A few months back one of my students visited me. He had recently read the best-selling book, Blue Ocean Strategy. I had strongly recommended the book in one of my classes and, on my recommendation, he had purchased it and invested his time in meticulously working through the concepts. Yet on finishing the book he felt lost, despondent and overwhelmed.
He and his older brother had recently bought a struggling independent coffee store which they wanted to transform into a viable, thriving operation that would enable them to pursue their passion for music with a sustainable income. He complained that concepts in Blue Ocean Strategy seemed foreign and unrealistic and he wondered why I would recommend such a ‘pie in the sky’ book. Just a few days earlier I had met up with a friend from my MBA class. She was involved in launching a new social networking application that has the potential to transform the way we interact online. She explained to me how the same book had helped her create a practical and relevant blueprint for designing and implementing her new innovative product. She described in great detail how it was the “most valuable and insightful book” that she had ever read.
Why does one entrepreneur interpret Blue Ocean Strategy to be ‘pie in the sky’ while another interprets it to be the most valuable and insightful book that they have ever read? The answer lies in this simple statement: Not all entrepreneurs are the same. The term entrepreneur is used to describe any person launching and managing his or her own business, but in reality there are many different types of entrepreneurs. The ingredients for entrepreneurial success are very different depending on what kind of entrepreneur you are. It is hugely valuable for a person launching and managing a business to understand what kind of entrepreneur they are and to align their actions with the principles that govern that kind of entrepreneurship.
So what kind of entrepreneur are you and what does that mean for the way you manage your business? Some of the research that I have done would suggest that there are four broad categories of entrepreneurs: survivalists, lifestyle entrepreneurs, growth entrepreneurs and revolutionaries.
Survivalists are in business merely as a means of economic survival. They operate micro enterprises to feed themselves and their families. They create very little long-term wealth in their operation; they are merely keeping the business afloat while living on the profits from one day to the next. Examples of survivalist entrepreneurs can be found all across South Africa – they are the basket sellers on Durban beachfront, the people selling sunglasses on the corner of William Nicol Highway and Republic Road and the person selling Stormers flags outside Newlands Rugby ground.
Lifestyle entrepreneurs get into business as a means to a particular lifestyle. Being in business for themselves means that they can live in a certain place, have the freedom to pursue another passion (such as music, sailing, writing) and the autonomy to dictate when they do and don’t work. They tend to engage in higher value activities and use more infrastructure compared to survivalists. They therefore usually need to make a larger upfront investment in the business than survivalists but they get better returns. In most cases these people are forgoing the certainty of being an employee in an existing business for the freedom of autonomy and choice that goes with being an entrepreneur. The owner of a thriving guesthouse in Plett, the coffee shop owner who needs time for his music and the local nail parlour owner who wants afternoons off to spend with her kids are all examples of lifestyle entrepreneurs.
Growth entrepreneurs are driven by the competitive nature of business. They get into business for themselves to create something of long-term value and they continually seek to make the business bigger and more competitive. They usually need to make a larger investment in the business than lifestyle entrepreneurs, both in terms of upfront capital investment and the time they invest in managing the business as it grows. They often take on more risk than lifestyle entrepreneurs but that risk comes with financial rewards if the business succeeds. The consultant who keeps hiring more associates to service more clients, the media entrepreneur who is continuously launching new products to sell more advertising space and the estate agent who is franchising her operation to facilitate growth are all examples of growth entrepreneurs.
Revolutionaries create a business as a means to change the world. They are driven to disrupt and reshape markets. They look to make big bets and if these pay off they usually become famous. Globally, Steve Jobs, Richard Branson and Bill Gates have left indelible marks on the industries they entered. In South Africa, Raymond Ackerman reshaped the retail industry, Adrian Gore disrupted the healthcare sector and Gidon Novick turned domestic airline travel on its head. Such entrepreneurs often need to invest substantial amounts of capital in their businesses to facilitate growth; with that comes high expectation. They are notorious for working hard and for demanding much of those who work for them.
