Time and Employees – How to Start the Hiring Process

Most small business owners struggle with hiring. It is outside their comfort zone to be able to identify, onboard and manage people. I was in Corporate America for 30 years and did this regularly. I want to bring some of the lessons that I learned as part of this process. We are going to start with hiring.

The core of the hiring process is the Job Description. This relates to the duties that the person will be asked to do while at work. Last week, I posted about how the Business Brand needs to be explained as part of this. However, this week we need to tell people directly what we are going to want them to do. One thing that gets in the way is that many business owners wrap up too large of a job description for one job. One way I try to sort this out with them is to ask what they would pay someone to do a single job duty full time. If there is a large disparity, then the specified description likely describes 2 or more positions.

What does a Job Description consist of? Well, it is based around the hard skills that you want people to have. There are generally two halves of the Job Description. The first part is all about duties and responsibilities. You may go as far as to put them in a priority order. You should enumerate them to the reader. Be complete, but not exhaustive. Remember that different people talk about things using different language. It is important that you use plain language to explain the role. Use industry jargon only if the position is of such expertise that the applicant will understand the jargon or not be qualified. The second part is about qualifications. Again, these are hard requirements for past accomplishments that will help you separate out who is a likely candidate that will succeed in the position that you are offering.

You should consider a 3rd part of the Job Description – an overview of the company and why people should work for it. I have seen it from Mission and Values to ways that companies want to grow their employees. Pretty much anything that you want to tell people about what you do and why you do it. Especially in good times recruiting is a Sales Job and candidates are qualifying you as much as you are them. Information that makes your company attractive would be a great way of telling folks why they should work for you.

That brings me to the final point about this process – Emotion. I like to talk about it to clients as the Bacon and Eggs Breakfast comment. You know the Chicken is interested but the Pig is committed. As a business owner, you are emotionally tied up in the success of your business. You want to win and do a great job for your clients. You are like the Pig. But your employees are like the Chicken. They want to win. They want to do a great job for the clients. But – they do not live and die with the success of the business. They are not as emotionally committed. To them, it is a business deal. They are trading you the use of their skills and time for money. Nothing wrong with that. Do not expect them to have the level of commitment that you do. The way Silicon Valley gets around this is giving employees a meaningful equity stake (i.e. part ownership). The problem is that most small businesses will not have a liquidity event (a way for employees to sell their stock), so that avenue is limited. You can certainly plan for bonuses and the like, but you are not likely to be able to deliver life altering compensation. Because of that, your level of involvement will always be bigger than theirs. You have to understand that is the case and deal with it accordingly.

Have a great day!

Jim Sackman
Focal Point Business Coaching
Business Coaching, Executive Training, Sales Training, Marketing

Change Your Business – Change Your Life!

 

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Net Neutrality Friday

AT&T has announced that it is planning to promote its new DirecTV service over the previously native U-Verse. This makes a lot of sense from two separate directions.

First and most importantly, it will free up Internet Bandwidth. Video from U-verse takes a lot of bandwidth on the local loop. When you stream over U-verse it takes that bandwidth out of service for Internet Service. So a customer with the current U-verse can get an instant bandwidth upgrade by turning off their U-verse TV and moving to DirecTV. This is a way that AT&T to do what looks like a network upgrade without investing in the network at all. The real question to me is what about AT&Ts Fiber Footprint? In the olden days, it used to be conventional wisdom that Video was a required service to justify the cost of putting in a fiber network.

The second reason is scale. Linear Pay TV is a commodity business. The services are relatively expensive, but are low margin. The use of satellite as a delivery vehicle means that AT&T can address a national base. If they can move people to the single platform, they can reduce their costs to deliver video and increase the scale. Given that the long term future for the service is to be replaced by OTT video, the only question is whether the purchase of DirecTV is worth the price. That is not something I am going to analyze here. But from a business model standpoint, it makes lots of sense.

Also this week, Verizon announced the purchase of XO for $1.8B. The stated reason was that this was a low cost way to expand Verizon’s fiber backbone. $1.8B is a lot for you and me, but it is a really price for the XO network. One of the advantages is that Verizon gets to think about the network not as a depreciated asset but at the replacement value of the assets. Most of these products last a long time and are upgradeable. That means that their is a huge arbitrage opportunity that exists for these kinds companies. By that I mean that investors have a value for the assets at after depreciation but a strategic buyer can evaluate the assets at something near list price. That means I expect more purchases of network assets like this over time.

