complete the statement, “I am the one person ultimately responsible for…”

The right people fulfill their commitments

• A culture of discipline

• People view commitments as sacred - they do what they say they will do

• Equally, this means that they take great care in saying what they will do, careful to never over commit or to promise what they cannot deliver.

The right people are passionate about the company and its work

• Nothing great happens without passion, and the right people display remarkable intensity and passion.

The right people display “window and mirror” maturity

• When things go well, the right people point out the window, giving credit to factors other than themselves

• They shine a light on other people who contributed to the success and take little credit themselves

• Yet when things go wrong, they do not blame circumstances or other people for setbacks and failures; they point in the mirror and say, “I’m responsible.”

 

In Search of Excellence- Lessons from America's Best-Run Companies -  Tom Peters, Jr Waterman, Robert H

Ram Charan,
Publisher: McGraw-Hill
ISBN: 0071626166


This is a synopsis only. RESULTS.com recommends you buy the original book.

Chief Executive Officers

Leaders overestimate how well they will fare because that is what they want to believe. You need to prepare for the worst right now - or you will put your company at risk.

Your focus must shift from the income statement to the balance sheet. The most critical metric now is cash (working capital). Monitor cash, inventory, accounts receivables – every week at minimum - even daily! Lack of liquidity is lethal.

Revise your cash flow forecasts with pessimistic revenue assumptions. Will you still breakeven?

Focus on cash efficiency - not growth. Face the reality that you may need to shrink your company to survive.

Narrow your focus - Concentrate on the core. Simplify. Fewer customers, fewer products, fewer facilities, fewer people, fewer suppliers - and a stronger company. You will emerge smaller - but stronger, better, more flexible, and better positioned.

Do not short change the future though. You must still invest wisely in the right areas to ensure payoffs in the future.

Get real time, ground level intelligence from your front lines in order to make faster, better informed decisions. Get close to customers and suppliers. What are they seeing? How are they feeling?

Strategic planning and target setting should be revised more frequently. Make modifications as situations change. Annual planning and budgeting is far too long. Your current strategy may become quickly obsolete.

Instil courage in your team by being present, being authentic, confronting reality, telling the truth, and taking steps to address it decisively.

Leaders who were successful in good times may not be up to the challenges confronting them today (anyone can look good in a rising market) - and many became arrogant with the success they achieved by pursuing aggressive growth at all costs through leveraging and taking risks.

Now you need to be a real leader - to be able to lead your people through the storm and develop a credible plan to do that.

Be bold. Defensive cost cutting is not enough. You also need to make the right offensive moves - to grab market share - to acquire assets - to invest in core competencies.

Be hands on - working at the front lines with your team down in the trenches.

Reduce costs and headcount surgically. Across the board cuts are stupid.

Cut costs before your revenues decline. Get ahead of the curve.

Build close relationships with customers. How can you add extra value to your strong customers?

How can you reduce your ties to weak customers who may go belly up - or to those that cost you a lot of cash to service (make you hold a lot of inventory / are slow payers etc)?

Sales & Marketing

Salespeople who are order takers will not cut it in this environment. You must understand the customer's pain and provide customized solutions that enable you both to succeed (win – win).

Salespeople will need to become more analytical and understand the importance of both margins and cashflow.

Salespeople must provide their company with ground level intelligence of what is going on in the marketplace. This information must be documented and shared where all functions in the firm can be made aware of it.

Be wary of selling to firms who are likely to be bad payers. Sales goals and incentives will need to be re-thought (e.g. Salespeople might be better if they are incented for collecting cash). Some customers will need to be dropped.

You may need to revise your value proposition - but beware of losing your brand identity - or cheapening your brand.

Chief Financial Officers

CFO's will need to manage cash effectively and ensure debt obligations can be met

Show your people – using visual examples - the impact on the financial statements of:

• a drop in revenue

• a decrease in gross margins

• how reducing overhead expense items directly improves profit

• how an increase in inventories or accounts receivables ties up cash

Develop dashboards to keep the financial picture visible – and help people confront reality.

Revise budgets monthly if necessary to reflect the changing reality.

Budgeting should not be an annual exercise based on last year plus or minus certain % for each line item. Each line item must be recast based on new projected reality – every quarter or even every month if necessary.

Return on Investment (ROI) may not be the only measure of capital allocation now. The timing of cash flows may be a higher priority in terms of where you invest your money.

Some projects may need to be abandoned regardless of sunk costs or emotional attachments

Chief Operating Officers.

COO must understand the likely new break-even point – before falling revenues become a reality and be able to rapidly adjust capacity to suit the new lower level of demand.

Understand the long term implications (consequences) of any cost cutting measures - e.g.

• Can you quickly scale up again when demand improves?

• Will you lose key capabilities or relationships?

• If you reduce R&D, will your competitors gain an edge when things improve?

• If you reduce maintenance spending will it have costly consequences in the future?

Simplify and reduce product lines. Retain the core activities. Outsource everything else

Manage inventories - they are a huge cash trap. Adopt “Just In Time” inventory management - or even “Produce on demand”. Simplify and speed up your supply chain.

Maximize capacity utilization - and be able to quickly vary staffing levels according to demand.

Recognize & retain employees who have the highest engagement and customer satisfaction scores.



Zero based thinking – if you had to start this project again now – would you still do it? Analyze which projects are critical to the future and which need to be abandoned.

Your toughest decision as a leader will be where to make cuts - and where to focus and increase investment.

This can be a good time to get the right people in the right jobs. You will now see who the real players are - who to keep and who to let go. People who could do well in good times may not be tough enough, decisive enough, or fast enough to adjust and make the necessary changes to meet the challenges now.

Training should be maintained – but be specific to current issues.

Compensation needs to be revisited to make sense in light of this new reality.

New targets need to be set by the board of directors. It may not be about growth, rather how to survive and outperform other competitors in your industry. Many companies will become smaller in the next couple of years and many will disappear.

Beware of cutting things without taking into regard their future impact.

Plan for worst case scenarios – but then work to make things better.

Never Eat Alone - Keith Ferrazzi, Tahl Raz

Now Discover Your Strengths - Marcus Buckingham