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5 Leadership Questions Every Boss Should Ask

Your employees need you most when times are tough. Know how to talk to them – whether the news is good or bad.

Entrepreneur

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The downturn has brought about many woes, especially in the corporate sector. Balance sheets are in distress, stocks are down, layoffs are up, revenues are off, and employees are extremely worried; so are employers. The shockwave that’s been hitting the world economy demands that entrepreneurs react, and react differently than they have in the past. Unfortunately, the pathways toward effective action aren’t always clear. There’s no single set of rules to follow during turbulent times that says, “This is the best way to go.”
 
Nevertheless, there are some especially useful guidelines to consider during times of crisis that can be helpful to entrepreneurs interested in riding the negative wave and holding out for better times. Entrepreneurs, like other leaders, often ask similar questions about how to manage in a downturn. Following are five examples of such typical questions, and the answers to them:

Question 1

How should I manage and lead differently in light of the economy?

The best response is to communicate, communicate, communicate. Your employees need to hear from you, the person at the top. Lack of communication leads to a rampant rumour mill that most often has harmful effects. Even the best of leaders’ intentions can be misconstrued and twisted in the absence of direct communication. The leader must provide regularly scheduled updates on issues such as sales, services, revenues, losses, projections, near- and long-term projects and status.
 
That said, this message must be clear, upbeat and to the point. Employees, just like stockholders and trustees, dislike having to sift through corporate bluffing and unnecessary details to get to the “meat” of the message. Above all, the message must be honest, even when it’s negative. The entrepreneur must not underestimate the level of understanding of the recipients of the message. No one likes to be spoken down to, and above all, no one likes to be lied to. If the leader tries to sugarcoat the message or minimise the impact of a situation, it’ll soon become apparent to the audience. And when it does, they’ll be angry; in fact, angrier than if they’d received a direct, yet negative message to begin with.
 
Furthermore, if the leader minimises the negativity or is dishonest, his credibility will be injured, perhaps irrevocably. The leader must be constantly sensitive to employee morale and motivation. Realistically, sad economic news delivered in a depressing way leads to downbeat employees, which in turn leads to decreased motivation. It becomes a domino effect: Decreased motivation leads to decreased productivity, which leads to decreased output and revenue, which leads to possible employee termination for non-performance. Morale may plummet; however, if the leader is honest and clear, and frames the message in realistically optimistic terms, morale doesn’t necessarily decline in the face of negative news. The key is to be a level-headed, rational, understanding and positive leader.

Question 2

How often should I communicate the status of the company to employees?

This depends on the type and size of the company, the industry and the degree of impact the harsh economic situation is having on the organisation. The general rule is to communicate often enough to keep the employees up to speed, yet not so much that they overreact to the daily or weekly fluctuations of the marketplace. This is true unless the very survival of the company is directly tied to the frequent changes in the marketplace, in which case updates need to be made more often. Therefore, on average, monthly status updates are appropriate.
 

Question 3

Should I allow my employees to participate in these information sessions?

Yes. Employees want and need to be heard. Many leaders are reluctant to open up the floor to their employees because they fear losing control. This usually only occurs when motivation is down and anger is high – two factors that can be minimised with frequent and honest feedback. Many organisations hold town hall meetings to create open communication between employers and employees. This helps both parties hear and understand each other’s viewpoints, questions, frustrations and worries. If a meeting is held where only the boss speaks, the employees are prevented from airing their questions, fears and concerns – data the boss needs to understand in order to be an effective leader. The leader can clarify misconceptions and avoid disastrous rumours by allowing an open flow and exchange of information.
 

Question 4

Should I give my employees a heads up about layoffs, work furloughs, etc?

Because this category of information is usually depressing, productivity and morale are certain to decline once it’s delivered. In brief, no work gets done because the people are in shock and feel betrayed or confused. The best time to convey the bad news is right before it’s scheduled to occur. Therefore, if a noon layoff is set, employees should be told, individually or in teams, shortly before then. The leader should allow time for questions and expression of fears and concerns – and yes, be prepared to be yelled at or even threatened. All of these are realistic and common reactions to receiving bad news about one’s employment future.
 

Question 5

How should I communicate bad news?

No one likes to get bad news, especially when it applies to one’s livelihood. Layoffs are difficult to accept, but there’s a communication format that can lessen the pain. The message needs to be clear and concise. “Beating around the bush” isn’t acceptable; neither is a very brief, dramatic statement like “You’re fired.” The leader needs to use a three-part sequence to deliver the message. First, say something positive, like “You’ve been a valuable member of our team for some time. I want you to know that I appreciate your contribution.” This statement contains negativity, but it can be softened and better accepted if the message begins with a positive statement and the communicator expresses concern for the other party. Next, continue with the bad news. Tell them you have to cut your losses and terminate some people or cut back on certain projects. Pause and wait for your words to “sink in.” Third, state what you’ll do to help out those being terminated. Say you’re setting up stations to show employees how to develop their resumés, search for new jobs, etc. If you don’t intend to do this, ask them to finish up what they’re doing, gather their things, say their goodbyes and leave the building by a certain time.
 
