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3 Rules You Must Follow If You Want Your Company to Be Exceptional

If you want your company to be the best, there are three rules.

Catherine Clifford

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  1. Be better.
  2. Don’t be cheap.
  3. 3. There are no other rules.

That’s according to a recently released book co-authored by Deloitte director Michael Raynor and strategist Mumtaz Ahmed, The Three Rules: How Exceptional Companies Think (Portfolio/Penguin, 2013). Raynor, who earned his doctorate from the Harvard Business School, and Ahmed, along with a team of researchers, analysed a database of 25 000 companies across hundreds of industries spanning 45 years to identify those companies that were statistically “exceptional.”

What is exceptional?

Defining “exceptional” was a project in and of itself, but it began with one question: “How much of a difference is enough to make a difference?” What Raynor’s team ended up doing was generating something of an actuarial table for business success.

“If somebody says I am 82 years old. Is that person old or not? Well, if they live in the Northern Islands of Japan, that is early middle age because those people live forever. If they are from Tanzania, they are probably the oldest person in the country. What counts as old is a consequence of your context.”

What makes a company great?

Raynor and his team also developed a mathematical algorithm that corrected for age of business, date, amount of debt, size and industry, among other variables.

The goal of the analysis was to strip out the effects of luck and variation to come to an answer to the question: “What do managers do to make companies great?” says Raynor, who is based in Mississauga in Ontario, Canada.

After identifying 344 top performers, Raynor and his team, who officially started working on the project in 2007, looked for common traits to define how those exceptional businesses acted.

The team largely came up empty.

However, when Raynor and his team started to look at how those exceptional companies think, the principles started to become clear.

Related: 7 Leadership Lies You Need To Stop Believing

The principles of greatness

They are as follows:

1. Better before cheaper. Differentiate yourself from your competition based on quality, not price. While you may achieve some level of success undercutting your competition with cheaper prices, you will almost never become exceptional on a price-based model.

2. Revenue before cost. It will be more valuable to your company to drive your revenues higher than it will be to drive your costs lower. Cutting costs may result in some degree of success, but, most likely, your company won’t sustain an exceptional level of greatness.

3. There are no other rules. Technology, talent, markets, people – it can all change. But don’t mess with Rule 1 or Rule 2.

Exceptional companies include long-haul trucking company Heartland Express and teen clothing retailer Abercrombie & Fitch. The companies are all publicly traded companies, larger than the sorts of companies that many young entrepreneurs may have on their hands. But Raynor says the three rules still apply to younger, smaller companies, if with a modicum of compassion in the application.

Choose a direction, not a route

Consider the rules “a compass, rather than a map,” says Raynor. “You are lost in the forest and somebody says civilisation is North. If I hand you a compass, I have done you a favour. You still have to be creative. You can’t just walk straight north, you will bump into a tree, walk off a cliff, do whatever it is you do. And so sometimes you have got to go East, West, double back South even and really pay attention to cost for a while, but you want to make sure that over time, you are pushing your company in one direction versus another.”

Very often, new start-ups are especially cash strapped. And Raynor recognises that. But the rules of putting quality and revenue first still apply on a comparative level.

“If you want to have higher profits than your competitors, the way to do that systematically is not to have lower costs than your competitors,” he says.

Raynor cautions that this doesn’t mean businesses should put “gold-plated Aeron chairs and Godiva chocolates in all the conference rooms,” but that businesses should figure out where they are better than their competition and exploit that gap with higher prices or higher volume, not lower costs.

“It is all about your relative position. If you want to be relatively more profitable, you want to have relatively higher volume and/or relatively higher price” than your “relevant” competition, he says.

What sets your business apart from your competitors?

Catherine Clifford is a staff writer at Entrepreneur.com. Previously, she was the small business reporter at CNNMoney and an assistant in the New York bureau for CNN. Catherine attended Columbia University where she earned a bachelor's degree. She lives in Brooklyn, N.Y. Email her at CClifford@entrepreneur.com. You can follow her on Twitter at @CatClifford.

Leading

Never Lose Control When Selling Your Business

Andrew Bahlmann founded niche corporate finance advisor Deal Leaders Africa in early 2017 to maximise the application of the business skills that he has acquired over about a quarter century in the South African and international business worlds.

