If real estate is about “location, location, location,” then business is about “management, management, management.” Management is about building trust with people by sharing information, keeping people focused on the vision and purpose of the business, and holding people accountable for performance to achieve your vision.
My first management mentor was my Uncle Peter who, along with my parents and Aunt Norma, acquired Clear Lake Lodge in 1979.
Uncle Peter was gifted with much common sense and wise beyond his years. He practiced open book management (before I had ever heard of the term) by sharing the Lodge’s financial statements with me.
Now, I was a teenager still in high school, but he explained the financials and answered my questions. He helped me to understand the financial side of the business and how we needed to generate cash and make a profit. I trusted him implicitly as the business leader, not just because he was my uncle, but because he shared important information with me.
In your business, are you sharing your key financial information with your management team?
Information of any kind increases awareness and builds trust. In its absence, either due to a lack of formal information systems, slow reporting, or reluctance to share out of misguided fear (or ego), managers can’t do their jobs. They’re flying blind and likely taking orders from you (that’s not managing).
Managers need to be able to evaluate results that come from the actions they took based on the decisions they made. That way, they may continually improve both their decisions and business results.
At the Lodge, we were focused on positive cash flow to meet our loan payments, especially since interest rates were 23%. Cash flow came from customers. Customers who came back created recurring revenue and stable cash flow. Therefore, we focused on providing the best possible customer experience for our guests so they came back and also referred their friends. Our business was built on repeat and referral business.
Are your managers focused on chasing financial metrics, which are lag indicators? Or, are they focused on the drivers of your financial performance such as customer service and customer experience? How do you measure customer satisfaction?
Many business owners that I’ve met, especially small business owners who are working hard to grow their businesses and become successful mid-market companies, struggle with holding people accountable. They say, “they’re doing their best” and other nice things that give me a stomach ache. The key problem is that the owner hasn’t put the manager in a position for success, because:
- The manager doesn’t have a clear focus on the purpose of the business. “To make money” is not a business purpose; it’s an outcome.
- The manager doesn’t have timely and accurate metrics on company focus, operational, or financial information, and can’t evaluate performance of themselves or others.
- The manager doesn’t have control over certain critical aspects of his or her business unit such as hiring, firing, or spending money (as per the budget).
- Therefore, the manager can’t actually manage, and certainly can’t be held accountable for results they can’t control.
Some mid-market companies are still being managed like large small businesses. And yet some small businesses are being professionally managed like large corporations. The latter will definitely have a more profitable future.
Management, like life, is a team sport. You want to have great people on your team. They all need to be good at different things, challenge each other, and most importantly, support each other. After all, a real team wins or loses together.
Figure 4.1 The Management Core
Although I eventually read about open book management (Jack Stack’s The Great Game of Business is a great book), it was my experience with Uncle Peter sharing the Lodge’s financials with me, a kid at the time, that created a powerful emotional foundation of trust.
A mid-market company with multiple locations shared their company wide financials for the very first time with its large management team. As I explained the financials to them, the managers quickly understood how the many pieces of the company fit together. They saw why the executive needed to allocate resources to the highest potential areas of growth and profit.
These managers understood, for the first time, the opportunity costs and decision framework. They realized when they received a “no” to one of their requests, it wasn’t personal, it was business. It was for the company’s benefit.
How are you positioning your management team for success?
Tip: Building a management team requires sharing your vision so people can focus, timely and accurate information to evaluate decisions and results, and accountability for achieving results according to your vision.
Next week, we’ll discuss the final critical piece of accelerating your profitable growth: resources.
If you’d like to discuss how I can help your management team to be even more effective and help your company to increase revenues, profits, and valuation, please give me a call.
Thanks for reading!