Finally, let’s get to Net Neutrality. Carol Wilson of Lightreading wrote an article discussing possible impacts of what is called Network Function Virtualization (NFV) and Net Neutrality. The idea of NFV is to allow the dynamic creation of network capbilities on an on demand basis. There has been commentary by European Mobile Operators that Net Neutrality could cause problems with the deployment of NFV. There is a lot of hope that NFV will allow more flexible, lower cost networks. This is what it has done for the IT people in their world. My concern here is that there is this ongoing belief in the ISPs that there are network based services. I think we need to eliminate from thinking today. There are applications and networks. If you are trying to build a specific network service, you are probably making a mistake. The one exemption from this would not be a problem for Net Neutrality anyway. That exemption is the deployment of services within an Enterprise or between Enterprise Partners. An example might be telemedicine. But if you are expecting to bury consumer services inside the network, then you are going to lose every time to OTT players who can address a much broader audience.

Have a great weekend!
Jim Sackman
Focal Point Business Coaching
Business Coaching, Executive Training, Sales Training, Marketing

Change Your Business – Change Your Life!

Sonoma County: News and Notes

This week I review the earnings for Enphase Energy. They had announced that Q4 was going to be rough because the “channel had inventory that it had to work through”. What that means in English is that they had customers that hold inventory for their end customers. These channel partners (channel meaning distribution channels) had bought significantly more than they sold and had inventory to satisfy customer demands. There is always some play in inventory levels, but in this case it was dramatic. The Company reported $65M in Revenue in Q4 down from $105M in Q4 of 2014 and down from $102M in Q3 of 2015. This resulted in a loss of 35 cents a share using GAAP and 25 cents a share non-GAAP. To put this in a better perspective, in the past these quarters were around $100M in revenue. If I average out the inventory, Enphase is now around $80M in revenue. On top of that they expect to see a seasonal decline to around $65M in Q1. Using the averaging, this means that it looks like Enphase has a new baseline of revenue that is about $20M a quarter less than before.

The stated reason for this is aggressive pricing to counter new competitors in the market. I will talk about pricing and the challenges there later, because I think there is more to the story than what was said on the call.

Let me start with some simple math and I am going to use Enphase’s numbers from the call. Enphase has a short term Gross Margin expectation around 20% and expects to be at 25% this year. It has cut costs (in other words it had a layoff) and Operating Expenses should be around $27M per quarter. That puts break-even at a minimum revenue of $108M per quarter when the company reaches 25% margin. That’s good because at 20% that break-even number is $135M. That assumes that Operating Expenses do not go up a single penny for the growth from $65M to $108M. That seems unlikely but that is the bare minimum.

Now there were statements on the call that this is a market share grab and that Gross Margin was not a consideration at this time. I am troubled by this because this is a product sales company not a subscription company. What I mean by that is that the sale of their modules is a one time thing. Other businesses have significant tails to their business from the initial sale (for example mobile phone service). In those cases upfront Gross Margin is less important as the service tail tends to have high Gross Margins. That is what is termed “Razor and Razor Blade Businesses”. Give away the Razor and make your money on the blades.

The problem comes in that the company states that long term margins are planned for 35% – 40%. The implication is that the combination of ongoing cost reductions will be matched with great product to about double today’s Gross Margins. I find this highly speculative for a couple of reasons. There is no reason to believe that Enphase’s competitors are going to raise prices. On top of that, the other competitor is NOT doing solar. Given the price of oil and the long term elimination of favorable government tax treatment, it would seem that Solar is going to be under ongoing pressure on pricing. Energy prices are going to be dropping for some time yet and there is no end in sight to the low oil prices we are seeing today.

So, what does this mean? It is unclear to me that Enphase has a way out given its existing plans. They make great products in an industry that is in ongoing commoditization and price pressure. Will they be able to get margins that are almost double the market average? That seems like a huge risk for investors given the track record.

Have a great day!

Jim Sackman
Focal Point Business Coaching
Business Coaching, Executive Training, Sales Training, Marketing

Change Your Business – Change Your Life!

 

Time and Employees

This will actually be a core point of this series for some number of posts. Last week I talked about Founder’s Trap. I have previously spent time on Outsourcing. But in the end for a business to grow beyond a certain point, you need to hire employees. I am not concerned here with if you are better off using 1099 resources or W-2 resources. Either way, you have to select the right people and have them produce for you.

The challenge for many small business owners is that they do not have a lot of experience in hiring and leading employees. This leads to many challenges with how to grow the business. Before we get too far down any individual part of the series of issues, I want to take an overall look at the problem.

