Business Owners Toolbox Blog Discussions and articles to help the small business owner solve the challenges they face as they grow their business.

January 27, 2011

Manager Salaries Raise Overhead

Filed under: Growth Management — Tags: , , , , — Mike Van Horn @ 11:09 am

As we add employees, I must hire managers, and much of their time is not billable. Their salaries become overhead added to all the jobs. So our labor rate is creeping up, and our gross margin shrinking. How can I justify this, especially to myself? (Question from MM on “Ask Mike Van Horn.”)

mvh response. I see several ways to justify this to your bottom line and to yourself:

1. A good manager should pay for herself in several ways:
— Improved billing by your staff, i.e., by making sure all client work is billed for
— Improved staff efficiency via training, improving systems and procedures, better scheduling and coordination, and dividing work by specialties
You need to set targets for increases in staff productivity so you (and your managers) can track to what extent their efforts are paying for themselves.

2. She frees you up. Since you no longer have to be overseeing everything, you have more time for:
— Business development, strategic alliances—the keys to growth.
— Free time! This helps recharge your mental and spiritual energies.

3. To prepare for the eventual sale of your business, you must have a strong management team in place.

If your manager is not doing these things for you, then she is not the right person.

Here’s another way of looking at it. You’re not actually adding a manager, you’re adding a CEO. You’ve always had a manager—you! You’ve been so busy managing, you didn’t adequately fulfill your CEO responsibility. Now you can.

You just weren’t looking at your pay as management overhead. Now that you’ve replaced yourself as manager, you must account for her pay.

The new position is CEO–you—and the overhead increase goes to pay the CEO salary. But this is an essential investment for achieving your growth goals.

August 13, 2010

Neglecting HR Costs CEO $1,000,000+

Here’s a story with a moral. A business owner was driving her red Beemer convertible along a beautiful stretch of straight road, when a four-way stop intersection came into view.  Her passenger saw the rapidly approaching sign and said, “Do you see the stop sign?  Are you going to stop?”  She replied, “ I see it.  I understand the law.  But there is no other car coming from any direction within my view.  I think I won’t stop.” And they continued on.

A bit later a second business owner, alone in his Lexus, came along and drove right through the intersection.  Unfortunately, a CHP car was hidden behind a boulder, stopped him, and said, “Sir, you ran that stop sign.”  The owner replied,  “What stop sign?”

This illustrates the plights of two CEOs that have made the news recently.

1. A civil suit for discrimination was filed in a California court against Lucasfilm by a woman who had received a job offer, then before her start date informed the company she was pregnant. She claimed that in response to this news the company representative who had hired her kept pushing back her start date, finally withdrawing the job offer, just because she was pregnant.

As you know from your Unlawful Harassment training (ahem), discrimination against a person who is pregnant is sexual discrimination and unlawful harassment under both federal and state law. And can any businessperson honestly say that he or she has not heard of unlawful retaliation – and that withdrawing a job offer after a prospective employee tells you she is pregnant sure quacks like the retaliation duck?

George Lucas, head of the company, was called to testify in the suit and basically said “Huh?” when asked how this could happen.  He indicated that he really did not get involved in hiring decisions on that level, had had no interaction with the claimant, and left all those matters to his staff.  His testimony didn’t do the Lucasfilm case much good, and the woman was awarded a judgment of over $120,000 and her high-profile attorney will be pursuing recovery of legal fees over the million dollar mark.

Based on what was reported, I presume that Lucas illustrates a dangerous mindset.  Why was some project manager, aided by a “personal assistant” of Lucas, in charge of hiring at such a high-visibility company?  Had that person been trained in lawful interviewing, job offers, discrimination law?  Why was the process not in the hands of a well-trained HR professional? Did Lucas permit a culture of disregarding HR in deference to operational or financial pressures?  As head of the company, Lucas is responsible for everything that happens even if he never lays eyes on an applicant.  It seems like an expensive lesson that should have been learned much sooner, and should have become part of the organization’s culture early on.

