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There is a difference between being a sharp business person and taking advantage of a situation by being “creative” and doing things that are beyond the law or ethically wrong. One can get into trouble by engaging in such activities either on purpose or by lack of oversight. We will focus here on what one knowingly does. One can justify these types of behaviors by saying that they could not have survived or prospered if they did not engage in them. Although that may well be true, if you were to be caught would the ramifications be worth the risk? Some people are high risk takers, but if they are not careful or lucky there’s a good chance they’ll be caught. The question is do you want to sacrifice your business and your reputation by your risky behavior? Here are two examples.

Let’s assume you are providing a prompt payment discount of 5% for invoices paid in less then 15 days, which is more generous then most such discounts and have enticed many customers to do business with you. But your definitions of what qualifies as 15 days as your “start” and “end” dates were very atypical and buried in a 20 page Terms and Conditions memorandum that no one actually reads. This, as opposed to the customary “start” date of the invoice postmark date and the “end” date as their check remittance postmark date “. Many clients thought that they were in compliance, only to be told that they did not qualify for the 5% discount. This unethical practice (scam) may work in the short term, but result in the loss of business in the long term, as your reputation suffers as dissatisfied customers post comments on Yelp and other social media.

An example of an illegal practice would be to do business in a state without the required business license. Let’s assume you did only a few percent of your sales there and you assumed that since they never bothered you before about a business license no one would check on your license now. But with state budgets running very thin, they are now looking for every penny they can and that decision opened up your entire business to the long arm of the law. You were found guilty of fraud, convicted and penalized by preventing you from doing business in that state for the next 5 years. This caused you to pay past due fines and penalties worth several times what you “saved” over the last several years.

We will next talk about recruiting people that fit your corporate culture.

We welcome your questions as to the challenges you face in order to grow.

To see all articles in this series please go to http://optimal-mgt.com/blog.

Optimal Management is the premier management consulting company to the staffing industry. We act as mentors to owners and managers to maximize their sales, profits and value of their company. We become an extension of our clients operations and are there for all of their staffing and business needs, from sales, marketing and compensation plans, to finance, M&A, general management and everything in between.

Everyone has things that motivate them and what motivates one person might not motivate another. Clearly you want people in company you can be motivate in a way that increases your sales and profits. If you have some people who are not working in harmony with this objective, you have several choices:

1. Ignore the problems and accept the fact that some people work ethic is not in sync with yours

2. Improve your staff performance, letting them know what you expect and training them as necessary to achieve your goals

3. If you are unable to succeed, re-staff the organization with those people who are motivated so the company grow and make more money.

For any company to be successful you can’t have people doing what meets their personal needs but not those of the company. Some people will do as little as possible and avoid responsibility. This is called a government mentality; keep your head down, don’t make waves or cause trouble by raising the bar for other in the organization. For companies with a poor supply of candidates due poor working conditions, requiring just a minimal skill, only able to afford to pay minimum wages are happy to find anyone happy just have a job. In this case one is satisfied with whomever they get to start with. They can improve their lot by trading up when possible and playing on the fact that these folk are just happy a job and that will have to be motivation enough for them to demand minimal expectations, such as reporting to work on time, not causing trouble, etc.

Most businesses can demand more of the people they hire and letting those who set a poor or perform at minimal level stay on, brings down the performance of the entire team. It is therefore important to find quality people and set high standards and those (who after your best efforts) can’t or unwilling to improve are then replaced. The question is how do you motivate these people? For some it is time off if they meet their goals, for other it is recognition or promotion, for most people it is earning more money, consistent with the results that they deliver. This translates into a “win-win” comp plan, where those who deliver the most are most amply rewarded. Some people need help to accomplish this. This is done by having capable mangers able to motivate their staff by telling them what they are responsible for achieving they how they are expected to do to achieving this and training them as necessary. After one has tried everything and results don’t improve the employee and the organization need to part company. The ex-employee can get a new start and the company can hire a better fit.

We will next talk about avoiding illegal and unethical activities.

We welcome your questions as to the challenges you face in order to grow.

To see all articles in this series please go to http://optimal-mgt.com/blog.