Andrew Bahlmann

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Having engaged with hundreds of entrepreneurs over the years, one thing has always resonated with each and every business owner….and that is the need to have control. Control over their business, their cash flow and their growth. This makes complete sense and speaks to why the thought of having to work for someone else sends shivers down their spine.

I am fascinated why a different set of standards is applied when it comes to selling his or her business. Let me paint an ‘all too common’ scenario that many of our clients have experienced.

One day, out of the blue, you are contacted by a ‘would be’ acquirer who is interested in buying your business. From the very moment that you entertain this approach you have lost control. Why is this you may ask? From that moment, the potential acquirer will define the hoops that you need to jump through before they even put a serious offer on the table. They will insist on a full due diligence before submitting a detailed offer and will no doubt leave you feeling overly exposed for an extended period of time.

Then, at the eleventh hour, they will put a ridiculous offer forward underpinned by all of the ‘risks’ that they identified in the due diligence. Forget focusing on the embedded value and future growth potential that your business will offer them. From their perspective, it is all about the negative stuff. Another alternative is that they finish their due diligence and walk away. You end up standing at your business entrance, watching them drive away, with nothing to show for it except an elevated blood pressure and asking yourself the question ‘what the hell just happened?’

Control is critical when selling your business. I am not talking about ego and arrogance. I am talking about taking an approach that is calculated and structured. An approach that drives a process on your terms and according to your agenda.

Related: When Is The Right Time To Sell Your Business?

An approach that protects your confidential information along the way and doesn’t leave you feeling exposed at the end.

Always have a plan

Whether you are proactively going to market to find an acquirer or strategic partner, or someone comes knocking on your door, always have a plan. This will encompass the timeline, the terms and rules of engagement between the acquirer and yourself moving forward. By putting the plan in place, you take control of the process.

Interrogate the acquirer

Before doing anything as far as process with an acquirer is concerned, interrogate them to truly understand the following:

1) What are their motives to look at buying your business?

2) Have they bought business before?

  1. If they have, can they give you details on who they have acquired?
  2. Insist on speaking to those business owners that have been acquired by this acquirer to hear from the other side what working with this company is all about.
  3. Find out how they valued and structured those deals?

3) Find out how they would value your business and equally importantly, how would they fund the acquisition?

  1. You want the valuation formula upfront so that you are both working on the same basis.
  2. If the acquirer has to raise funding, then insist on speaking to the funder to make sure that there is a commitment from their side and to make sure that their valuation methodologies are aligned to what the acquirer is saying. If not, then you need to engage with the funder as their valuation will be the one that counts.

Related: Selling Your Business To Your Business Partner

Always get an offer before due diligence

Always make sure that the acquirer puts forward a non-binding offer before commencing with the due diligence for the following reasons:

  1. This will give you comfort that they are serious
  2. It will identify where they see the value and what the risks are

Always agree the terms of the due diligence

Make sure that the terms of the due diligence are defined and reconcile back to the offer. A due diligence must confirm where the acquirer sees value and identify risks. Don’t let the due diligence list (which is often made up of hundreds of requirements) drive the process. Let commercial reality and practicality guide your process.

Always have a timeline

Always ensure that you are driving the process with a timeline. You must define the milestones and the deadlines for the acquirer. Remember your time is valuable and the acquirer must respect that.

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How To Fire Your Best Friend

Be direct. Be quick. And if they are still talking to you, help them find a new job.

Levi King

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Ever been fired from your job? I have, and it sucks. There’s nothing quite like the feelings of despair, humiliation, discouragement and setback that results from losing gainful employment – expected or otherwise.

Ever fired someone from their job? I have, and it’s every bit as sucky. There’s nothing quite like the feeling of being directly responsible for all the negative emotions listed above.

There are exceptions to the rule, of course. Sometimes the employee in question is rude, arrogant and downright bad at their job. They poison your company culture and continually underperform. Both of you see a parting of ways long before the day actually arrives.

But then there are those others. The decent ones who show up early and try hard but just can’t quite seem to cut it. These make for painful interviews. But worst of all, by far, are those times when you have to fire a friend. It might be someone who’s been with you from the beginning, but your company has simply outgrown them. It might be someone who finds themselves in over their heads, and though given every chance to swim to shore, succumbs to the waves again and again.