2. The second incident involved the head of Joie de Vivre properties, Chip Conley.  In addition to being an astute and visionary businessperson, he is somewhat of a free spirit.  He posted some less-than-conventional  (although not risqué or objectionable) photos of himself at Burning Man on his Facebook page.  His HR Director gave the opinion that the photos were “a cause for concern” and advised they be removed.  Conley listened, considered the opinion, and then decided the pictures stayed posted as per his philosophy of life and business.  So far, no ill effects have emerged from the decision; but if they had, it would have still been an informed decision and a considered risk taken.  It seems clear that Conley expected his HR person to be his trusted advisor and partner in ensuring the safety and prosperity of his operations –and therefore to speak freely about possible hazards to that safety, advise how to address them, and to have the serious and respectful attention of the CEO when such matters are brought up.

Now for a short quiz:  Based on the two drivers described in my story, which one was Lucas and which was Conley?  Which are you?

B.J. Van Horn is Senior Professional in Human Resources at The Business Group. She helps CEOs and other top execs avoid such expensive lessons.

August 10, 2010

O Woe Is Me! I’m Doomed!

Filed under: Growth Management — Tags: , , — Mike Van Horn @ 10:58 am

Here’s “small business growth killer #1,” and it’s a point of view that pertains to a lot of people, probably most of us at some time. Since I’ve been there too, I’m putting it in first person.

“Things aren’t working well for me now, and I’d really like to make my business work better. So I take steps to make that happen. But secretly I’m afraid there’s no solution. There’s nowhere to go. I’m on a downward track and it’s only a matter of time till I crash and burn. It’s scary to even look at that. I’m doomed! I’m stupid for going down this wrong track for way too long. I’m going to have to give up everything I’ve done and shift to a whole new business model. I’m way too old for this. Why didn’t I do this years ago? Look at all the opportunities I’ve missed! What a dunderhead I am! I’ll never learn. I’m doomed. I just want to crawl into a hole and forget about it. Why can’t I win the lottery?!? “

Now even if I don’t have these thoughts consciously, they’re running in the back of my head when I wake up at 3:00am.

But this below-the-surface negative energy detracts from my positive “go-get-‘em” energy, so making progress becomes a real slog. I’m constantly sabotaging myself by missing deadlines and dropping commitments. This happens because I have to drag this load of negativity around with me all the time.

What can I do about this? First of all, I can ‘fess up. Tell someone what’s going on in my mental back room. Someone credible. Not someone who will give me sympathy, and bemoan how tough things are. Not someone who’ll make a negative judgment about me. Not someone who then tells me their own hard luck story. It needs to be someone who will listen, then say, “I get it. Now what are you going to do about it?”

That’s the “business therapy” function of The Business Group. It makes a huge difference to our members who confide in their peers. I unload my sad story and fears onto them, and instead of sympathizing or judging, they problem-solve. They say, “Why don’t you do B instead of A?” I often find that my group has given me a $10,000 idea! My business improves. The negative load is lifted — at least until the next thing comes along.

Or my Business Group members may say, “The old way isn’t working. Looks like you need to change your business model. We give you permission to do this. No blame. What would work better for you? What would it take to do that? What are the next steps? How could we support you? What do you commit to do by the next meeting?” This takes a significant load off me. Then I can look around and notice opportunities I couldn’t see before because I was so blinded by fear and resistance. Then, I think, “Wow! I could do that!” And so I do.

A wise anecdote states, “When you are ready, the Universe will provide for you.” What this means is, if I open my eyes, I’ll notice things that were there all along. I meet a great connection. Someone calls out of the blue. “Create your own luck” means stop wallowing in bad luck and apply my talents in a way that people who appreciate what I offer can connect with me. Hire me. Pay me big bucks. Thank me profusely.

There’s nothing like a run of enjoyable, appreciative, lucrative clients to dispel the fear of failure!

But I must be careful not to bury my head in my work again, pull in my opportunity antennas, and once again start down the slope to, “It doesn’t work.” This is why The Business Group has regular planning workshops, review sessions, and monthly commitments. To keep all of us honest, happy, and prosperous.