These four kinds of entrepreneurs can be represented in a simple diagram (see figure 1) which depicts the investment required and the revenue generated by the different categories of entrepreneurs. As can be seen in the diagram, survivalists invest very little in their business but they barely operate above the ‘breadline’. Lifestyle entrepreneurs make an investment in their business – usually their own money or money from family and friends. They use that money to create a business that initially grows but after a period of time it reaches a steady state and they are able to live on the income. Growth entrepreneurs typically need to make larger investments in their business and often rely on capital from external sources to facilitate growth. They push hard to grow the business and keep pushing for growth, even after it is making more money than they need for their chosen lifestyle.
Revolutionaries usually need to make very significant investments in their businesses to disrupt a market – Fred Smith of Fedex raised US$100 million in 1971 to create the infrastructure for his overnight delivery service. Adrian Gore ended up owning only 5% of the company he created because he needed to access significant amounts of external capital to get Discovery off the ground. Revolutionaries invest this capital in ventures that have significant potential. If the business takes off it will generate substantial growth and will probably keep growing for a number of years.
The questions every entrepreneur must answer:
My research indicates that there are two key factors that determine whether an entrepreneur is likely to achieve success with their chosen entrepreneurial trajectory.
- First, does their chosen trajectory – lifestyle, growth or revolutionary – align with their personal values and subconscious entrepreneurial desires?
- Second, do they have the skills to deliver within their chosen trajectory?
People subconsciously have a desire to be a certain kind of entrepreneur. This desire is driven by their underlying values – the things that they hold most dear.
Those who recognise how their personal values are driving their subconscious entrepreneurial desires, understand what kind of entrepreneur they want to be and act in accordance with that choice, are more likely to be successful.
Those who fail to recognise how their personal values are driving their entrepreneurial desires risk getting on the wrong trajectory which can have catastrophic consequences. Such people find it hard to align their individual actions with the actions demanded by the business. Being a successful entrepreneur takes hard work, effort and energy, no matter which trajectory you are on. To sustain that hard work, effort and energy, the entrepreneurial journey needs to fit in with the entrepreneur’s life. If your entrepreneurial journey fits in well with your desired life, you will have the energy to sustain what you are doing. If your entrepreneurial journey is out of sync with how you would like to live you are likely to run out of energy.
If your values and desires align with your chosen trajectory, you need to have the skills and knowledge to deliver within that trajectory. If you have the desire but not the skills and knowledge, you may work hard and do everything in your power to try to succeed, but you will continually come up against barriers. Such a person would do well to first develop the right business and entrepreneurial skills before pushing too hard down their desired entrepreneurial trajectory.
So what does all this mean for you?
If you wish to be satisfied, fulfilled and successful on your entrepreneurial journey, follow these three steps:
- Recognise which entrepreneurial path you subconsciously wish to be on – lifestyle, growth or revolutionary.
- Assess if you have the skills and knowledge to be effective on that path.
- Assess if the path you are currently on aligns with where you really need to be and make the necessary adjustments.
1. Assessing your desired entrepreneurial path
Assessing your desired entrepreneurial path involves being brutally honest with yourself. Many people automatically assume that they wish to be revolutionary entrepreneurs – “Wouldn’t it be nice to transform a market and become incredibly rich and famous?” they think to themselves. But when pushed to think about what they really desire, they don’t want the risk, the stress and the endless hard work that goes with building a revolutionary business. You need to go beyond your surface level desires to understand what kind of business will meet your long-term desires and align with your personal values.
10 by 10
One way to do this is to engage in what I call the ‘10 by 10’ exercise. This requires you to get a blank sheet of paper and write down ten sentences describing the kind of life you would like to be leading ten years from today:
- What work do you want to be doing?
- Do you want to be living in a specific location?
- How do you want to spend your days?
- How do you want to spend your weekends?
- How wealthy would you like to be?
- What other aspects of your life do you wish to nurture?
- What would you like to have achieved in the past ten years?
- What assets would you like to own?
- How do you want to divide your time?
- What role will family play in your life?
Be thoughtful and deep in answering these questions. Don’t sell yourself short – write at least ten sentences to create a full picture of what you desire.
