In this part of the series: “How Small and Mid Sized Firms Grow” we discuss recruiters and HR managers.

As Gerber used to say “Babies are our business and our only business”. Well, in most companies today people are the lifeblood of their companies. Without good people whatever else the company does will not be done right. This can be applied to business in general as to the staff you hire from sales to maintenance workers. Some companies hire their staff based on the most cursory of interviewing, reference checking and testing. Others go through such a lengthy procedure that by the time they are ready to extend an offer the candidate may be long gone and has taken a job with a company that did not make interviewing a career. Some companies hire on the spot while others have well over a dozen interviews before making an offer. There is a happy median in finding the right people that vets them in a reasonable period of time with the right procedures and tools. That number varies depending on the degree of difficulty in finding the right candidate and the importance of the job itself. But three to six interviews should be sufficient for most situations. According to the BLS the average turnover rates vary from 1.3% for government jobs to some 6% for construction. But that is just an average. Many companies who do a poor job can see a turnover in excess of 100% annually. In addition the cost of turnover had been determined to be 200% of a person’s annual salary (+/- 50 points depending on the position). These concepts would apply to recruiters and HR managers alike.

Staffing companies of course have a unique situation as their recruiters find candidates for their clients needs, be they temporaries or direct hires (including executive search). Successful recruiters here most understand the client’s needs and match that with the candidates they recruit. Using these numbers a good direct hire recruiter can reduce turnover. For a client with a 50% turnover they can reduce this rate in half. For a $75K/year person they can save over $37,000 annually. For a temporary or contract recruiter there is on average a 13% annual cost savings vs. a direct hire employee. This person would save the client some $10,000 a year while on assignment and if and when converted the same $37,000/year savings would apply.

The combination of these factors has led to temps and contractors becoming one of the fastest growing segments of the economy, with temps rising from 1.6 % of the private labor force in April 1999 to 2.3% last month, and should top 3% in about another 2 ½ years.

Hiring, managing and motivating is very similar to the steps covered in Part 11 of this series.

Our next blog will discuss determining when it’s time to expand and how to do that effectively.

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 part of the series: How Small and Mid Sized Firms Grow discusses how to hire, manage and motivate sales reps, account reps and business developers.

In most all companies everything starts with sales. Unless you have a monopoly, work for the government or have an endowment you need to obtain and retain customers and clients. In some organizations sales is done via marketing such as advertising, emails, or some other indirect sales approach, but this is still a sales function. Others use good old fashioned sales tools such as telemarketing, field sales calls, networking, sales seminars and the like. We are not going to deal with the pros and cons of theses approaches, but rather what it takes for the person in sales to do their job well. That means to obtain and retain customers and clients by whichever means are used. Customers usually connote someone who buys your products or services; a client usually means having a closer relationship and some degree of loyalty. Please note that in this brief commentary we can only provide some highlights and this is far from all there is on this subject.

Here are some facts to bear in mind when thinking about hiring and retaining the best sales reps:

• The average turnover rate of sales reps is 26%
• 10% of the sales force is actively disengaged
• Jack Welch’s, the highly effective chairman of GE terminated the bottom 10% of his Reps each year
• The total cost of replacing a sales rep is 38% of their salary
• The top ¼ of sales reps generates 57% of new business, as the lower ¼ lost more business than they gained

HIRE So what does one need to do when hiring good sales reps? Many companies find that referrals from existing staff tends to be a very good source as they already fit the mold and are likely to have acquaintances with similar traits. There is also no substitute for in depth interviews to get beneath the veneer of someone who makes a good first impression, although companies like Google take this to an extreme of a dozen interviews or more.

TRAIN When bringing someone new onboard manage and train them in the ways that fit in well with your culture and current methods. Someone new trying to change things that are already working well does not usually work. Train new sales reps along side an experienced solid producer, bring them along slowly and monitor their productivity and efficiency. After they understand your organization they should then be able to make positive changes to the ways things are done.

MOTIVATE Everyone needs something to turn them on. For some it’s money, others recognition, others it’s the knowledge of a job well done, others it’s competition, etc. For sales reps it is usually a blend of these with money being the primary item, with a healthy mix of recognition and perks. We recommend having a modest base with a high commission, usually with steps and risers with higher rates for the best people you can’t afford to lose.

Our next blog will discuss hiring, managing and motivating recruiters.

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 part of the series: How Small & Mid Sized Firms Grow discusses how to innovate and encourage your team to seek out opportunities which is done by well managed companies.