What you want as a business owner is that your employees act as you would in any given situation. This is why I start my clients with what I call a “Brand Review”. It is really a Mission/Vision/Values/Ideal Client/Target Market review, but many people are uncomfortable wanting to pay to explore clarity in their business. Branding on the other hand connects with lots of folks. I have posted an entire series on how I view Branding with small businesses. It is all about execution. The taglines, logos and materials are all important but local businesses will have a reputation based upon how they deliver their products and services. This is of upmost importance. Without clarity on these topics, it is impossible to convey this information to even one employee. This is a great place to start for yourself. If you don’t have clarity here, then there is little point to hiring someone. You will be asking them to learn by osmosis how you want them to work. Each employee makes decisions every day outside of your view. If they don’t, then you are not leveraging your time. You need to tell your employees how to weigh the factors in their decision making. This is what this is all about. What this means is that you are the most important factor in how successful your employees will be. When you have clarity, they will work in a way that is most effective.

With that said, I will break down how to deal with employees into three broad categories. First, is hiring. This is where we figure out who we want to hire and then onboard them. Second, is leadership. This is where we direct employees to where we want them to go. Finally, there is performance. This is how to get the most out of your employees as well as deal with sub-par performance.

One last thing as I talk about this. Remember your Business Plan. What you want to be able to do is link the performance of your employees directly to your plan. That means that they generate results to match what you expect. On top of that, you need to understand the activities that will drive these results and plan these activities out with your employees. This will help you think about the start in hiring your people. This is where we will start next week with discussing how to generate specifics to find the right people.
Jim Sackman
Focal Point Business Coaching
Business Coaching, Executive Training, Sales Training, Marketing

Change Your Business – Change Your Life!

 

Sonoma County: News and Notes

We are back to earnings season and this week I am posting about Calix’s Q4 earnings.

The numbers are pretty basic with Revenue of $104M and a GAAP loss of $0.19 per share. Revenue was down slightly for the quarter, but up 2% for the entire year. The interesting thing out of the numbers is that compared to Q414 Revenue was down $7M and Gross Margin was down by $5M. That means that most of the lost revenue was more profitable than average. This was explained on the call by an uptick in International and Professional Services Revenue.

I want to jump to a question that came in at the end of the call. The analyst asked what was going to set Calix on a road to significant growth. The answer that was received must have been underwhelming because the stock is off from just over $7 per share before the call to just under $6 per share today. I agree with that assessment. I want to cover the answer to this question and where I think growth might come from.

The answer that was given was that growth was going to come from Calix’s new software platforms and from the relationship with Ericcson. This latter was discussed as primarily impacting International. But let’s go back to that first comment. The software that Calix has offered and its architecture is really just a promise. This software is a promise that if some significant change comes to a Service Providers network that Calix will be able to adapt its products more rapidly than its competitors and at a lower cost. I am very familiar with this promise as it is the same one we made at AFC, only there we talked about it in Hardware terms. The idea is that customers don’t have to consider replacing gear or buying specialized replacements. They can simply get the latest upgrade to the existing box and use it. Great way to lock in your existing customers. I don’t think it is a great path to breaking into large carriers. Those companies buy new products when they have new networks. They are not greatly concerned about re-use of their existing networks.

The other part of this is a little more interesting and more deceptive. I agree that the Ericcson relationship has potential for Calix. However, I do not believe that this is going to work as well Internationally as Domestically. This is true in particular with AT&T. To understand my reasoning, you have to know that Alcatel-Lucent was the dominant player in the US large carrier access space. Outside the US, the Chinese (Huawei for example) play a much larger role. Well, Alcatel-Lucent is now part of Nokia. That change presents an opportunity for Ericcson to displace Nokia in some parts of AT&T. This has been a problem for Ericcson as they have never been successful in deep penetration in the US Access Market. They are a big AT&T partner and with turmoil in the other camp, maybe there is an opportunity. Outside the US, I see nothing that says that the Chinese will not continue to be the big player where Calix can expand.

So, what does this all say? You have to watch for announcements out of Ericcson and AT&T. Other than that, there is no growth engine that is obvious today at Calix. They are a solid company and are not going out of business anytime soon. But growth has essentially halted, with the exception of what might happen with the new Frontier lines picked up from Verizon. This is as much danger (as Nokia as a major player there) as it is potential upside.

Jim Sackman
Focal Point Business Coaching
Business Coaching, Executive Training, Sales Training, Marketing

Change Your Business – Change Your Life!

 

Time and Founder’s Trap

Given that today is President’s Day, I thought it would be a good time to post about Founder’s Trap. Since President’s Day is at least partly about our founders, there is a bit of a tie in. What is Founder’s Trap? It is the problem that the business gets to when it needs to scale. If you are not sure what scaling is, then stay tuned here.