Once you have ten sentences outlining your life ten years from today, consider the kind of entrepreneurial trajectory necessary to get you there and whether you are willing to embark on it. Living out each entrepreneurial trajectory has very different implications for your life and you need to figure out if your desired life and your desired entrepreneurial trajectory are compatible. Are you are willing to tolerate the stress and risk that go with being a revolutionary? Are you prepared to put in long hours and hard work that go with being a growth entrepreneur? Are you happy to forgo business growth for control if choosing the lifestyle trajectory? Table 1 provides insight into important elements of each entrepreneurial trajectory. This table can be used to assess if your chosen trajectory is likely to align with your desired life path.
2. Assessing your skills and abilities
The second order of business is to assess if you have the knowledge and skills to execute within your desired trajectory. The knowledge and skills needed to run a lifestyle business are very different from those required to build and grow a revolutionary or growth business. Lifestyle entrepreneurs need basic business management skills accompanied by the specialist skills of the business they are building. Growth entrepreneurs need skills and knowledge related to strategy, marketing, operations and human resource management to be able to find and create new markets, and hire people to manage their business in those markets. Revolutionaries need to innovate and disrupt. They must have the charisma and vision to sell a crazy idea; then, they need to surround themselves with experts who can help make that vision a reality.
3. Assessing your current trajectory and jumping trajectories
The third order of business is to assess if the path you are currently on aligns with where you want to be and to make the necessary adjustments. By carefully interpreting the outcomes of the 10 by 10 exercise and assessing your knowledge and skills, you can ensure that there is alignment between your skill levels, your desired career outcomes and the entrepreneurial trajectory you are currently on.
If there is alignment, you need to strive to be as effective as you can within your chosen trajectory. If there is no alignment, you should identify what you need to change. Do you need to shift your trajectory or develop your knowledge and skills to create alignment? Developing knowledge and skills may require work experience in an industry, attending a business course or doing some deep reading and research. Changing your trajectory involves realigning expectations and taking on the risks and work practices that are associated with a new trajectory. If you want to move from lifestyle to growth or revolutionary, you may need to bring on new partners, spend time crafting a strategic plan to set goals for the business or invest in the skills of the people in the business to create a platform for growth. If you decide to scale down and transition to a lifestyle business, you may need to simplify things, scale back on the risk within the business and realign expectations and work habits.
Understand your needs
Two years ago I shared this framework with a friend of mine. At the time he was trying to create a high growth organisation in the medical supplies industry. He had hired a number of sales and operations people, he was endlessly looking for new markets, new channels and new suppliers, yet he constantly came up against roadblocks. Early one morning as we were driving out to a triathlon together, we chatted about some of these challenges. I asked him what he really wanted from the business he was creating. After some thought he said that he was trying to create an organisation in which he would be in control and through which he would be able to make a good living and provide for his family.
Through this discussion, he realised that he had not properly thought about what kind of organisation he was trying to create and whether that would align with the life he desired. It dawned on him that the only reason that he was pushing so hard to grow his business was because “that is what is expected if you get an MBA.” Over the past two years he has scaled back his operation, reduced the amount of debt in the business, cut the payroll and changed his expectations. He is now taking home more money than before, he is less stressed and he gets to swim, bike or run much more than when he was pushing so hard for growth.
Aligning your deep personal desires with your entrepreneurial trajectory is one of the most valuable things that you can do to enable entrepreneurial success. Start now.
Elon Musk’s Formula For Successfully Growing Companies Faster
There is no denying the many ways in which Elon Musk is unique. There is also no denying the fact that you can learn something beneficial from him.
Elon Musk needs no introduction.
Let me start by saying I am a huge fan of Elon Musk and the energy he brings to the business world. His major companies include: Tesla, SpaceX, Boring Company, HyperLoop, Solar City, and Giga Factory.
All Musk companies have a major theme, vision and technology
These companies all have one major theme in common; they are set on pushing boundaries. In fact, this innovative concept has practically become synonymous with Musk’s name.
Combined with groundbreaking technology and a strong passion for improving life (both in and outside of Earth), Musk’s unique vision is one of the most valuable contributions in bringing humanity to the next level.
One his quotes has always stuck with me:
“If you get up in the morning and think the future is going to be better, it is a bright day. Otherwise, it’s not.”