In a fast changing world innovation has almost become critical to survival today for many companies. It was not that long ago that simply keeping things together and running an efficient business was enough to grow and remain profitable. This is no longer the case for more and more companies. The Internet, social media, computers, international competition, changing regulations and many other factors has led to the need to be relevant or become obsolete.

This is not just the case in high tech, but can be found everywhere as companies from Blockbuster and Ritz Camera Centers to Mervyns and Aloha Airlines, not to mention some 50,000 much smaller companies per year, who have gone bankrupt during the last 4 years. We will continue to go over modern management practices such as market analysis, metrics and pricing issues; but innovation is a different animal. It can not be quantified or so easily taught. It is an environment that when the right people are there, something just clicks and new ideas come out that that can turn a small company into something really special.

We have seen this with large companies such as Microsoft with Gates and Allen, Apple with Jobs and Wazniak and Google with Page and Brin. But there are thousands of people every day who have made just enough of an innovative difference to keep their employer ahead of the competition every day. It does not have come out of the R&D lab and be worthy of a patent to be called innovative. It might be a twist to a volume discount program just innovative enough to win you a large client, or listening closely enough to a client’s complaints to create an innovative solution that sets you apart from the competition.

So how does one create this environment? First of all this is more of an art then a science. But there are well managed companies like Google that set 20% of their peoples’ time aside to work outside the box to create their own next big idea. They select and then surround bright employees with other such people and things happened to make them the innovative leader they have become. Be sure however that free time does not become play time. This is where the chemistry has to have the right elements, mixed under the right conditions for the reaction to take place. Google takes great pains to select the right people, inculcates them with their philosophy, exposes them to the latest ideas, places them under a good group and watches for innovative concepts to percolate. You may not be high tech but the same formula can work anywhere.

Our next blog will discuss hiring, managing and motivating your sales reps. 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.

This part of the series: “How Small and Mid Sized Firms Grow” deals with the concept of budgeting, profit plans and post audits to determine if your business plans are really working. This process is routinely used by well managed companies.

Last time we discussed how to model your company and run various scenarios to determine how your company might perform under different conditions. This is however only part of the process. To determine if your assumptions and projections are correct you need to own up to the actual results that have resulted from your business plan. The concept of a business plan is to get the results right, not design a model that works in theory, but gets the right answer.

Many people think that budgeting an onerous accounting exercise where one goes through the motions of extrapolating what happened the last year or two and assuming that things will continue on the same path to arrive at next years sales and profit. Others believe that if they were successful in the past you will continue to be so in the future by doing the same old things. And others are under the impression that you can somehow reverse your fortunes by trying harder by making more sales calls and tinkering around the edges.

The budgeting process comes out of the creative profit or business plan which should be a thought provoking exercise. The accounting portion that generates the P&L is the result of that process and requires A) a well thought out program that recognizes the forces acting on the company that presents both opportunities and threats that must be proactively dealt with, B) specific tasks and responsibilities to find the best action plans to those opportunities and threats, C) deadline for specific actions to be taken, D) the sales and profit implications of these actions, E) your real world limitations in implementing your options  E) the selection of the best game plan after your options have been considered.

But the acid test is the post audit, which most small and mid sized companies do not perform. It is owning up to what you did right and wrong so that you will improve on your process as you move forward. It is not to find the culprit, but determine what you can learn to do better the next time. For example you may have said your growth is dependent on a new pricing schedule and that in fact was not as well received as hoped for. An early post audit will determine that and allow you to fix things. While waiting too long will lock in your poor decision and not allow you to change things until it’s too late.

In our next blog, we will discuss how to innovate and encourage your team to seek out opportunities. 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.

This part of the series: “How Small and Mid Sized Firms Grow” deals with the concept of how large well managed companies use modeling for their company and do what if analysis.

Any company can be broken down into the key components to describe how it operates. These are the variables which can be changed to determine how the company will do as conditions change, for better or worse. All well managed companies create a model of their operations and flex these variables to determine what happens to the company’s performance under different circumstances. There may be many such models for different aspects of the companies business and as many of these can be developed as necessary.

One does not need to be a math wiz to do this, but simply understand the fundamentals of their business “drivers” or influences and have someone with the math skills translate that understanding into a simple Excel Spreadsheet to determine the consequences of change. This brings us to the concept of change, for nothing in this world is either constant nor is everything under your control. There are things that you can pretty much control such as new product introduction, compensation plans, staff size and so called “fixed costs”. Then there are those things you can’t control but need to determine how you will react to, such as the economy, government policies and the competition. The integration of these two factors, internal and external variables can be used to create models of your company.

