Posts Tagged ‘CEO’

Character and Personality #4: Time

by Gary Monti on July 27, 2010

Would you like to quickly determine where synergies and problems exist in an organization? Come along to see how knowing individual’s temperaments can help predict possible outcomes in situations.

Traits

Temperament refers to preferred ways of thinking. Traits refer to preferred behaviors. They correlate well. Let’s look at a mythical company with the following temperament mix:

CEO – NT (intuitive thinker)

Senior staff member – NF (intuitive feeler)

Operations manager – SJ (sensing judger)

Programmer – SP (sensing perceiver)

None of them want their time wasted. The problem is with their perception of time. Here is the order in which they prioritize past, present, and future. Also, their nicknames have been included to give a hint as to where their priorities lie.

TRAIT Nickname Past Present Future
NT Field Marshal 2 3 1
NF Organizer 3 1 2
SJ Enforcer 1
SP Doer 1 2 3

So how does this play out in the work place? Take a look at the table below.

TRAIT Nickname Positive Traits
NT Field Marshal
  • Sees where the company can be in the future.
  • Sets standards and holds to them.
  • Delegates today’s activities to others.
  • Strategic thinker
  • Holds on to the vision throughout difficulties.
  • Leads the way and doesn’t waver.
  • Main interest is achieving dreams and accomplishments.
  • The past informs the future. Incorporates lessons-learned into future plans.
NF Organizer
  • Takes interest in others and how they are brought together to get things done.
  • Pays attention to the overall-balance among key factors
  • Puts “teeth” into the NT’s strategic plans.
  • Will look towards the future by focusing on generating cooperation today.
  • Works as a shock absorber between the NT and lower ranks.
SJ Enforcer
  • Focuses on NOW.
  • Stays on task and gets things done.
  • Knows the limits of available resources.
  • Tactically-oriented.
  • Supports the strategies that come down from above
SP Doer
  • Prefers a structure be presented within which work can be performed.
  • Wants to know what the orders are for getting work done.
  • Prefers others develop strategies.
  • Wants involved when tasks are defined.

As you have probably guessed by now, there can be a dark side to all this.

TRAIT Nickname Negative Traits
NT Field Marshal
  • Doesn’t hesitate to change on-going work in order to leverage the future.
  • Believes the project is complete at the moment of delegation.
  • Does not want to be distracted by problems from the present.
  • Risk management is for nay-sayers. It can distract from the future.
  • Positive criticism downplayed or ignored.
  • Negative criticism emphasized.
  • Little interest in people and their requirements.
  • Can ride roughshod over others and have a short memory regarding those behaviors
NF Organizer
  • Can lose sight of the need to mend problems from the past since there is push for today and the future.
SJ Enforcer
  • Rules are to be enforced, not questioned.
  • The past can’t be fixed and the future is out of reach so don’t waste time on either of them.
  • Finds strategizing, planning, and spending time on what-ifs boring.
  • Wonders if strategies are sane.
SP Doer
  • Wonders if the plan is sane.
  • Can be rebellious yet wants no risk.
  • Can go in own direction without informing others.
  • Gauges work and others based on how the SP was treated in the past.
  • Change is viewed with suspicion. The past needs to be resolved.

The Leadership Challenge

You can see that avoiding wasting time can quickly turn into a multi-dimensional problem quickly. Taking the time to understand others pays huge dividends by providing clear vision as to strengths and limits in situations. With that as a base planning and execution can proceed realistically.

compensation_reward_strategy_pictureThe most frequent approach to valuing a sole practitioner’s private practice is the “Excess Earnings” Method.  In this method, excess earnings represent Total Practice Earnings (salary + bonus + company profit) in excess of the sum of “reasonable compensation” and a reasonable return on the practice’s Net Worth (Assets minus Liabilities.)  When the estimated value of excess earnings is multiplied by a factor (the multiple) reflecting the relative risk of the earnings stream, the result is goodwill.  Goodwill plus Net Worth equals the total value of the practice.

While the excess earnings method itself is quite straightforward, determining what constitutes reasonable compensation is anything but.  Even “experts” can draw vastly different conclusions on this topic.  Clearly, if there is no agreement on what level of compensation is reasonable, there can be no agreement on what is excess.  This post will seek to demystify this question and clarify the process.

The Excess Earnings Method is based on the principle that the vast majority of the value of a sole practitioner’s private practice is the capacity of the practice (the practitioner) to generate net income after all expenses.  This principle is common to virtually all types of businesses. The difference here is that this method requires that the earnings of the practice be compared to those of “comparable” practices.  The following scenario will help to illustrate the fundamental issue in this comparison.

You, the sole practitioner, have decided to take a year off and sail around the world on your boat.  {To simplify this example, we will assume that Net Worth = $0}  Your task as CEO is to hire a person with identical skills and experience to manage your business, and to provide all the services your clients require.  This individual would be neither an owner nor a partner in your firm.  What would you have to pay this person?

Let’s assume that you could hire an equally competent replacement for yourself for $150,000 per year.  If your Total Practice Earnings = $400,000, Excess Earnings = $250,000.  The difference between the non-owner’s compensation and your Total Practice Earnings reflects the benefits of ownership.  In other words, you compensate yourself at the $400,000 level not because that reflects market rates, but simply because you own the company, and you can.

While the concept and the basic calculation are easy to grasp and implement, the problem arises in determining precisely what constitutes market rates.  There are two ways to do so.