Musk, the most influential entrepreneur today
Musk is the most influential entrepreneur of our generation. His approach has inspired many others to try new things and to make a real difference in the world. So what is it about his formula that is so special?
Well, truth be told, it’s really not that complicated. The bulk of his strategy can be traced back to several key cornerstones.
Musk is committed to challenging convention
One of the traits that makes Elon Musk so influential is his keen eye for understanding human truth. In essence, human truth encapsulates the deeper meaning behind universally-accepted status quos. In other words, it is the common thoughts and feelings that unite us all.
Musk’s formula for innovation starts by identifying the what and the why of certain pain points in day-to-day life. One of his more recent ideas, from SpaceX towers, aims to change the very perception of air travel.
What is human truth?
The human truth of air travel is that most people do not genuinely enjoy spending hours on a cramped airplane. Travelers like to get to their destinations as quickly as humanly possible. Musk’s ambitious plan is to create a revolutionary rocket system that transports passengers from any one city to another in under an hour.
For instance, a flight from New York City to Los Angeles would take roughly 25 minutes. Perhaps the best part of the plan; tickets will cost as much as a typical economy-class ticket. If you haven’t seen the videos, definitely check out part one and two.
This is not Musk’s only idea (both past and present) to challenge convention. Throughout each idea, the driving force effectively finds inefficiencies and works to create solutions that have never been done before. In many cases with Musk’s ideas, have never even been fathomed.
Musk understand everyone involved is a vector
Recently, Dharmesh Shah, founder of HubSpot, got the opportunity to meet and converse with Musk at a dinner for legendary founders at Sequoia Capital. Like so many others, Shah wanted to know what Musk does to create a successful company. Shah asked him: “What’s your advice to build a great company that grows every day?”
Musk is a physics man, and his response reflected this fact perfectly. He told Shah to think of it in simple terms of getting a company from point A to point B. Each person within an operation is a vector that exerts energy to achieve this goal. Everyone has a quantity of both magnitude and direction.
A company’s progress is determined by the sum of all these vectors. If some vectors are exerting energy in one direction, while others are doing so in a different direction, the impact will be sub-optimal. For example, if an employee is exerting a force of 10 in one way, and another is exerting a force of 10 in the opposite, the total impact is zero.
For a company to achieve maximum impact, all vectors must be exerting energy in the same direction. In short, for a company to thrive, all parties must be consistently devoting their efforts to a common vision.
Firmly align team goals with customer needs
One of the biggest problems that plague many companies is a misalignment with internal team goals. When this is the case, misalignment with the customers’ needs is all but inevitable. Maintaining common goals within a company gets more and more complicated throughout growth; even more so when third-parties are introduced to the mix.
One of the basic human truths Musk factors into his business plans is that all people want a positive end-to-end customer experience. A stellar end-to-end customer experience involves outstanding products, sales strategies, and service options. Throughout each venture, Musk’s primary goal is to ensure these components happen.
Related: How To Market Like (Elon) Musk
Perhaps the best example is with his famous Tesla car. Many of the major car companies we know follow a common business model. While most have their own stores, a good portion of the sales aspect comes from third-party dealerships. Throughout this process, the unique brand values are being filtered through a number of different visions and mentalities. In turn, it becomes incredibly easy for core values to get lost in translation.
At Tesla, the authentic products are exclusively sold at their own stores. There are no outside dealerships involved to aid the sales cycle. Service options are available from branded Tesla centers. The Tesla computer system within the cars conducts all of its own updates and is equipped with technology to seamlessly guide users to the nearest Tesla charging stations.
If a user wants to sell their vehicle, they can do so through the Tesla website. At no point in the customer experience does the user need to branch out to any outside parties for assistance. When this is the case, keeping team goals aligned with customer needs is much easier and branded values do not run the risk of being muddled by external mindsets.
Elon Musk has already made a significant impact in improving the way we live. His superlative knowledge and dedication to the greater good is truly a once-in-a-lifetime phenomenon.
However, his core ideologies can be applied to virtually all business models. In 20, 50, or 100 years down the road, my hope is that more people catch on to his profound philosophies and continue to push human development to a brighter future.