 This does not mean that you can be certain of the outcome as things change, but you can do a far better job in being aware of those things that will impact you. You can then figure out how you will either be impacted by events or better yet how you will proactively react (or anticipate) events in your best interest.

So let’s do a simple example. You determine your sales and the size of the market to first determine your market share. You see than there is a good possibility of a downturn and know that unless you provide better service, lower your price or reduce your cost, you will likely have lower profits. You might determine the sensitivity of your volume to prices. In a commodity market this will likely be rather high. In a specialty market, one where your have a valuable brand name, recognized higher quality or special customer relationships you will be more immune, but not likely to be bulletproof. This information can be translated into a pricing model.

Compensation plans and staff size are under your control, for example structuring you comp plans with a modest base and high commission to provide your staff with an incentive to hold or increase market share in a declining market or else pay less if sales fall. Likewise, staff size and “fixed costs” can be reduced if conditions warrant. Integrating these concepts as well as, as many more elements are necessary can be translated into a business model that you can use to run your company more efficiently.  Running several models under different conditions will allow you to determine how to best deal with changing events.

In our next blog we will discuss budgeting, profit plans and post audit to determine if your plans are really working. To see all articles in this series visit, Optimal Management.

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.

This part of the series: “How Small and Mid Sized Firms Grow” deals with the concept of “going with your gut” and what this really means when we are talking about how large well managed companies make decisions.

The best example of someone associated with making decisions from their gut was Jack Welch who when he ran GE for over some 2 decades and was generally considered to be the best leader of his day. He famously stated in his best seller Straight from the Gut that he used a blend of instinctual approaches with solid analytical work in arriving at his decisions.

Welch was intolerant of bureaucracies; he cut waste and efficiency and insisted on getting the unvarnished facts to make decisions. As an engineer by training, he measured and compared every metric he though would be helpful to getting things right. He invested heavily in information systems, such as: their Six Sigma System, 4E programs, QMI marketing systems and an array of matrices and grids for cutting through the clutter to make quick decisions. He promoted winners and terminated the lowest performers in the company.  He was brutally opportunistic which others considered ruthless. He was known as Neutron Jack, wiping out tiers of management while leaving buildings standing for better use. His mantra was to have a “boundryless” market where assets were redeployed to wherever they could do the most long term good.

Yet, one should not be confused with what he called a “gut feeling” based on years of experience for him to come up with the knowledge of what needed to be done and a the common and misconstrued concept of a gut feeling. That is Jack did not wasting time doing more and more analysis then what was needed to be quite certain of what needed to be done. This is what is often called paralysis through analysis. When you have gathered enough evidence to know the answer, simply make a decision. Jack shorthand name for his decision making process as “straight from the gut”, but this was misinterpreted as using hunches instead of his informed decision making process and even perhaps because it name might have helped sell books.

This is very different from someone who might go to the track and bet on a horse named Brazil because he as going to Rio the following week and had a gut feeling that would be a good wager. More recently, Jack’s gut did get him into hot water recently when his political biases were used in his gut assessment, saying the reduction in the BLS unemployment rate just before the Presidential election couldn’t possibly be right. As future monthly data was released the rate remained steady it became apparent the data was not manipulated for the election.

In the last blog, we discussed minimizing risk, the use of cost benefit analysis and creating a vision for the future. In our next blog, will discuss how to model your company and to do “what if analysis”. To see all articles in this series please go to LinkedIn Mike Neidle or Optimal Management’s website.

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 part of the multipart series: “How Small and Mid Sized Firms Grow” deals with taking calculated risks and doing a cost/benefit analysis.

Business is all about taking risk. If you are not willing to take risks you should not own a business. This brings us to the subject of probability. There are no guarantees that even the best analysis will lead to intended results, but it does increase the probability of the outcome being right, that is the odds are increased when you analyze things before you act. Then we have the cost/benefit analysis, or ratio of how much it costs to do something compared to the potential benefit derived. If the cost is very low you might be willing to make a higher wager even if the probability of succeeding is low. Likewise if the benefit is very high you may make a wager knowing the probability of winning is very low. These two events help explain why millions of people buy lottery tickets.

But there are different kinds of risks. A decision based on a hunch is not a wise bet unless the stakes are rather small and the payoffs high. There are hunches which are based either on prior experiences or just ones feelings or instincts. Those based on prior experiences are often a short cut of all the calculations that go into an analysis and may work out well when the conditions are the same as those seen before.