I can promise you that these separations will be among the most heart-rending of your career. But as with everything else, there are right and wrong methods of handling them. Here’s how to do it right.

Set definite expectations long before the dreaded day arrives

When you’re close to someone, it’s tempting to set lower standards for their performance. Your affection will bathe their behaviour in a rosier light than enjoyed by their lesser-esteemed colleagues. That’s a psychological fact. Don’t be naive about it, and don’t lie to yourself about it. View your friend with the same clear, objective eye that you would anyone else on your payroll, and set clear performance goals.

If those goals aren’t met, your duty becomes 100 percent easier. You both agreed beforehand that X, Y and Z were the necessary standards for their continued employment. Those standards weren’t met, and only one course of action remains.

Related: Family Business: The Pros and Cons of Getting Funding From Loved Ones

Be as direct and natural with them as you’d hope they’d be with you

open-conversation

This isn’t a time for funeral airs and solemnity. Nor is it time for false cheeriness and a this-isn’t-as-bad-as-it-seems vibe. You’re not the principal of a high school calling the class clown into your office to suspend them. Nor are you a buddy merely passing on a bit of negative news. You’re their boss. They’re your employee. And you’re letting them go. I speak from experience. I can promise you that no matter how much you prepare internally, nothing will completely fortify you for the actual exchange.

So be yourself, and let them be themselves. Let them respond. Let them get angry. Let them get sad. Hell, if you need to cry together, cry together. But be firm, calm and unambiguous.

For both your friend’s good and the good of the company, don’t delay

I’m an optimist, and I like to err on the side of people. Needless to say, this optimism leaps into overdrive if those people happen to be bosom buddies. I’ve delayed firing individuals for a year longer than I should have because of this.

In other words, I took my whole company to the edge of catastrophe because I convinced myself that what was really happening wasn’t really happening. I didn’t want it to be so; therefore, it wasn’t.

It is much better to err on the side of caution and fire a floundering friend a few months early than a few months late. This sounds draconian and cold-hearted, but it’s absolutely true. You owe it to your investors, customers and other employees.

Steel yourself for the possibility of hurting a relationship temporarily or even permanently

The more personal the relationship, the more personal the firing will feel. An emotional confrontation, a stormy scene, accusations of betrayal – don’t be so naive as to think that either of you will walk out of the meeting unscathed.

Be prepared to be called a Judas. Be prepared to be castigated on social media, to be contacted by mutual friends who just can’t believe what you did, to be defined as cold, heartless and worse.

There’s a chance that things will blow over. Even if it takes years, reconciliations do occur. For now, you’re making the best decision – for you, for your friend, for your company. Hold on to that truth tight and weather the storm.

Related: What Happens to Your Business When You Move On?

If it’s warranted, help your friend find new employment

As already mentioned, there are plenty of occasions where a firing is called for because your company outgrows an employee. They just can’t keep up with the demands that a quickly expanding tech startup calls for, for example.

That doesn’t mean that they aren’t skilled, hard working or incredibly good at what they do. It only means that they need a different environment in which to shine as brightly as they did when you were beginning together.

In this case, move heaven and earth to assist them in finding solid employment elsewhere. Use all your contacts, all your connections, all your pull. In this case, you owe them a debt of gratitude, and you can repay that debt by making sure that wherever they land, they land on their feet.

This article was originally posted here on Entrepreneur.com.

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Dabbling Was Cute.
 Now, Are You Ready To Dominate?

How you can become the Branson of Business, the Clarkson of Cars, the Oprah of Talk Show TV.

Douglas Kruger

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When Arnold Schwarzenegger began his career, he studied bodybuilding icons — not to emulate them, but to surpass them. His strategy was always to top the best.

From the roaring mosh pits of an Iron Maiden concert to the welcoming ambience of Nigella Lawson’s kitchen; from the secretive rainforests of a David Attenborough nature documentary to the sweat-soaked gyms of Schwarzenegger’s legendary workouts — every industry has its top name icons. What do they all have in common? What makes them rise to the top? And most importantly for entrepreneurs, what can we learn from them?