This article was originally posted here on Entrepreneur.com.
4 Ways To Make Your Business More Authentic And Successful
How to build an authentic presence that translates to your employees and customers.
My business (Sonic, but not the burger joint) is significantly smaller than most of its competitors, so being authentic is one of our strongest competitive edges. And this authenticity comes in many forms – it’s the people you hire, how well you stimulate engagement, and how you motivate your team. Being authentic in these aspects is not always easy, but as an entrepreneur, you learn that the best things never are.
But, how do you build an authentic business?
1. Hire nice people
Never underestimate the power of being nice. Hiring genuinely nice people has been an invaluable cornerstone of my entire business philosophy. If you hire nice people, they are kind to your customers, who reward you with their loyalty, and that cycle sustains itself. It seems simple, but I’m surprised by how often this idea falls by the wayside.
I know what you’re thinking: Well, duh! Because you always hire the best and the brightest, right? Right?!
Probably not. You’re strapped for time, you’re growing at a rate you had never imagined and you settle for Joe, the guy who came in for his interview with his shirt inside out. You can do better. Really take your time, hire an awesome HR team and empower your managers to help hire nice people – this will set the tone for your entire enterprise.
2. Motivate them
So, you’ve hired your nice people. You sent Joe packing and went with Amelia, who took a little longer to find but is a much better fit for your organisation – good for you. Now, how do you get all those nice people motivated to do their best work for your company? Their motivation will come directly from you, from your passion for the industry and the authentic way in which that needs to be communicated.
Remind yourself why you’re pursuing something in the first place at times when that thing is most challenging or your business’s deeper purpose seems murky.
For me, I’m motivated by the fact that Sonic really is fixing the internet in America by giving our customers a fair choice for their internet provider. I communicate this motive with employees at quarterly company meetings, I sit down with groups of new hires every few months to share Sonic’s story, I have lunch in the breakroom, and I never stop reminding everyone ‘why’ our work matters. I authentically care about what we are doing, and I share that over and over.
3. Engage them
Your vision for your organisation is meaningless unless you share it with the people you need to help you achieve it. They need to know what they are working toward other than just a paycheck.
- What is the end goal?
- What is the real purpose behind your mission, your business’s core values?
- And how are they contributing?
Sharing your vision will allow employees to be a part of something bigger, something more than ‘just another job’, which is much more powerful than a cool, new cappuccino machine. That vision will be the long-term drive of your organisation, and it will push your employees to do their best work. This can be a conversation in the hallway, the beginning of a presentation or a cake delivered to each employee. Whatever form it takes, be relentless.
4. Pay attention to the little things
You’ve hired the right people. They’re motivated and engaged. Now how do we keep them happy? First, focus on what key factors make your business special. For us, it’s a multitude of things, but one example is our ‘All Hands’ meetings. This is something we’ve done since the beginning and the impact remains huge.
It’s my opportunity to engage, motivate and reward the people of Sonic. We pass out awards for the month’s standout employees, we talk about the past and the future and we don’t take ourselves too seriously. It’s real. It’s authentic. There is emotion, because I am so very proud of every one of the team.
And, it’s so important. Along with free pizza on Fridays and successful launch celebrations, these meetings bring us back together and remind everyone that they’re part of a team – an especially awesome team.
Keeping these activities happening even with a company’s exponential growth is huge. They are the defining aspects of your entire enterprise and the core of the organisation’s authenticity. Keep what separates you from the competition; compete with them not by emulating them, but by doing the opposite: doing what makes your business genuine and unique. Your customers will recognise it and so will the people who work for you. I assure you it will make all the difference.
This article was originally posted here on Entrepreneur.com.
17 Most Important Performance Management Decisions Leaders Will Need To Make
Is your organisation geared to handle its own growth strategies? Are you sure?
Roadmap to success
The 17 most important performance management decisions you need to make as a leadership team to build a high-growth organisation. Understand what they are, make them, and your business will thrive.