August 2, 2010

The 3 Barriers to Small Business Growth

Your business is growing and profitable, then BOOM, you hit a speed bump. Or you get stuck in a swamp. What happened? The bigger you grow, the tougher it can be to grow yet larger. I call this the “paradox of small business growth.”

As your company grows, you’re likely to run into three barriers at different stages of growth. Seems to me these are dang near universal!

Barrier #1. You’re a solopreneur, yet you want to grow beyond what you can handle working by yourself. But you get stuck in “the business is moi” trap.

Your growth challenge: Learn how to find good employees, then trust and manage them well.

Barrier #2. It’s you and the crew, but further growth is limited because everybody reports to you, and it’s running you ragged.

Your growth challenge: Learn how to be the CEO and entrust day-to-day operations to your skilled managers.

Barrier #3. You’re a successful, strategic CEO of your growing company, and now it’s time to move on to the next thing—sell, retire, start something else. But you’re so tied to the business, you can’t bear to turn it over to others.

Your growth challenge: Learn to let go.

I’ve been working with owners at all three levels for a lot of years. Here’s what they have in common: They have a management style that has worked very well to get them where they are. But to get to the next level—and they definitely want to get there—they must change what works. “It works, but break it anyway!” And this is very painful.

Many can’t make the leap. They decide to stay the same, and come up with very convincing explanations why further growth is not desirable for them. Alas.

There are straightforward ways to tackle these barriers. Once you see them laid out, you say, “Oh yeah, I could do that. I just need some guidance.”

This fall I’m going to offer a program that addresses each barrier. (You can only be at one barrier at a time.)  I’ll elaborate on each of these barriers in later posts.

In the meantime, I’d love some examples from the Peanut Gallery. If you read one of these and moan, “Ohh, that’s me right there you’re talking about!” let me know your story. Where do you want to go; what’s in your way?

We learn best from each other. You learn to transcend your barriers by seeing how others have done so (or even by watching them be stuck).

January 21, 2010

Lessons From a Gawdawful Year

Some people have told me that ’09 was not their best ever year! But what doesn’t kill you makes you stronger. What lessons have you learned from this tough year? Here’s what people in my Success in 2010 plan workshop sessions have been saying:

“We’ve had to cut costs to the bone. We’ve managed to save 10%. It struck me, what if I had been that ruthless in good times and not just bad? I’d have 10% more bottom line. Money to put in my pocket, to create a cushion for future tough time or to create a growth fund.”

“2009 was humbling. I saw how arrogant I’d been. We assumed that growth would just keep going. But when the phone stopped ringing, we had to relearn Marketing 101. For example, setting targets for number of new clients, and tactics how to bring them in. We should have been doing this all along.”

“I let myself get discouraged by telling and retelling the same old story of woe about how bad 2009 was. This was killing the business. During the plan workshop, I wrote it all out in excruciating detail, took one last look and then tore it up in little pieces. Now the slate is clean for 2010.”

“We kept people on way too long. We should have laid people off sooner. I was afraid that we’d never get the good people back. I’ve learned we cannot guarantee jobs. We must retain labor flexibility. From now on, our scheduling must go along with revenue—not just shop people but admin as well.”

“We saw our employees perform better in tough times. They’re more friendly, supportive and team-oriented. Is this fear of unemployment? I think they just saw the trouble the company was in and it focused their thinking. As a result, people are doing better client work than ever.”

“I watch the books like a hawk now. During good times, I only kept half an eye on the books. I’ve got to track how we’re doing—even day-to-day. I can’t wait till the end of the month to see what we did a month ago.”

“We hunkered down and lost sight of our goals. We’ve had to get in touch all over again with our long-term vision. It’s the source of our direction and inspiration. Without this we’re just wandering around.”

“Tough times force us to make better decisions. In fat times, we get lazy; let bad decisions slip in; spend too much on marketing and keeping poor employees, etc.”

“We laid off 40% of our people and kept the best 60%. Now that business is picking up, I’m giving more hours to our remaining people—even overtime—rather than rehiring. I see that paying overtime for existing people is cheaper than paying health insurance, workers comp, etc for extra people we hire.”