Michael Gerber’s book, “The E-Myth Revisited”, is targeted directly at Founder’s Trap. The storyline follows a business owner who hired employees, fired them and is spending all their time at work. This is what this series of posts is about as well. There is something very counter-intuitive here. In most businesses, to spend less time the business needs to get bigger. If it is not clear why, then let’s start with a sole proprietor who delivers a service. Let’s say an attorney. The attorney bills his or her time by the hour. If they take time off, they are not billing anyone. The only way to build a business that continues to bill while an individual attorney is still working is to have more than one attorney in the firm.

Let’s jump to a General Contractor. Here they go from being just a guy with a truck to having a crew. Then they go from one crew to multiple crews. Then they are stuck driving around from job to job all day and are limited in size by how many jobs they can visit regularly. They have to mix this with bidding, paperwork, buying materials, and other things that need to get done. The problem is that they are required for every job. This is why they can’t really take a vacation, unless they want to shut it all down. So, how do they scale up the business? They need to run jobs that do not require them to visit often. This means that there must be some other trusted party who can manage a job site and escalate issues when necessary. To put it bluntly, the company has to have the dreaded “middle management”.

So, what is Founder’s Trap? It is the inability to understand the role of outsourcing, employees and managers in allowing the Founder to do what he or she does best. Any person can only deal with so many roles within a company. Once that number has been exceeded, they either need to replace themselves or the company stalls in growth.

Why do company’s get caught there? Hiring the right people is not an easy skill set. Most people think about replicating themselves first. Think about yourself. You are better at some parts of what you do than others. Would it not be better to replace yourself on the things you are not as good at? So think creatively about the position that you are going to hire for and hire someone that complements what you do well.

You also need to focus on what I call soft skills. It is easy to measure the technical capabilities of an applicant. But how will you measure their personality and behavior. This will lend itself to who the best fit is for your individual job.

So, focus on the big picture and don’t fall into Founder’s Trap!

Jim Sackman
Focal Point Business Coaching
Business Coaching, Executive Training, Sales Training, Marketing

Change Your Business – Change Your Life!

 

Time and Outsourcing

We have looked at a couple of parts of the way to understand Time Management as a Small Business Owner. These relate to how you are spending time on those of your primary concern – Your Customers. By understanding who is a likely customer and who you want to serve, you understand how to allocate your customer facing time and resources.

But what about everything else that you do?

You don’t spend 100% of your time landing customers or delivering quality products and services. You have books to keep, invoices to write, bills to pay. We all do as business owners. You can certainly do all those things yourself. But are you doing yourself a disservice? The thing to think about here is opportunity cost. If you spend more time on your primary focus, will you make more money? You certainly will. It is more than likely that having a 3rd party do your back office work for you will more than pay for your time.

As your company grows, these challenges become even more important as the service providers will have technical knowledge that you don’t have. You will face that at the start when you work with an attorney on forming your business. But most businesses don’t need help again from their attorney for a long time. But a Payroll company will help make sure that your employee programs are in compliance with labor laws. For example, here in California there was a big shift last year when Part Time Employees were required to get sick time. Many businesses were unaware of the change in the laws and the penalty for being out of compliance can be steep.

But you will also need to look at your Marketing Programs. Most people I know want to be able to Market and Sell their products and services face to face. The challenge is that this does not scale very well. So, we all need mechanisms to promote our businesses that go beyond our direct ability to communicate. This article is an example of that, but so is print advertising, hiring appointment setters, or having a web site. These are all forms of outsourcing your ability to attract customers to your business.

There is a thread here all about having people that will spend time on your business but are not your direct employees. The question is how do you select them, choose what to outsource, and how to make sure that they are doing what you want. Just like anything else, you need to have goals for the relationship. Walk into these service providers with an idea of what you want and what you need. Many of them will have packages that you can choose from. These may offer benefits or just be more than you need. Until you have defined what you are looking for from the provider, you will not be sure. The best way to solve this is to have an equivalent of a job description for your service provider. Have a written list of duties to be performed. Check off their expertise to solve the specific problems. Get reference customers to be able to provide feedback on some specific duties that you want them to perform. Then review the work on a quarterly (at first) and perhaps an annual basis. Have a plan to change providers if they have not performed.

Have a great day!
Jim Sackman
Focal Point Business Coaching
Business Coaching, Executive Training, Sales Training, Marketing

Change Your Business – Change Your Life!