Business Advice Daily

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by David Purcell

Owners are proud of their family owned businesses. To be successful, owners must plan thoroughly and work hard to carry out the plan. Successful business owners should be proud of their accomplishments.

Yet planning and hard work are frequently lacking in efforts to establish a viable blueprint for leaving the business behind. Reluctance to pursue proper succession planning is common. Combining family and business concerns is difficult.

If a proper estate plan is not in place, estate taxes must be paid within nine months of death. This does not give heirs a great deal of time to maneuver. Irreparable harm could result. Part or all of the business may have to be sold in order to pay estate taxes.

In a recent article by Diane E. Picard on the Financial Planning Interactive website, Gary Pittsford, a CFP in Indianapolis, recommends having a plan in place five years before the owner plans to exit the business. However, Martin M. Shenkman, an attorney and CPA, recommends creating a succession plan as soon as a business is started. Shenkman’s position considers that a false step into the path of an oncoming bus could rapidly accelerate the need for a succession plan. He has a point.

In fact, the best succession plan is basically an exit plan, and should be an integral part of a business plan. It should cover all possible eventualities of the business if it had to be turned over to someone else. This exit strategy should address retirement, death, disability, sale of the business, and any other possibilities that might impact the situation.

The succession plan should include life and disability insurance to ensure business operation if the owner dies or becomes disabled. Other strategies, such as an Employee Stock Ownership Plan (ESOP) or business alliances, could provide operating capital or management in extreme circumstances. The details of how the business should be sold or liquidated, if that becomes necessary, should be included.

According to Shenkman, the liquidation or selling option is frequently overlooked. Parent-owners often fail to consider that the children might prefer capital to pursue their own ambitions, rather than the mantle of family business manager.

Dealing with family succession can be more difficult than creating a business plan. Emotions come into play. Problems in family relationships impact planning. Reluctance to confront these problems openly is common.

Children might not want to take over a parent’s business. Siblings may disagree over who should run the business.

In her article, Picard quotes Roy Ballantine, a financial planner in New Hampshire, who stresses that business goals, values and objectives should be the controlling factors in business decisions, not kinship.

Owners are often reluctant to consider liquidation or sale of the business, even if the children are not interested in taking over. But sale or liquidation may be the best choice.

Some useful questions when considering a succession plan are:

* How many children have shown the desire to run the business?

* How many children actually are capable of running the business?

* Which child should be in charge if more than one is willing and able?

* What family problems might arise should the choice for leader actually succeed to that position?

* If only some of the children are interested and capable in managing the company, how will the other children be compensated in the estate plan?

* Should in-laws be considered in the succession mix?

* How should the transition take place while the owner remains capable and active?

* Are there other choices, such as a temporary or “bridge” manager, a current employee, a non-relative, or another entire business that might become the business manager?

* What is the best alternative and the priority for all alternatives in case of an unexpected disability or death of the owner?

Financial and estate planners underscore the need for open communication and family meetings in succession planning. Strategies, such as generation skipping and gifting, should be considered. Finance, corporate, tax and estate planning laws are all part of the succession equation.

Answering the basic questions, reviewing the alternatives and their impact, and a continuing dialogue among family members are crucial components in a plan for succession. With appropriate guidance, a business owner can create an effective succession plan to keep the family together and maximize the probability of continued business success.

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by Ralph Welborn and Vince Kasten

Once upon a time it sounded so simple. Just send part of your operations to someone else to deal with and sit back and enjoy your new, streamlined, ever-more-profitable organization. But those companies that have taken the outsourcing
plunge have found that reality is more complicated than theory. A lot more complicated. If you’re one of them, take
comfort in knowing you aren’t alone. If you’re considering joining them, you can benefit from studying the challenges that have blindsided your intrepid colleagues.

Consider the statistics:
* Today, only 19% of U. S. businesses have an outsourcing strategy. However, the percentage skyrockets to 95% if only Fortune 1000 companies are considered.
* Outsourcing grew 30% a year between 1995 and 2003. Worldwide business process outsourcing (BPO) services—which include finance and accounting activities like accounts payable and accounts receivable—are expected to grow from $110 billion in 2002 to $173 billion in 2007, an annual 9.5% growth rate.
* By 2008, the outsourcing market is expected to grow to over $500 billion, of which nearly $380 billion will be information technology outsourcing (ITO), with the balance being BPO. This is up from $335 billion in 2005.
* Approximately 36% of the overall outsourcing activities are occurring in the manufacturing, transportation, retail, and communications industries.
Outsourcing continues to experience double-digit growth. Yet outsourcing providers are facing lower profits, shorter contracts and unhappy customers. And few of the $100 million deals signed will generate the expected revenues. Why? Because, at its core, the outsourcing industry rests upon an old business model based on inflexibility and cost reduction that doesn’t account for either the predictable patterns of technology adoption or for the demands customers face for providing more “value” and “service” rather than simply reducing costs for their customers. Times have changed; customers have changed; markets have changed. But the underlying logic of outsourcing contracts, and relationships, has yet to change.