The most important thing to take away from this column is that there’s a framework to use when openly and honestly delivering news, even when that news is bad. The leader’s credibility and honesty is at stake at every juncture here. As a result, the entrepreneur needs to invite feedback and express concern for the well-being of the employees.

Entrepreneur Magazine is South Africa's top read business publication with the highest readership per month according to AMPS. The title has won seven major publishing excellence awards since it's launch in 2006. Entrepreneur Magazine is the "how-to" handbook for growing companies. Find us on Google+ here.

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Leading

9 Ways To Get Employees To Buy Into Your Vision

Your business is your dream come true, now it’s time to include your employees in your vision to drive future success.

Nicholas Bell

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Your vision statement is the foundation of your business. It is the baseline against which all strategic planning is assessed and the benchmark against which all results are measured. However, as important as it is to have a vision when it comes to business success, it is equally important to get your employees to buy into this vision to ensure that success.

Here are nine ways to get your employees to buy into your vision by making it their dream, as much as it is yours…

  1. It must be believable – Your company vision needs to be within the realms of possibility otherwise people just won’t believe in it. It must be steady, achievable and relevant.
  2. It must be inclusive – Employees need to see how they can play a part in achieving this vision to make it relatable and inclusive. If they don’t understand what the business does, they won’t care how well the business does.
  3. It must be reinforced – Talk about your vision all the time. Don’t assume everybody has read it or is familiar with it as new people may not have seen it and older people may have forgotten. Constant communication is critical to ensure everyone is, literally, on the same page.
  4. It must be transparent – Make sure your communication around your vision is open and clear. Talk about it with clients, with all staff members, at all meetings and keep on talking until everyone understands it. When a vision is tangible and accessible it is far more achievable than when it is ethereal and vague.
  5. It must be practical – Don’t make flamboyant statements that are almost impossible to achieve like, ‘We will be number one in X!’. Be practical. It doesn’t matter if you’re not number one, it does matter  that  your vision is practical.
  6. It must be shared – Connect people’s careers to the vision by creating opportunities for them. Show them how the work they do is tied back to the vision and the business. If the business is only about profit and customer, then employees often don’t see how they fit in or why they are important. Create opportunities for them and they will be inspired to achieve your vision.
  7. It must be people-centric – People make up the core of your business. It is bigger than just one person or one idea. So, give them something to aspire to with a realistic, practical and human company vision.
  8. It must have purpose – Embed your vision and its values into the way you do business. The way you treat your employees and your customers and the choices you make should all reflect your vision.  Take it beyond just ‘We want to make money’ and show how your vision positively affects your community and others.
  9. It must be visible – Put your vision on doors, in emails, on letterheads, in proposals. Show what you stand for at every opportunity. Employees need to feel that there is a cohesive plan for the future. This will not only drive engagement but it will keep them steadfast when times get tough – they believe in the ship too much for it to sink.

Related: 22 Qualities That Make A Great Leader

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Leading

What’s Your Number? How To Unpack Company Valuations

Business is booming. Investors want in. But how do you put a price on the value of the company you have built with your own hands?

Louw Barnardt

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company-valuations

Company valuations is such a hazy part of the scale-up journey of a private company. Putting a price tag on a business is both art and science. At the end of the day, the number that makes the headlines (if ever disclosed) will be where willing buyer and willing seller meet.

But how do you , as business owner,  go about setting your asking price? Before approaching investors, it’s a good exercise to determine your own valuation range for the business. Choosing the right valuation method is the first big question. The answer has many parts to it, but the most important driver is the stage of the business.

Let’s look at some of the most commonly accepted valuation methods in our market:

Earnings Multiple

Applicable stage: Established, profitable companies

Listed companies, institutional players and private equity investors normally invest in a company for its cash flow profit that can contribute to their portfolio income. More often than not, companies will be valued based on their current earnings (bottom line profit after tax).

This method can only be used for companies that consistently make a profit. A multiplier will be chosen based on the company’s perceived risk. Younger, more risky businesses will likely have lower multipliers (as low as 3 and 4) and high growth, well established, lower risk companies will get higher multipliers (8-15).

Sometimes small adjustments are made to current year earnings (like non-standard, non-repeating income statement items) after which the valuation is set at Earnings times multiplier equals company valuation.

Related: 7 Factors That Influence Start-up Valuations

Discounted Cash Flow (DCF)

Applicable stage: Post-revenue start-ups, growth companies and established businesses

The most commonly used method in practice, the DCF method argues that a company’s value is determined by the future cash flows that it will yield to investors.