Optimal Management is the premier management consulting company to the staffing industry. We act as mentors to owners and managers to maximize their sales, profits and value of their company. We become an extension of our clients operations and are there for all of their staffing and business needs, from sales, marketing and compensation plans, to finance, M&A, general management and everything in between.

Get ahead of the curve by being in touch with leading indicators and early warning signals. In a rapidly changing environment one must be on top of things and be faster to recognize the winds of change quickly or be left behind by their competitors. Sometimes you are the one causing change to happen; this is a proactive consequence of your activities. Other times you are just impacted by change coming from somewhere else, while you may be a passive observer. Everyone is seeking an advantage in the marketplace. That advantage translates to winning over prospects as well as retaining ones own clients. Just look at what has happened in the dynamic world of smart phones and in just the last few years we have seen iphone become #1, only to see the Android replace them while Blackberry after cutting 40% of their workforce just announced it’s being sold to a private investment group for a 93% decline from its high a few years ago. The early warning signals to Blackberry were the limited number of apps that were being developed for them. And while there are legions of dedicated iphone users, the market response to their 5S was less then stellar.

Admittedly few products and services are as hotly contested as the smart phone market since it is so huge and growing so rapidly, that every 1% change in market share translated to millions upon millions of dollars. But everyone should be concerned about which indicators and signals that will impact them. The first step is to identify which these are. For some companies it is the economy or more specifically their local economy and the buying power their customers have. For others it might be legislative changes that will impact their ability to do business, for others it is changes in technology that will affect their business model.

So first identify what are the things that you need to keep you eye on. Then find a way to gain access to that information, in some instances it is freely available if you know where to look. Then develop a game plan to determine how you will respond to change, the earlier the better when change comes swiftly. Then have a system in place to measure how well you are doing as changes occurs, are you winning or losing the battle? As you are getting a handle on your key indicators and signals you should be modifying whatever existing game plan you have to incorporate this new information. As you do this, if your actions are paying off you should see positive results, if not you need to retool and try another initiative. The more dynamic your business the faster you have to move. Conversely those who though that they were immune, paid no attention to what was going on around them and were blindsided by events. For example, outsourcing took many by total surprise as they simply considered their competition to be local or domestic, only to find they went bankrupt within a year.

We will next talk about finding out what motivated your staff and match that with people that meet your goals.

We welcome your questions as to the challenges you face in order to grow.

To see all articles in this series please go to http://optimal-mgt.com/blog.

Optimal Management is the premier management consulting company to the staffing industry. We act as mentors to owners and managers to maximize their sales, profits and value of their company. We become an extension of our clients operations and are there for all of their staffing and business needs, from sales, marketing and compensation plans, to finance, M&A, general management and everything in between.

“How Do Small and Mid Sized Firms Grow” ….. by capitalizing on what’s happening in their market.

The old axiom of knowledge is power has never been more true in a dynamic market. In fact the rate of change has never been higher then it is today and one must know the market forces that are at work to properly position themselves fro not only growth but sometime their very own survival. So how does one stay on top of things in their market? They are involved. They read, attend meeting, speak to other inside and outside their company as well as their comfort zone. They accept the fact that they do not know everything and should not exit is their own private bubble with people that reinforce their own thinking. They need to recognize that just that because they may be doing well today they may not always continue to do well.

If you are like most companies, they operate in market that is changing as their competitors are trying to gain market share through innovation or any other means. The so called new normal economy is rather different then the old one, with generally lower growth, but notable exceptions such as oil and gas, staffing, healthcare/biotech, information technology and pockets of high growth usually geographically centered around those cities with a healthy dose of these industries, such as the San Francisco Bay Area, Austin Texas, the Research Triangle in North Carolina, the oil/gas patch in several states, etc. In fact, high tech employment centers have grown 25 times faster in the country as a whole. And it’s not just the techie jobs that benefit from this growth, but it’s all the secondary and tertiary jobs and industries what feed off of them. For example, every new tech job creates 5 non tech jobs, from cab driver, manicurists and busboy to attorneys, physiologists and teachers. On top of this the wages for these other jobs go up as well, as supply and demand become out of balance due to the additional disposable income and service need from the expanding nucleus of the well paid job creators.