I’ve spent a decade trying to discern and decode what distinguishes the leading names in any field, and whether their approaches can be emulated. Here’s the secret I’ve discovered: We tend to think of experts in terms of superior knowledge or academic skills, but that actually misses something. There’s more to it. You can be highly qualified and yet completely unknown. Instead, to be truly iconic, you need to combine three non-negotiable qualities: Knowledge, personality and publicity.

You have to know it, you have to show it and you have to be it. You need to build an identity or ideal that tribes of followers want to emulate.

The following is an excerpt from What Makes Them Great? 50 Ways to Become an Industry Leader that focuses on four ways you too can become an industry leader.

1. Benchmarking globally, not locally

arnold-schwarzenegger

In his early twenties, Arnold Schwarzenegger made an interesting decision. Upon deciding that his life’s course lay in pursuing bodybuilding, he moved from Austria to California, to study the world’s top athletes in their own backyard. But he went with a philosophy that was quite remarkable. More than just wanting to study what the top practitioners did in order to emulate them, his stated goal was to study what the top practitioners did, in order to surpass them.

When last did you observe the best in the world, then think: “I could top that”?

Here’s why this dynamic matters: Today, your potential customers aren’t just benchmarking you against your exact equivalent locally. In reality, they are even benchmarking you against completely different industries and practitioners.

In the same way that a restaurant does not just compete with other restaurants — it also competes against the lateral options of movies, concerts or home pizza delivery — you are not just viewed against the backdrop of others who do exactly the same thing. You are viewed against the backdrop of an increasingly globalised market, by people who travel all around the world.

Your target market may be ‘just’ a mom with a simple problem to fix. But that mom has also been to London, New York and Sydney, and her perception of your levels of professionalism, as you operate in her home town, are not relative to others in your home town.

Moreover, the local mom evaluating your professionalism has Googled videos about how to solve this problem, and watched entrepreneurs from California talking about sleek and clever solutions. If she’s gone to the trouble as an outsider to your field, you certainly should have done the same and more as a practitioner. And that is her rightful expectation of you.

Related: Research: The Power Of Meditation That Will Blow Your Mind

2. “Good enough” for the locals, and other myths

Eiffel Tower

Fairly late into its lifespan, the Eiffel Tower acquired a glass floor. You can now go halfway up the Parisian landmark and scare yourself rigid by stepping onto a transparent walkway and looking straight down. It’s a great addition to one of the world’s most popular tourist destinations… that took about 15 years too long to implement.

Many years prior to its implementation, my wife and I went up the CN Tower in Toronto. Somewhere up near the Canadian clouds, its bulbous dome has a similar walkway, which has been there for decades. I remember watching my wife, who is no friend of heights at the best of times, crawling out onto the glass and smiling gingerly for a photo, then retreating to the safety of concrete as though she were on fire. Other places, like a tourist spot at the Grand Canyon, have since copied this notion too.

Why did it take one of the world’s leading tourist destinations — the Eiffel Tower in France — so incredibly long to do something so seemingly obvious?

The answer is: Because the custodians didn’t think of themselves as part of a global network of international travel. They thought of themselves as ‘custodians of the Eiffel Tower.’ Subtle shift; huge difference.

Do you still view yourself as a local operator? Increasingly, this view is becoming self-deluding. Many of your potential fans, tribes, clients and customers are now extremely well travelled, and may be comparing you to a much better version in Tokyo or Tel Aviv.

3. Contexualising yourself upward

improving-self

‘Imagine the government passes a law,’ a fellow speaker said to me one year, at the Professional Speakers Association convention, ‘And you are no longer allowed to charge your current fee. You have to double it. Non-negotiable. What would you do differently? And which clients would you target instead of the ones you currently deal with?’

I took the question seriously. And it’s a good one. What would you do if forced to take your business up, not just a notch, but a couple of tiers, in one fell swoop? Grapple with the answers to this question (and there are answers to them, in every industry) and you are actively engaging yourself with the problem of how to position yourself as one of the premium players in your game.

If forced to face that test, what would you do? It is a good idea to keep graduating yourself upward; to compel constant growth by design. In your quest to become truly iconic, do not benchmark yourself against the immediately available, local talent. Contextualise yourself upward, and think about your own performance relative to the global best.