The starting point is creating a five to ten year cash flow forecast for the business. This is no small feat. In order to create a full financial model – income statement, balance sheet and cash flow statement – for the next decade requires a lot of work, both from a strategic and technical perspective.

Investors love this model because if forces the owners to put a clear strategy and expansion plan for their business into numbers. It will include dozens if not hundreds of assumptions – all of which can be scrutinised for reasonability. The result of financial model will be five to ten years’ worth of projected cash flows. These amounts are then discounted to present value at a discount rate that reflects the company’s risk and expected cost of capital.

The sum of the discounted future cash flows plus a terminal value (that represents the value after the five or ten year period of the model) then represents the valuation of the company after some final small adjustments for things like existing debt in the business.

Revenue Multiples

A revenue multiple valuation approach is focused on the market for similar businesses and is underpinned by your company’s current turnover. It seeks out the sales price of other similar companies in the country or worldwide, adjusted for size, stage and market differences.

A company that sold for R100 million at a turnover of R50 million would have a two times revenue multiple (valuation/revenue). If the average revenue multiple for similar companies is in a certain range, this multiple is then slightly adjusted and applied to your business.

If the average sale in your industry has been two times revenue but you are growing much faster than the average with a better competitive advantage, you can argue that two and a half times revenue is a more applicable number for your business. Revenue multiples are often used as a reasonability check in the market for the current asking price.

Related: Why Start-ups Like Uber Stumble When They Scale

Other methods

Most established companies are valued using one or a combination of more than one of the above three methods. At start-up stage, there are a number of other methods like Cost to Replicate or the Scorecard Method that early stage investors look to. When a company is simply in too early stage to practically value it, seed stage investors would also consider SAFE Agreements (Simple Agreement for Future Equity) – an instrument that determines that the percentage of the company the investors are buying with their investment. This is only determined when the Series A round is raised at a future date and under certain conditions, generally at a discount to the price the series A investors are paying.

Company valuations are complex. Many of the above technical factors play a role. A lot of it also comes down to the salesmanship of the owners and the negotiating capabilities of the parties. In ‘How Yoco Successfully Secured Capital And The Importance Of A Pitch’, the Yoco team speak about the importance of the right approach in their recent R248 million fundraising

Don’t go into this process without seeking some kind of expert advice. The price of the wrong valuation is simply too high. Make your numbers and your arguments bulletproof and you will be on your way to defending a strong and exciting valuation for your next raise!

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Leading

3 Keys To A Vision Others Can Own

Trying to get others to buy into a vision that is all about you getting more money is not going to excite people.

Zech Newman

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I get really excited about my dreams. Over the years, as I have led my team, I have realised that they aren’t as excited about my dreams as I am. I own two restaurants and employ minimum wage employees. In the early years of owning my restaurants, turnover killed me. I used to fight for them to have the same passion for my goals and dreams as I had and as a result I had extremely high turnover. Confused and frustrated, I knew I needed to change the way I was leading a team.

A few little changes have created a committed team and extremely low turnover. If you don’t have a passionate, committed long-term team, check these simple vision casting strategies.

Deeper Vision

Often our vision that we cast is shallow and self-serving. A vision that is all about you getting more money is not going to excite people. Take some time to uncover what you are trying to accomplish. When you can cast a vision beyond your selfish desires, others can sink their teeth into the vision. For my company, I wanted to raise up leaders to change the community.

My focus changed to my crew and they could feel the shift in perspective, which also helped me to earn a bi-product of more money, my original desire.

Related: 30 Top Influential SA Business Leaders

Their Vision

Our deeper vision helps us keep and build a team, but it’s still our vision. We need to really understand the goals and dreams of our team to find untapped potential and loyalty. No one will ever care as much about our vision as us because it’s ours. The more focused you get about helping your team and their wants and desires, the more they will care about yours. In my restaurant I had a young lady who wanted to be a teacher. I thought about what it takes to be a great teacher and how I could help her toward that. Find out what they care about and dig deeper to see what is behind that desire.

Marry the Two

If you have a team running around caring only about their vision they may be loyal and passionate, however, they will not be united in one direction. Magic happens when we combine our vision and their vision. At the points of intersection, our interests and theirs are united to accomplish more. I want to encourage leaders who can change the community.

Related: Business Leadership – Learn How To Embrace Change

As for the employee I mentioned above who desired to be a teacher, I trained her toward being a better teacher so that she could raise up young leaders to change the community. Now she is one of my top supervisors and teaches many other crew members. She will be an awesome teacher someday, but in the meantime, she is a valuable team member.

Caring for a team and helping them see how your vision and their vision can help each other will change everything. Growing people is the business no matter what business we are in. Care for others and they will care for you. Care only for your own wants and you will never get the most out of your team. Find a deeper vision, figure out your teams’ vision, and combine the two and your business will transform.

This article was originally posted here on Entrepreneur.com.

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