And the much maligned new normal economy has added stability to the market. In the past every 8-10 years we went from boom to bust, again and again. Sooner or later growth reached 5% or more for a year or two going back to the 1950’s and wages growth and shortages of goods and services lead to a business cycle bust and down we went, until things cooled down enough to start a recovery. We are now in 2 to 2

In this discussion of: “How Small and Mid Sized Firms Grow” we will discuss good hiring practices and dealing with non performers.

All well managed companies measure their key performance indicators and their key financial indications or metrics. Although KPI and KFI metrics vary from industry to industry the basic concept is the same, to have an analytical measure of performance to go with a subjective determination of how one is performing. This allows both the manager and the individual to find our where one is doing well and where improvement is needed. They should be measured on an ongoing basis as just one snapshot in time is not enough. Almost every function in a company has metrics that can and should be measured. All well managed larger companies have their own KPI’s and KFI’s that they rely on, although the data must be valid or the conclusions will be worthless. It’s the garbage in and garbage out (GIGO) scenario.

Key performance indicators for a sales person typically includes such things as the number of telemarketing conversations (TC) and the number of job orders (or contracts) one has received, assuming that TC is the way one obtains job orders. Metrics can determine both productivity and efficiency levels. Productivity would measure the number of TC’s one has made. The efficiency is the conversion of job orders or contracts one has obtained as a fraction of their TC’s. This can then be used to compare these values to others with similar responsibilities to determine how they stack up as well as if their trends are moving up or down over time.

Let’s assume one made 100 TM in a week on average and this rose from 80 to 120 over some period of time and their conversion ratio was that for every 4 conversations 1 job order was obtained that would be a 25% conversion ratio that has fallen from 28% to 22% over the same period. One would then compare this to like people and if those people averaged 80 TC’s and this was fairly constant, this person’s productivity was higher then average and improving as well. On the other hand if the group’s conversion ratio was 30% and rose from 28% to 32% during this same period we might conclude that our sales rep was not only below par but trending down while the group was moving up. This would zero in on the problem as one of efficiency and not productivity.

Similarly KFI measures might include things like sales, margin rates, fixed costs, profit, rates of return (ROS), debt/equity, etc. Thus sales might be rising but if margin rate and ROS was falling we would be seeing growing sales but falling profitability and ROS. This is not what one would like to see and a game plan for remedial action should be undertaken.

In our next discussion we will discuss the concept of opportunity loss.

We welcome your questions as to the challenges you face in order to grow.

To see all articles in this series please go to http://optimal-mgt.com/blog.

Optimal Management is the premier management consulting company to the staffing industry. We act as mentors to owners and managers to maximize their sales, profits and value of their company. We become an extension of our clients operations and are there for all of their staffing and business needs, from sales, marketing and compensation plans, to finance, M&A, general management and everything in between.

In this discussion of: “How Small and Mid Sized Firms Grow” we will talk about the concept of opportunity loss.

Did you ever take a job that was not up to par and made little money on it, or after you filled an order you said that if you only waited a bit longer you could have used your resources more wisely, or you didn’t take an order thinking a better one would come your way but it didn’t, or quoted a low price when you could have negotiated up after a bit more thought and kick yourself for being too eager?

These are some examples of opportunity loss. It is what you could have done better, considering other options. It is lost potential profit that was not realized if another course of action was taken leaving money on the table. It is the difference in not following a better course of action. Opportunity loss is not using ones resources more efficiently.

As an illustration, you are operating at 90% of capacity, be that services or production and have received an order that would fill your remaining 10% and therefore should be at capacity in 10 months based on your long term growth of 1% per month. Your revenue is $1 million, with a 25% margin. Company X then gives you an order that would last 10 months at 17% margin. This is a 32% reduction in margin rates, which is rather high, but if you were to take that order you would add $170,000 in margin during that period. If you continued to grow at your normal rate in 10 more months you would add $137,500 as you build up volume incrementally ($5,000 in month 1, $10,000 in month 2 and so on). You would in fact have made an additional $32,500 in profit by taking this order. The opportunity loss here would not be taking the order and growing at your historical 1%, provided that this new business at a steep discount did not set a precedent that would lower your overall margin rate if other customers wanted lower rates as well and there were no other extraneous factors that could impact this situation.