“We got a lot less picky about our customers. We’re going after smaller clients we would have said no to before. And without these, we’d be dead now.”

“A key employee left unexpectedly. This threw us for a loop. The lesson? Cross-train. Don’t be put into a position so that the company is held hostage to whether one employee stays or leaves”

What lessons have you learned? Add ‘em below.

November 6, 2009

Delegate till it hurts!

When it comes to delegating, business owners can be their own worst enemies. (from my post to the Bay Area Consultants Network LinkedIn group)

“Delegate till it hurts!” is the advice I give my small business owner clients, who are overworked yet reluctant to hand off tasks to employees they’re paying good money to.

Yesterday I met with a client who owns a 10-person company. She hired a numbers person to free her up to do the creative stuff that brings in the money. Yet she still holds on to estimating “because it’s complicated and it has to get done right.” This takes so much of her time that she neglects business development. So we discussed how to hand off estimating to her numbers person.

Of course she neglects business development because marketing calls scare the bejeebers out of her. She holds onto estimating–call it “comfortable drudgery”–so she won’t have time to do the marketing.

What is it about marketing that scares her? She says every call seems like a cold call. Her unspoken attitude is, “You wouldn’t want to buy anything from me, would you?” So then how has her business been so successful? “I’m good at building relationships,” she says.

So I tell her, “Stop marketing. Instead, go build relationships–with allies and people who respect you. Tell them how much you admire their work, and that they are the kind of person you’d like to work with.”

This suggestion seems to take a load off her shoulders. Then she says, “I dislike making the calls to set up these visits. Hmmm, maybe I could hand this off to ‘numbers lady’ also.”

So. Two major delegations to free her up to focus on the two things she loves about her business (and that make the cash roll in) — creative stuff and building relationships. And delegating to a person who’s already on payroll. Note that we got there by addressing her fears and resistance and old habits. Otherwise she would remain the bottleneck to effective delegating.

She left with a new spring in her step.

This is why I love my work!


October 15, 2009

What are the leading indicators of business success?

Asked by John Cameron on LinkedIn

Good questions, John!
With the entrepreneurs and small business owners I work with, here are some of the personal success indicators I look for:

— Desire to be a manager and executive, not just a worker and detail person. (Many prefer just to keep working away.)
— Habit of stepping back and looking at the big picture regularly
— Planning, even in the face of uncertainty; then review their plan regularly, take corrective action, and update it as needed
— Willing to hire top quality people–even people smarter than they are
— Delegate as many things as they can to others, to free them up to focus on strategic issues
— Willing to invest in their own business; to take a risk; to hire a person they cannot afford right now, but who can help them break out
— Get support from peers and experts who have been where they want to go. Listen to and learn from these people, even when it’s uncomfortable.
— Continual learning: improving management skills, mastering new technologies, broadening industry knowledge

Note that these are about the individual, not the business concept or model. However, I also look for:

— A business model that promises profit margins adequate to pay them well, but also to fund growth, pay back investors, and provide a cushion for tough times.

Also, notice that I said nothing about working 24/7. I do not think that correlates well with business success.

I have a Business Viability Test that I use to assess business models. I haven’t yet included that in my e-tools, but I think I will.

October 5, 2009

How Can Small Business Compete for Top Talent with Large Corporations

(From question in Small Business Forum)

Let me count the ways!

Small companies have many advantages in attracting top people. Here are a few. (I work with owner-run firms from 5 to 100 employees.)

— Shorter commute. One 50-person client just hired a COO for $120k who’d received a $150k offer from a corporation in the city. He opted for a local 10-minute bike commute over the hour+ daily grind each way. He figured the extra two hours a day added to his life was worth $30 grand a year.

— More opportunity. Another client hired a GM away from a much larger competitor. The guy saw that he’d reached the top where he was, and in the new job, he’d get to lead a major growth push. Big fish in a smaller pond.

— Less travel. Many professionals in their 40s and 50s switch to smaller, local firms because they’re tired of constant travel they’ve had in their corporate jobs.