  1. Find at least one economically similar practice that employs a practitioner of comparable skills and experience to you.  Where such arms-length financial arrangements exist, they represent best evidence.  Unfortunately, such direct comparisons are typically few and far between.
  2. Much more common is to rely on the estimates of other sole practitioners in your field as to what such a non-owner employee would earn in their practices.

The lynchpin of both avenues of inquiry is the identification of one or more economically comparable practices.  By what standards does one determine comparability?

First, the practitioners must be practicing in the same or closely related specialty, however unusual or thinly populated.  To compare a transplant specialist with a cross section of general surgeons would be of little help.

Second, the backgrounds and credentials of the practitioners must be quite similar.  This does not mean that they went to the same medical school or had virtually identical residencies.  However, one cannot very well compare someone who is board certified in a specialty with one who is not.  Nor is one likely to find a helpful comparison between individuals whose time in practice varies by 15-20 years.

Third, economically comparable practitioners must function at about the same skill level, and be so recognized by their peers.  Fortunately, the narrower the specialty, the better known are the few leading practitioners and, therefore, the easier it is to obtain such judgments from colleagues.

It is important to keep in mind that we are not comparing the Total Practice Earnings of similar practice owners.  That would defeat the basic objective, which is to determine the incremental increase in Total Practice Earnings resulting from self-employment.  Only by making that determination can we determine the value of ownership in the private practice and, as a result, the value of the practice itself.

PhotoPopellThis article has been contributed by Steven D. Popell CMC (Certified Management Consultant.) Steve has been qualified as a business valuation expert since 1974, and has published extensively on this topic. CMC, a certification mark awarded by the Institute of Management Consultants USA, represents evidence of the highest standards of consulting and adherence to the ethical canons of the profession. Steve was a 2007 winner Collaborative Practice California Eureka Award for contributions to Collaborative Practice in this state.

The Most Respected SOB

by Yakov Soloveychik on August 17, 2009

patton11“Every Successful enterprise requires three men:

a dreamer, a businessman, and a son of a bitch.”

Peter McArthur, Photographer

History has shown that whenever the Presidents’ approval rating drops under 50%, the markets rally and the growth averages 9%. Sounds strange?

Change isn’t always popular and as a young COO running the operations of a $25 Million manufacturing company, I found myself being disappointed if at the end of the week I did not find any graffiti about myself on the notice boards of the plant restroom. I could not understand why I felt disappointed until one day it came to me … I was not active enough and I needed to take more risks that introduced change into the idling system. CHANGE is what causes popularity loss. Not the talk about change, but the actual change/shakeup of someone’s perceived state of “unruffled” comfort.

Note this sequence:

Popularity DOWN when CEO demanded –

    • higher efficiency
    • more overtime
    • more output
    • more sales effort

Popularity UP when CEO increased –

    • increased benefits
    • increased commissions
    • increased paid time off programs

You can continue this list, but you see the trend.

The formula for business is: Profitability = Revenue – Costs.  Simple and obvious yet very complex at the same time. Every CEO must (and CEO performance is based on) driving revenues UP and driving cost DOWN so that they do not grow in the same proportion as the revenue. That will assure growth in Profitability.  Now compare this objective of every CEO with issues related to His/Her Popularity. In most cases, when one strives for Popularity, this will increase the cost of running the business and will stagnate revenue growth.

For example, Steve Jobs, a dreamer, a businessman, and most unpopular CEO (to insiders) of Apple, created an unprecedented business success story for a company that was about to collapse.  While he strived to create a new type of industry and product lines for Apple, there were still stories about people trying to avoid at any cost getting in the same elevator with him. Today the results are outstanding and those who benefited on the share price growth are happy, but most of them still do not like the CEO who introduced the CHANGE, got them all to work hard and sacrifice a lot of personal comfort in the process.

Leadership is tough on popularity and likability. Executives and managers who strive for popularity, friendship, and for “being liked” by their peers and employees will become less effective and as a result, often impede their progress to succeed in the marketplace.

Let’s take it to my favorite examples with our kids. There is always this dreadful moment when your 5 year old suddenly in frustration tells you: “I hate you …”. What just happened? Your popularity rating just dropped to the bottom … but most likely this was after you got him to do what you wanted as most of the time these words come after your insistence on doing something they do not want to do on their own. If you let them have their way and drop your demands … well, you know, you will get a smile and “I love you” and a kiss. It is hard to demand and insist … but it builds character and eventually respect; after recognizing that your demands were reasonable and fair and that after performing as requested, you gave them candy or something they wanted so much.

Lets just substitute the striving for “love and popularity” with striving for respect and you may hit the perfect balance.

So here are two magic life rules for a better balance that will lead to respect and efficiency:

    • Always demand performance, but be reasonable and fair and adjust these demands to the person you are asking to perform these requests.
    • Always acknowledge the effort of the implementation even if the result is not 100% to your expectation, but do not hesitate to ask and insist on another solution if the result is unacceptable.

General Patton was known to demand performance and would not take any excuses, for that many called him “the most respected SOB” in the forces.

Yajov Soloveychik PicYakov Soloveychik is a business advisor, mentor and a personal coach to CEO’s and business owners. Yakov’s professional and entrepreneurial career includes VP,  COO, CEO positions and service on board of directors with a number of technology based companies in Los Angeles and Silicon Valley