After further analysis of your growth rate, you found out that more recent gains were running at 2% per month and was sustainable. That would mean that in just 5 more months you would be at capacity and after 10 months you would have generated $197,500 in additional margin which would change everything. If that were the case, your decision as you should be to hold out for adding business at a 25% margin and not taking the order. This would yield $60,000 in higher profit. You could then to ask for a 20% margin rate from Company X and if that were not accepted passing on it if that would not fly. What you then do when you reach capacity opens up another set of decisions.

The bottom line is to do the math and check your assumptions to make sure you have considered the alternative and avoid opportunity loss.

We will discuss how to determine what is happening in your marketplace.

We welcome your questions as to the challenges you face in order to grow.

To see all articles in this series please go to http://optimal-mgt.com/blog.

Optimal Management is the premier management consulting company to the staffing industry. We act as mentors to owners and managers to maximize their sales, profits and value of their company. We become an extension of our clients operations and are there for all of their staffing and business needs, from sales, marketing and compensation plans, to finance, M&A, general management and everything in between.

In this discussion of: “How Small and Mid Sized Firms Grow” we will discuss good hiring practices and dealing with for non performers.

It is important all the time to maintain the highest standards in ones organization. Yet in recessionary times one is forced to get rid of the so called dead wood, but in good times, such as we are in now this does not have the same sense of urgency and most companies do not maintain the same high standards they are forced to when their future is on the line. To compete in this highly competitive world one must maintain their standards, regardless of whether we are in a good or poor economy. So we are using the term of a “non performer” as shorthand for someone who in not meeting your expectations within the organization. They may well do great somewhere else and you will be doing them a favor by letting them find where that environment is.

Of course no one wants to be an ogre and have to terminate people, but those who are not performing up to standards need to be for the health of the company and the security of the rest of the staff. To start with well managed companies have a highly refined hiring, training and evaluation process to find the best candidates for their company. They are constantly reevaluating and upgrading their staff for if one wants to grow and prosper, atrophy can set in and the efficiency of the organization eventually starts to suffer.

Employees are of course part of a team and they must fit into the group, understand their role in the company, accept its culture and buy into the mission of the company. This is not easily determined and an intensive interviewing process often helps unravel things before someone comes onboard. Some companies will have candidates come back a dozen times before they feel that they have a good handle on things. This may be excessive, but one or 2 interviews are far too few as you have to penetrate the veneer of someone prepped and at their best. Multiple visits wear down a façade so you can get down to the real person. Even after one is hired there is nothing like a probationary period to validate ones fit. Many companies rely on profile testing, reference checks and gut feeling to make their hiring decisions. These elements help, but there is no magic bullet. It is the integration of all of these elements that increases the chances of finding producers for your specific company, with in-depth multiple interviews being the most important. Many people are good and highly qualified in their own right, but just do not fit in a given situation and the sooner that this is recognized the better it is for everyone.

In our next blog we will discuss measuring standards: KPI and KFI.

We welcome your questions as to the challenges you face in order to grow.

To see all articles in this series please go to http://optimal-mgt.com/blog.

Optimal Management is the premier management consulting company to the staffing industry. We act as mentors to owners and managers to maximize their sales, profits and value of their company. We become an extension of our clients operations and are there for all of their staffing and business needs, from sales, marketing and compensation plans, to finance, M&A, general management and everything in between.

In this discussion of: “How Small and Mid Sized Firms Grow” we will discuss the MSP/VMS programs.

Whether you are a user of staffing company labor or a staffing company you should become familiar with MSP/VMS labor procurement programs. Almost all large companies use one today. A Master Service Provider and Vendor Management Services agreement provides a value proposition for staffing company clients who doesn’t want to deal with multiple staffing vendors, but rather a single point of contact for all their staffing needs. In addition, there are benefits of standardization, time to fill an order, attendant cost savings and more. Although the majority of staffing is done today using these systems and great efficiencies have been made, not all of the experiences with these systems have been positive. Some clients however are not happy with a commoditized product, want to have a choice of vendors and feel a lack of the personal touch they have become accustomed to.