Here’s the gist of the problem: Once the work leaves your organizational walls, you lose visibility—and some say control—over what gets done how and by whom. In other words, you run, immediately, into the “execution gap”—the difference between what needs to get done and what actually does get done.
Consider these four lessons learned about the challenges and difficulties of global outsourcing:

1. If it looks too good to be real…it probably is. At least 50% of outsourcing deals “fail”—don’t return the results promised to customers—and 80% don’t produce any savings at all, according to the Gartner Group, an industry analyst. Forrester Research, another industry analyst group, recently reported that more than 25% of North American customers are dissatisfied with their outsourcer’s ability to hit cost and service level agreement (SLA) targets, while 69% of European customers reported failure to meet expectations for innovation. The key reason? Lack of contract flexibility and the one-size-fits-all approach. The world changes; customer needs change; technologies change. What doesn’t? Too frequently, the answer to that is outsourcing contract terms. Outsourcers, understandably, try to lock customers into long-term deals based on contract terms and pricing that will be out of date six months after the contract is signed. The result? Frustration, irritation, and a sense of impotence regarding lack of understanding and insight into why the sales promises of outsourcing aren’t meeting up to its delivery realities.

2. Too many outsourcing deals suffer “death by change order.” Here’s what happens: Outsourcing firms don’t always do the homework up-front in regard to understanding its clients’ processes. Thus, it underestimates the amount of work it will take to meet its promises. Often this is an honest mistake, but other times outsourcers may under quote on purpose, just to get the business. Then, when it gets further into the contract, it says in essence: “Circumstances have changed and we’re going to need more money.” Naturally, customers aren’t happy about it, but because they have so much invested in the outsourcer they have little choice but to pony up. When change orders occur several times over the course of the relationship, irreparable damage may occur. Companies lose profits, yes, but they also lose faith in their outsourcing firms . . . and what is supposed to be fruitful partnerships goes sour and possibly even comes to a bitter end.

3. The prevalent “core vs. context” approach—outsourcing what’s not important to let us focus on what is important—is becoming outdated. The “core vs. context” argument states that companies should focus on what is “core” to them—things that directly impact shareholder value or that the customer cares about—and outsource everything else. Examples of “core” things would be R&D—or any type of new product or service innovation—and “context” things would be customer service (call centers) or accounts payable (A/P) and accounts receivable (A/R). This distinction may have worked in the past, but today? We don’t think so. Underlying the “outsource context” chant has been that owners had to know only that the service was being provided to them and their customers, but not necessarily how it was being done; after all, if customer service calls were meeting their targets in terms of number of calls taken and number of complaints resolved, then all is good, right? Wrong! Dell Computer had to take back (“in-source”) its outsourced customer service centers because of the huge number of customer complaints they were receiving about it—and the drop-off in number of additional sales that usually accompanied customer service calls. And, on the “core” side, Procter & Gamble, one the world’s leading companies known for its innovative product design, has now “outsourced”—or more appropriately “co-sourced” —its product innovation process for a simple reason. Procter & Gamble has 1,500 “product designers”—those people who come up with new product ideas that consumers globally clamor for and Wal-Mart sells to us all—but the world has 15,000 of them. So, P&G, realizing 15,000 people developing product ideas would far out-innovate/out-create product ideas than could 1,500, created a co-sourced innovation model with product designers around the world—harnessing the brainpower of people well outside their organizational walls. Recognizing that such new models of innovation and strategic value are occurring, quickly and all over the place, forces all of us to reconsider the role, impact, and type of “outsourcing” relationship that makes sense—and that far too often is ill- or not-at-all considered because of the tired old outsourcing model underlying and offered by most service providers.

4. Outsourcing firms are suffering from the Botox Effect. There’s a reason Barry Manilow and Mary Tyler Moore can’t smile anymore without making it painful for us to watch. Botox takes out their wrinkles but inhibits normal facial expressions. This isn’t so different from challenges outsourcing firms face as they get into the “upgrading” portion of their contracts. Around year three to five, they were supposed to have taken out lots of the “easy” process-based costs and added in the simple automation they promised. The problem is, they discover lots of “gotcha stuff” they didn’t know about back when the contract was signed. Turns out, they oversold. The “technology refresh” is a lot more expensive than they thought—and they’ve got so many operational challenges and cost pressures just to keep going (“keep the smile on”) that they can’t afford to do the promised investments when they promised to do so. They’ve become inflexible. They push out the timeline for the technology refresh. They smile, but it’s an artificial one . . . and the change orders keep coming.