We will concentrate here on how most well run companies evaluate risks. This is by reviewing your options and only then deciding which among them are the best choices to make. Good business people start this process by narrowing down the choices before they start their analysis or analyzing the choices become overwhelming. But they need the facts, not all the facts mind you, just the critical ones or decisions will lead to procrastination and never making a choice. Facts may change however due to things like the economy, competitive conditions, the staff you have to implement things, wildcards, etc. So a periodic review of your “facts” is necessary. What might be a good decision today may not be good later. These things may change facts into variables and should then be treated as such by running various scenarios under different conditions. Also don’t prejudice your decision on which risks to take before you do an analysis or you will influence the outcome, consciously or unconsciously.

So let’s try an example. You are considering opening a new office vs. expansion of your existing facility. You can pin down the market demographics, fixed costs and investment, manning levels and comp plans, your competitive advantages, the number of competitors, available, line of credit and capital, etc. You have as variables, future economic conditions, prices and margins, demand and volume, competitive reactions, etc. So you then run out multiple scenarios using as constants the things you pretty much know and making changes to the variables to see which of those cases give you the best sales growth, increased profits, value of your company, low likelihood of wildcard events, have favorable cost/benefit ratios, can still succeed even with changes in staff, fit within your budget, etc… and select you best option. We will deal with tracking results and making changes in future discussions.

In the last blog, we discussed having a vision for the future. A vision must be converted into action if it is to be more then wishful and then weighing the risks of those actions.

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

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 the fifth of a multipart series of posts started with:Why Small and Mid Sized Firms Grow. This conversation deals with what it really means to have a vision for your company

Vision means different things to different people. It is not a bolt out of the blue that strikes you one morning after a vivid dream. It is not a belief that you will become the next Facebook. We are referring here to a vision in the business sense of the word, as an expectation of what you can realistically expect to achieve after you have assessed the opportunities that exist or can be expected to come about. The conversion of that vision separates the dreamers form the achievers. Developing a business plan to put your resources to work in achieve that vision and will be discussed in upcoming blogs.

But let’s stick to the concept of vision first. Much was made out of the supposed fact that President Bush, did not have the so called “vision thing”. Many people think he actually had a vision, but it was flawed and poorly executed. The point here is that a company can be successful in many ways; it can simply get lucky (i.e. its main competitor goes bankrupt, its major client hits the jackpot and you go along for the ride, etc), it sticks to its knitting and in a good market just keeps on perking along. Or best yet, come up with a vision of what can become a reality after one gathers the facts, determine the marketplace needs, thinks about what they have a passion to accomplish and then goes about making that vision a reality (assuming that they have done their due diligence in what is realistically achievable by them).

So let’s dig a bit deeper into creating a business vision. There are actually two types of visions here. The first is a natural extension of what you are doing; only doing it and a lot better and including a family of free value added (VA) services. This is then packaged and branded to set you apart from the competition. This would be customized to the specific needs of each client and you would fully document the financial savings your program would generate for them. You could then reposition yourself from just another vendor to and trusted advisor and even be able to share in the cost savings generated. Client VA rewards could be tiered by their annual volume with you and receive benefits similar to the airlines’ frequent flyer silver, gold and platinum programs. We will explore this in greater depth in later blogs.

The second vision is a breakthrough concept that opens up whole new vistas for your business. Apple did this when it went from a niche computer company with low market share into an entertainment company resulting from Steve Jobs vision of how music and entertainment juggernaut by integrating: ITunes, Ipod, Iphone and Ipad into Apple; or Google’s vision that the internet could do almost anything they set their mind to (Google Maps, Google Analytics, Google Shopping, the Android, etc.). We have the vision of what outsourcing and distributed processing has done. This is the vision of innovation and the list is immeasurable.

In the last blog, we discussed what you should know about the economy. This knowledge hopefully will allow you to develop a vision to use this information productively.

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

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 the fourth of a multipart series of posts started with:”Why Small and Mid Sized Firms Grow”. This conversation deals with what you should know about the economy and how it impacts your business.

You don’t need to be an economist to understand that you can’t easily swim upstream and be successful when the economy is either declining or growing very slowly; as it is today. For large companies you often have economic guidance. But for small and mid sized companies you need to do this yourself or find someone to help grow when the market as a whole is not. This is not to say that a rising economy raises all boats, just as all companies fall when the tide drops. But it takes a forward thinking leader who understands their options to get through the tough times.