For staffing companies’ margins have been reduced, particularly the VMS’s. For the MSP who controls the process it provides substantial scalability and enables them to grow much more rapidly. To do this requires a sophisticated software system to track, report and control the entire process. It meant having people not only capable of meeting the client’s needs internally but satisfying those needs by working through third parties who could be counted upon to work in a seamless delivery process. A VMS vendor could reduce their sales costs as the orders came to them, but they often sacrificed margins and the direct interaction with the client. This worked out well when there was a good tradeoff in the incremental volume they received which made up for what they gave up. When their gain in volume was small the arrangement was not very attractive. And some MSP vendors left the business. Only large staffing companies could acquire a MSP/VMS system and were shut out from the game. This has recently changed as a couple of companies have developed homegrown systems and at least one vendor has found it worthwhile to lower the bar to provide the smaller and mid sized staffing companies with the functionality of the large systems. These can be licensed and even private labeled, but one must be able to not only operate such a system, but invest in the infrastructure, demonstrate the benefits to their clients, perform a needs analysis and do a post audit to validate the cost savings proposed.

In our next blog we will discuss not accepting excuses for non performance.

To see all articles in this series please go to http://optimal-mgt.com/blog.

Optimal Management is the premier management consulting company to the staffing industry. We act as mentors to owners and managers to maximize their sales, profits and value of their company. We become an extension of our clients operations and are there for all of their staffing and business needs, from sales, marketing and compensation plans, to finance, M&A, general management and everything in between.

We welcome your questions as to personal and business challenges you face in order to grow.

In this commentary we will discuss: How Small and Mid Sized Firms Grow we will discuss creating intellectual property.

So what is intellectual property (IP)? It is the essence of what you do and how you do it. It can set you apart from your competition and help avoid pricing your services as a commodity. You likely have a nucleus of IP already but have not recognized it, enhanced it or capitalized on it to your full benefit. It can start out as something very basic that can be converted into something of substantial value and even copyrighted for your protection. All larger companies have lots of IP that they have cultivated over the years. This ranges from little more then puffery to substantial IP that are valuable trade secrets. The former IP may be as mundane, offering superior quality and service, such as “our Super VX Platinum services package will meet your full satisfaction or your money back”. That package is documented and defined and can be copyrighted even though it may not be particularly unique. If properly marketed however one can carry a certain panache and image which can be sold at a premium.

We would rather concentrate on creating real value that is documented to save your client money. Lets take our sample platinum VX services package and add some tangible value, where if the client buys a certain minimum $ volume they will achieve significant savings and you will become a profit, not a cost center to them. The service here will be providing staffing services to a client, but this is applicable to most any business. Every employee has a cost and the economic benefit of hiring them must outweigh that cost. Here are just five profit improvement tools, although this has been customized to 20+ points:

#1 is that we find highly qualified people more quickly then internal searches or our competition and since time is money this can be quantified.

#2 is if you hire 5 or more of our people/year we will provide you with a 15% rebate (similar to airline frequent flyer programs where customer loyalty is rewarded.

#3 is where we demonstrate that via our vigorous testing program our people out produce typical hires by 20% which is converted into annual $ savings.

#4 is that we can use our testing procedures on a limited amount of client employees to test their proficiency.

# 5 is that we have a free outplacement program for those employees that need to be terminated in a humane way, with significant cost savings.

The amount of value added service provided depends on a client’s volume with us. The total profit impact is tallied and typically becomes an eye opener for the client that now gets much more value in doing business with you then he ever anticipated.

In our next blog we will discuss controlling a MSP/VMS program vs. being VMS supplier. We welcome your questions as to the challenges you face in order to grow.

To see all articles in this series please go to  http://optimal-mgt.com/blog.

Optimal Management is the premier management consulting company to the staffing industry. We act as mentors to owners and managers to maximize their sales, profits and value of their company. We become an extension of our clients operations and are there for all of their staffing and business needs, from sales, marketing and compensation plans, to finance, M&A, general management and everything in between.