If you’re awesome, you’ll succeed. If you succeed, you’ll grow. As you grow, the scale will change everything and, then, you won’t be awesome anymore — unless you change a lot of what made you awesome in the first place. This is known as the scale up paradox. In a nutshell, what got you here, won’t get you there! The ability to recognise this and change yourself and your business is what separates great businesses from brands that have faded into obscurity.
Knowing what to change, when to change and how to change is the very essence of scaling up.
Take as an example the way we manage performance. A start-up can run everything on ‘check-ins’. Through frequent check-ins you can zero in on who’s doing what, by when and how. You can keep on top of how things are going and whether you need a course correction. The check-in system is awesome. Until it’s not.
Because you can’t run everything on check-ins when there are 30 people around. The ‘check-in’ system basically means that you are the system. You, the founders, keep everything together. This means you’re the bottleneck. Your personal bandwidth is the ultimate ceiling on your growth. And that is bad news for your health — and your business.
If you’re awesome, and you succeed, and grow, it won’t be long until you can’t sleep because of the many loose threads in your brain: Tasks you need to assign headspace to, projects and people you’re not ‘on top of’, discussions to be had that you can’t get to.
So, to get some sleep, you’ll be forced to take delegation to another level. This is not simply a question of giving away tasks or projects; it means giving away responsibility for entire parts of the business. That’s scary. But if you have great people, it’s also liberating.
Now you’re sleeping again. For a while. Because if your people are awesome, you’ll succeed, and you’ll grow, and pretty soon the balls will be dropping again. You’ll realise that what you assumed people were doing, they’re not doing, just because they assumed they should be doing other things. And you’ll long for the days of the ‘check-in’ system when you could be on top of everything through enough ‘check-ins’. But there’s no going back now. You’re too big. You simply can’t check-in with everyone when you’re at or beyond the 30-person mark.
Maybe you’re having a conversation with someone at that point, and they tell you about OKR: Objectives and Key Results. Now there’s a system you can hang your keys on! A rhythm to align on key priorities and targets every two or four weeks (or every month or quarter, if you’re a bit more mature).
Liberation! Suddenly you can be on top of everything without the check-in overwhelm. It’s a thing of beauty, really. Until it’s not.
Because if you’re awesome, and you succeed, and you grow, the day will come when those balls will once again drop. And it won’t be because the senior team aren’t doing what you agreed when you set your quarterly OKRs. It will be because the business is too complex now for OKRs. OKRs still rely on a lot of manual alignment through collaboration and regular ‘check-ins’ at the operating level. Even simpler than that, the balls are dropping because, suddenly, there are a whole lot of new people issues you have never had to deal with before at this level:
- Accountability vacuums: A rising tendency for important things to fall into ‘no man’s land’ with nobody accountable for them
- Major differences in contribution: A rising number of people in cruise mode while the rest of the team do all the work
- Performance politics: Lots of high performers are unhappy because people aren’t being treated fairly. Slackers are getting good reviews and rewards just because their managers are lenient; high performers, on the other hand, are getting the same as them because their team has higher standards
- Compensation politics: People aren’t satisfied that bonuses and increase decisions are being made fairly
- High Performance Culture slide: All of this is causing relational friction and culture issues that are impacting performance.
So, right now, there’s way too much going on for OKRs and ‘check-ins’ to work. Things need more alignment and coordination than you’re going to get through your team interactions. You need a new way of aligning the different parts of the business without falling into ‘check-in overwhelm’.
You need a performance architecture with more processes and systems that maintain alignment across teams. Big words. Corporate words, which we know entrepreneurs tend to dislike. But let’s understand them.
Basically what they mean is that, around about this time, performance management needs a major upgrade. Why? And how should you do performance management? Isn’t it an awful relic of industrial-age corporate management, which is why so many top employers are moving to something new?
True enough. The dilemma is that a lot of the new age buzz about liberating talent to thrive without backward-looking performance reviews don’t work in most contexts; most often, it will break things even more than a frustrating, antiquated performance management system would.
The reality is that performance management is much more complex than an annual review and, furthermore, is definitely not a ‘one-size fits all’ approach.
If you’re scaling up and keen to build a scalable performance management system that works in your context (and at the same time reinforces your greatest culture assets), here are 17 of the most important performance management decisions you will need to make as a leadership team.