This may entail a few practical things:

  1. You may have to stop doing the low-level and/or free stuff. Being valuable, and being seen as valuable, is everything here. But you have to go first. The market doesn’t just assume you are.
  2. You must find ways to actively display your new, greatly increased value.
  3. You may have to cull the cues that disqualify you as premium, such as low pricing, amateur visual cues in your marketing, etc.

4. Pricing yourself correctly

dr-frasier-crane

By the time the sitcom came to an end, after 11 Emmy-award devouring seasons, Frasier had established itself as one of the most popular and successful comedy shows in television history. Toward the end, each of the main actors was earning in excess of a million US dollars per episode. The show’s success was a fabulous argument against the notion that one should simplify everything and ‘pander to the masses,’ given that the two lead characters, psychiatrist Dr Frasier Crane and his brother, Dr Niles Crane, were highly intellectual, unapologetically snobby, sophisticated patrician elites, who pontificated in sentences one might typically hear at a medical convention. Or Mensa.

In an episode of season ten, Frasier and Niles are seated at Nervosa, their favourite Seattle coffee shop, along with Niles’ wife, Daphne. Daphne is pregnant. Egged on by another couple, Daphne and Niles are trying to find ways to ‘heighten’ the experience of childbirth. The whole thing becomes competitive, and they end up hiring a doula to guide them through the event — more to impress their friends than anything else.

Frasier, meanwhile, has been suffering through a dating dry-spell. He has hired a professional matchmaker and is about to meet up with her. Donning his jacket and excusing himself from the coffee table, Frasier says, “I’ve signed up with a matchmaking service.”

“Frasier, a matchmaker?” Niles responds, aghast. “I’m surprised you’d use a professional for something as personal as your love life.”

“Well, I could say the same thing about you and your doula,” says Frasier.

“Well, our professional comes highly recommended,” says Niles.

“So does my professional,” says Frasier.

“Well, our professional is at the top of her field,” Niles counters.

“As is mine.”

“Well, our professional charges two hundred dollars an hour.”

“Mine charges ten thousand!”

Niles gasps. “She sounds fan-tastic! Congratulations, Frasier!”

“Thank you, Niles…”

The dialogue concludes with Daphne rolling her eyes. The scene was obviously created for comedic effect, but there’s an undeniable grain of truth in this overblown observation. We do perceive quality according to price. It’s a natural human bias that you will read about often in books on behavioural economics, and which you will see reflected in the purchase price of your next luxury car.

If you are too cheap, you will be perceived as amateur. Here is another example, from author Robert Cialdini. A lady owns a jewellery store in a coastal town, and she’s struggling to sell a particular range of jade jewellery. So begins the true story in Cialdini’s book Influence. Before going on leave, the owner instructs her sales person to halve the prices. The sales person misreads her note and doubles the price. The entire range sells out before the owner returns.

Behavioural economics are fascinating. In this particular case, the items sold more effectively because they were more expensive. The reverse dynamic applies too. Set the bar too low, and you will raise innate suspicion from high-level buyers (Hmm… No, thanks. You’re too cheap. Sounds risky).

Mindset tip: Where it matters, be a surgeon

Going about their daily work, doctors are required to make use of competing skill-sets. They have to be dispassionate enough to be able to do necessary, hurtful things to their patients; injections into delicate parts of the body, cutting open skin and billing them right in the soft spot.

But they must also show compassion. Doctors are typically sued more often when their bedside manner is lacking, even for the same results as their more compassionate contemporaries.

An ideal doctor, if such a thing exists, is able to be compassionate when it counts, but dispassionate when it is necessary.

I’d like you to remember this concept the next time you struggle with stating your price: Be a surgeon.

The pricing is not an emotional aspect of the thing you do. This is merely ‘part of the procedure.’ Just do it, and do it dispassionately.

You don’t have to ‘believe in it,’ or ‘feel anguish about it,’ or in any way emotionalise the scenario. That’s for amateurs. This is the part you do clinically, simply as a step in the procedure.

If they can’t afford your fee, that’s fine. Nobody is going to shout at you or place you in stockades in the town square for a dose of public humiliation. If they can’t afford you, they are not your customer, and that’s all there is to it. If they can, they are. You can then continue on together to the next part of the professional relationship, at which point you will display empathy for their needs.

Pricing is not emotional. It’s procedural. Get it done. Like a surgeon.

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