So what do you need to know about the economy? First of all, we need to recognize that we are in unchartered waters and the old 8-10 year boom-bust cycle as far as we can tell is over. The new economy is one likely to grow slowly at best and the risk of another shock to the system is quite possible as the government which used to work smoothly no longer does. We don’t have to look too far back or ahead to see for example The Economic Cliff, The Sequester, Defaulting on our National Debt, etc. All of these things create a lack of confidence and uncertainty and business people don’t like to make decisions in this climate. One should develop alterative strategies to deal with each opportunity or threat that may impact ones business as soon as possible.

Secondly, as the economy inches along you really have to be on top of your game to gain market share as well as defend your client base. Your competitors are felling the pressure you are and will be looking for ways to do the same thing you are. For you to avoid this fate you need to exercise one or more of the following economic strategies that we will go into more depth in future blogs:

1. Find those markets that are recession proof or do business with those customers who will be survivors
2. Price your services so that the value your client receives will immunize you from a poor or tepid economy
3. Cultivate special relationships anyway you can to remain their favorite, from simply being the best to providing perks
4. Get into a growing market, be it a new service or new location so you have only one direction to go and that is up
5. Create a value proposition so that you are seen as a profit center not a cost center
6. Establish a relationship with prospects that they can’t refuse due to the savings that you will document
7. Get even closer to your clients to make sure no one replaces you with a better offer

Lastly, there are both counter cyclical economic markets and quirky business environments that react uncharacteristically to change and the economy. Here’s some examples: one company was in a small market where the competition was exiting faster then the market was declining, and gained market share, raised prices and made a hefty profit. Another client entered a niche market that no one else dared to because of the potential economic risk of failure. There business model found a way to mitigate this risk and they also charged a premium price and made very high profits.

In the last blog, we discussed the importance of treating everyone fairly and finding out what is critical to them. Dealing with economic uncertainty is a very different process and requires people with different skill sets.

It would be desirable if owners and staff worked towards common objectives. An owner’s goal is to achieve growth, maximize profit and increase the value of their company. Employees want to maximize their compensation, have advance opportunities, good working conditions and job security. The question is how to reconcile these two objectives?

Comp plans were seen as a zero sum game where the winner won and retained most of the money paid out in wages. During periods of high economic growth and labor shortages the employees had the edge. More recently due to outsourcing, automation and the recessionary periods, employers were in the driver’s seat. With few exceptions, the union labor movement is long dead and pitted employees against their employers. Progressive companies realize that employees can be their most valuable asset when made part of a team and properly incentivized. Interestingly, China’s advantage labor costs advantage is rapidly eroding due to an 17% increase in wages, substantially lower productivity compared to American workers, the theft of intellectual property, etc. US companies have gotten their costs under control with better management tools and operating with a leaner and better educated workforce. It is estimated that by 2015 production costs for many items, we will be on par with China. On top of that we are in the new normal economy for the indefinite future where the old rules of an 8-10 year boom-bust economic cycle may no longer apply. There should be a slow but hopefully sustainable growth assuming no “black swan” events. If US companies are properly managed both they and their staff should come out ahead. So the question is how does one go about doing this?

We will concentrate on staff compensation, although perks, contest, etc. should not be ignored. There are two parts to a good comp plan; short term comp and the long term comp. Short term comp (annual) has a base salary (or a draw) plus an incentive in the form of a commission. The commission for producers (sales reps/business developers and recruiters/schedulers) should be tied to the margin $ they are responsible in generating. This should be calculated on a sliding scale where the highest producers that one can least afford to lose are commissioned at the highest rate and those less critical at a lower rate. This sliding scale is the core of a win-win comp plan. The amount to be paid out should ideally be part of a pool of monies set aside for staff compensation so that both the company and its key producers do well. We usually divide up the pie into 4 portions (which need not be equal) for the person: who develops the relationship with the client, who finds and qualifies the candidate, who gets JO and detailed specs, and who schedules, debriefs the candidates and closes the deal. The amount paid out as a percent of margin $ varies as overhead (fixed cost) varies, but there are certain rules of thumb depending on ones mix of business. The details of the payout plan should arrive at a decent return on sales for the company and high compensation for superior employees. We test the plan under various scenarios to make sure that it works as intended for a win-win program.

The second part of the plan is a long term retention plan to retain its best people which can include cash, real or quasi stock (golden handcuffs plan). This is conditional on both achieving certain performance standards and can be used as a retention and exit plan. The idea is to lock in those needed for long term growth and sacrifice a lucrative deal to take a job with the competition. As the company value is a multiple of its profits one can design a generous program which is the ultimate win-win comp plan. There are rules of thumb here too as to what is needed to make this effective along with conditions for qualification.

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.