Performance management intent: What is the main goal of our performance management system? Accountability for performance, coaching for development and improved performance, or both? Harvard Business Review says this is a 70-year old debate. Don’t assume your other leaders see this the same way you do.
Individual appraisals: Do we believe that focusing on individual appraisals would result in better — or worse — business performance? Does it adversely affect team work and a ‘looking beyond my scorecard’ mentality?
Standardisation: Given that various parts of the business are so different, should we be doing the same thing across the business? How do we do performance management differently (if we even should) in areas as different as engineering, sales and customer service?
Target setting processes: Should targets be set from the top down, bottom up, or some combination of the two?
Nature of targets: Should performance targets be activity targets, behaviour targets, intermediate outcome targets (closest to ultimate outcome, that are fully within control) or ultimate outcome targets (even if not within our control)?
Bonuses: Should we link rewards to personal performance ratings? Some say that you should just pay really well and bake everything into a fixed bonus, or into basic compensation, and fire the non-performers. Which works best?
Bonus pool formula: Which proportion of an individual’s bonus should be determined by either individual contribution versus the performance of their team or division, or the business as a whole?
Long-term incentives: What percentage of variable incentive remuneration (VIR) should be long term, and which should be deferred to future years/long term (LTIR)?
Increases: How should performance ratings affect salary increases?
Formal or informal feedback: What is the right balance between formal appraisal and informal continuous feedback?
Feedback sources: Are there objective measures? If not, who gives input to the appraisal? If there are multiple parties, how are their inputs weighted? Is a line manager’s feedback more important than multiple, non-line individuals or ‘bosses’?
Performance appraisal scale: How do we summarise individual performance assessments?
Appraisal frequency: How often do we appraise performance and give feedback? Would this be per assignment or based on time, such as weekly, monthly, quarterly, bi-annually or annually?
Bonuses versus career investment and opportunity: How do we decide which individuals to prioritise for investment in growth and promotions? How do we balance bonuses versus investment in learning, development and promotions?
Dealing with high performance that doesn’t produce results: What do we do when people perform well, but don’t deliver the business results due to issues outside their control?
Performance management roles: Who does what in the performance management process? What belongs to HR? What belongs to line managers?
Performance management software: When do we move from Excel (or similar) to software products that streamline this process? What are the best packages for our business? (Small Improvements and Engagedly are our top recommendations).
Walter Penfold, MD Everlytic
- Fire faster. Bad performers are toxic for the culture. Use the three-month probation period brutally. The culture impact of firing fast is much superior to that of firing slow.
- Attune to sentiment. Many poor performers are great at upward management. They can look like performers to you, but people around them know the truth. Stay attuned to, and respond to grumblings.
- Give immediate, direct feedback on any performance issues. This should never wait for a formal performance review. We do a formal 360-review once a year.
- Keep it super simple to start — we definitely over-complicated it.
- Centre on weekly one-on-one meetings. Then performance management becomes the way you work, not a chat between strangers once a quarter.
Stuart Townsend, Edge Growth
Be realistic. Our training budgets are not realistic enough to enable people to build the competencies we need them to have to deliver the outcomes we expect.
Brad Magrath, Co-founder, Zoona
- Invest in growing your managers. We over-estimated the ability of young, inexperienced managers to have honest candid constructive conversations. If they suck at having good performance management discussions, the whole system breaks down.
- Non-performers weren’t scored as non-performers, leading to ugly train smashes down the line.
- Bad managers give good ratings to bad performers.
- Invest in creating role clarity. Performance management didn’t work well initially because we lacked role clarity and agreed metrics.
- Focus on behaviours, not just outputs.
- Ensure managers are deliberate around context of feedback: Is it coaching, is it performance, is it brainstorming? Be clear on why the conversation is happening so the message is not mixed.
- Get huge buy in from the beginning — we didn’t do enough of this. Then people don’t actually do appraisals well and the whole system breaks down again.
- What you measure is what you get — A-players like the idea of being performance measured objectively. Make sure the metrics are totally objective and have integrity.
The ability to recognise that what got you here won’t get you there is the first step towards building a high-impact, significant business.
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