So . . . in the face of all these challenges, how can companies ever “get outsourcing done”? There are certain steps you can take to minimize the pitfalls and maximize the opportunities. Outsourcing is here to stay; it will change, evolve, mutate. And knowing that it will do so—helping “make sense” of these changes and the opportunities—is critical to helping companies “take action” on them. But the single most important thing you can do, the thing that underlies everything else, is just this: know thyself. Make sure you understand your own business inside and out before you do the outsource thing.

Blueprint your business processes to get visibility into what’s really going on. You need to know what connects with what, where, when, how and how much. There are far too many potential pitfalls and risks as well as real jewels and innovation opportunities for you to not have this type of visibility. After all, the outsourcing game is no longer just about reducing costs; it’s also about creating value. It’s no longer an “either-or” game.

Ralph Welborn and Vince Kasten have nearly 40 years of combined experience focused on business transformation,
performance analysis, collaborative strategies, business and IT partnership, systems integration and management, and solution deployment. Welborn and Kasten also co-authored “The Jericho Principle: How Companies Use Strategic Collaboration to Find New Sources of Value.”

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by Robin R. Mueller
Play by the rules? How about work with good rules?
Rick Favaloro, in his trial law practice, life experiences, and intense study of linguistics, mathematics and art came to the conclusion that good rules achieve goals—all the time.
“Syntax rules language, the scale and notes make music, mathematical equations arrive at consistent answers, DNA and RNA direct biology and good rules help people to reach goals,” he says passionately. “Everything in life is directed and works by rules.”
Favaloro founded Rules-at-Work in 2004 to help companies enact (create), instruct (learn), ignite (motivate to want to achieve) and achieve (follow) good rules that align with their mission statements. “The culture on the front lines should be consistent with the one in the front office,” he adds.
Businesses fail, employees falter and disputes erupt when there are no rules or poor rules. “A rule is always an instruction, a step toward a goal,” says Favaloro. “When you use good rules, you meet your goals. In fact, the more rules we have, the easier it is for us to do our job. The details are very important.”
Favaloro explains that bad rules—stated or unstated—are vague, inconsistent (meaning that one or more are wrong), don’t progress toward the goal, and/or are written in the passive voice, not listing responsible parties.
Effective rules that work toward business goals—HR practices, sales quotas, factory output, etc.—work best when written and agreed upon by employees who will be following them, he adds.
“Everybody talks about buy-in, but the ultimate buy-in is inspiring employees to write rules that meet company goals and bring job satisfaction,” he says. “Rules also should be flexible and revised, as needed, based on new goals.”
“The best scenario is when a person starting a business calls me in from the beginning to help him or her write a vision and mission statement and align all the rules toward the goals,” he says. “If you’re already running a business and not meeting goals, it’s because you don’t have rules, or you don’t have clear, good rules that define and direct your work.”
For instance, when there were work tensions at the Pelvic Pod at Barnes-Jewish Hospital (a team of nurses, doctors and techs who work in the Urology, Colon-Rectal and OB-GYN departments), Favaloro facilitated and inspired brainstorming, team-building and consensus-building.
Favaloro, in a motivational and fun presentation, demonstrated the value of rules by engaging everyone in a game of “Simon Says,” and using his harmonica to first create noise and then a song, showing the power of rules of musical theory.
Using random numbers or cards, cliques were separated into new groups, and teams were encouraged to write rules to improve the workplace. Favaloro helps them discover that “rules are interactive, beautiful, powerful, inspiring, motivating and fun!”
The Pod’s goals became apparent in its new mission statement, which was based on the Golden Rule—“Do unto others as you would have them do unto you.” The mission became “follow the Golden Rule to: cohesive teamwork, cooperation, cost-effectiveness, doctor satisfaction, patient satisfaction and staff satisfaction.”
During a four-month process, six task forces created rules to reach each goal. For instance, when one person on the Staff Satisfaction Task Force suggested “Make more money,” the rule became “Do your job with the excellence that will justify earning more money.”
Favaloro edited and rewrote the rules so they “would interrelate and be consistent, professional and well-organized, and integrate with the vision, mission and values of Barnes-Jewish Hospital.” All the Pelvic Pod employees agreed to them and enthusiastically put them into practice.
The Pelvic Pod also created a slogan, “Happy are the peas in the pod,” and a mascot called the Podster, wrote a legend, “an inspirational folk tale based on the true story of their rebirth.”
In its second edition, The Pelvic Pod Rule Book features a four-page dedication to the people who served on task forces and outlines six virtues—encouragement, greetings, humor, listening, manners and organization.
Each week the Pod appoints one CEO for each virtue. For instance, the virtue CEO for humor follows rule 5 under that job description, “Each day, make three people laugh out loud.”
The environment changed so dramatically that, in 2005, the Pod had zero sentinel events (problems in the operating room requiring response) and a waiting list of potential employees. In 2006, the hospital recognized those achievements with a Management Award.
Beyond his roles as a company rulebook writer, executive coach and charismatic corporate speaker, Favaloro also resolves disputes, between individuals or between companies.
In his nine years as a civil trial lawyer, and three years teaching the law, Favaloro was “a visionary idealist, who wanted to make the world better, one case at a time.”
He believed that the legal system (rules) commands our justice system (officials) to “do the right thing.” But they function within a litigation system that “presents truths and falsehoods.”
Based on that experience, he encourages companies to avoid litigation and trust employees to explain their views and reach consensus. “In the end, a dispute has the same root: a broken rule,” he states. “The rule may actually be broken, or is perceived to be broken, or someone may simply assert that it’s broken.”
Favaloro uses his investigative experience, cross-examination techniques and listening skills to counsel two parties individually, referee, mediate, arbitrate and finally agree on rules, which not only resolves their conflict, but prevents future disputes.
Prevention also motivates Favaloro’s peace consulting, a proprietary process to help companies “culturally immunize themselves from conflict.”
He likens the litigation process to someone who’s had a heart attack—they’ve not followed the rules for good health and it’s too late. He compares dissension and dispute resolution to a company with clogged arteries—bad habits are in place, but healthy rules can alleviate the damage.
Peace consulting is for the “heart-healthy” company or one that has successfully resolved a dispute—one practicing good habits. Favaloro diagnoses “weak points or potential problems” that could occur with increased growth, additional staff, internal change or external economic realities.
He proactively writes rules to help instill “a positive, streamlined and inspiring mindset that lives by the rule, ‘bring peace, keep peace, make peace.’ ”
Favaloro markets Rules-at-Work through his website, a brochure and networking. He’s joined Toastmasters, the Webster Groves Rotary Club, various chambers of commerce and the International Society for Performance Improvement. His Chamber of Commerce Rule Book, one double-sided folded page, concisely shows all the credibility and format of a rule book.
Favaloro smiles, summing up his business and philosophy with an arithmetic equation: “Your goal, minus where you are now, equals the rules you need to get to the goal.”
Robin R. Mueller, president of Write Direction, writes newsletters, brochures, direct mail letters, proposals and more for diverse corporate clients.