— Flexibility. “Yes, we can bend your schedule around your kids’ soccer games.”

— More diverse opportunity. They see they’ll get to take on a much greater variety of projects and responsibilities.

— Get to work directly with the principals. Small companies may be headed by much more innovative and leading-edge people, and it’s a great opportunity to work with them.

— Less corporate bureaucracy and politics.

— Un-retired. Here’s a big growing trend: Senior people retire from the corporation, then go to work for smaller companies. They trade less money for lower stress and flexible hours. The oldest guy working with us is in his mid 70s.

Attracting top people is a marketing job. You must look at your company through their eyes, see what you offer that will attract them, and how you can make yourself more attractive. It’s about much more than just offering more money.

However, many small business owners discover that the people they’ve lured away from large organizations aren’t a good fit. These people may be accustomed to narrower duties, superiors telling them what to do (thus uncomfortable taking initiative), having a lot of support staff (thus not resourceful at getting things done). But by far the worst quality is exhibiting “employee mentality” rather than the “entrepreneur mentality” needed in a small, dynamic firm. And I’m talking about top-level managers!

So it’s essential to make sure that the “corporate escapees” you hire are comfortable in your small business culture.

September 24, 2009

The Power of a Strong #2

Filed under: Growth Management — Tags: , , — Mike Van Horn @ 5:30 pm

(from discussion in a Business Group meeting)

“I’m now getting a glimpse of what I can do in my business if I’m not in charge of day-to-day operations.”
So says a woman who owns an eight-person professional service company and who just hired a top-notch marketing associate. “Execution–doing the work–isn’t our problem; it’s keeping the pipeline filled. That’s what she’s going to do.”

“Now that she is producing results, I have the bandwidth to turn my attention to building the strategic relationships we need in order to expand into new cities.”
“She’s expensive. But what choice do I have if I want to grow? I’ve got to be willing to invest in my business—especially right now as the economy is beginning to turn around. I’ve got to be there to take advantage of the opportunities that are happening right now. If I don’t, the others will be passing me by. The key is selecting that person who can do the job—even better than I could—so that she pays for herself many times over.”

My question to you, readers: Who is the strong support person you should bring in (or groom) to free you to leap into the emerging opportunities? Could be anybody from a part-time admin assistant to a high-powered director of operations.

August 20, 2009

Women vs. Men Business Owners

Filed under: Growth Management — Tags: , , , — Mike Van Horn @ 12:39 am

Q: How are women business owners and execs different from their male counterparts? What do they do right? What mistakes do they make? Lee B.

A: Two observations from my many years of working with men and women small business owners:

1. The similarities are much greater than the differences. Some of the claimed differences I hear about aren’t true in my experience.

2. But here’s one difference: In general, women owners are more intent on preserving their balance between work and the rest of life. A while back, I surveyed a number of our Business Group members during meetings. I asked, “How many hours a week do you work?” The men complained/bragged about the number of hours they put in: 50, 65, 80, more! One guy said, “I have to wear a nametag so my kids will recognize me.”

Then it was the women’s turn: “I work 35 hours, then I go ride my horse.” “I’ve set it up so I never work Fridays.” “I want to be an absentee owner. If my GM can’t handle things, he’s fired.” “I want to spend as much time running my non-profit as I do my business.”

The women ran equally large and profitable companies — ranging from 5 to 50 employees. And they weren’t brilliant managers. It’s just that they insisted on maintaining their work/life boundary and ran their business to maintain it. The men looked at working long hours as a badge of honor.

I must say, this exercise had a huge impact on the men. They started changing their attitudes about this. And it has paid off: the guy who made the “nametag” comment is now finishing a four-month sabbatical from his business, during which his Operations Manager handled things just fine.


1. The difference in hours worked was entirely due to the attitudes and beliefs one held.

2. People could change when confronted with the possibility of doing things differently.


Want to reduce the hours you work without hurting your business performance? I get into this more in two of my e-books:

— Recapture Your Time

— The Inner Game of Growth

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