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by Mark Forst

In January 2006, Americans undertook 5.48 billion searches using search engines, such as Google and Yahoo, according to industry research. As the U.S. search market continues to increase at a double-digit rate, many businesses are utilizing search engine marketing (SEM) to increase their website traffic and boost their sales. SEM refers to the act of marketing a website via search engines, which can include improving its rank in organic listings, buying paid listings or using a combination of these and other search engine-related activities, according to the Search Engine Marketing Professional Organization (SEMPO). Several St. Louis companies are taking advantage of SEM to grow their businesses, and the following points can help you determine if SEM can benefit your business.

1. Your company sells specialized products that aren’t easily found at local retailers.

The Internet has opened up a worldwide marketplace for very specialized e-commerce sites to thrive. Think about it: if there’s a hard-to-find product, you can almost certainly buy it online, and the Internet is often the first place that people look for these products. Many people actually prefer buying specialty products online because it is more convenient than searching for them at local stores. If your company retails hard-to-find goods, it is important for potential consumers to find your website online.

Mike Minor, president of Vivian International, a distributor and retailer of ice-making supplies and equipment, realized that something needed to be done when he searched the web for ice-making supplies and couldn’t easily find his website. Minor knew that in order to drive traffic and increase sales of his specialty products among a very targeted online audience, his site needed to be visible and appealing. By modifying the company’s website for SEM optimization, Vivian International now garners more than 500 top rankings on the major search engines and has successfully expanded into the national market.

2. The market for your products is not limited geographically.

Can your products be sold to people all over the United States or the world? A national or worldwide market can positively transform your business—but only if your website has good visibility on the web. SEM exposes thousands or even millions of potential customers to your products in a cost-effective way that can never be matched by brick-and