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Vox Telecom: Douglas Reed

The inside story of how telecommunications entrepreneur, Douglas Reed, believes in generating wealth, not competing for it.

Monique Verduyn

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Douglas Reed

Economic pressures are set to accelerate convergence of telecoms and the Internet, affecting telecom services in unexpected ways in 2009, according to North American consultancy inCode. That’s good news for Vox Telecom CEO Douglas Reed, who has built a conglomerate that crossed the divide a while ago and is already maximising convergence. An entrepreneur at heart, Reed completed the first year of his BCom and followed this with a job on a North Sea oil rig. At the age of 22 he took over Sandton City Hardware, a career move that culminated with his appointment as MD of Mica Distributors. “I’ve always focused strongly on growth,” he says, referring to his early ability to grow retail stores by between 45% and 50% per year.

One of the first management lessons Reed learnt was that entrepreneurs have to be managed loosely but stringently. “That sounds like a contradiction, but the first MD I worked for was very clear on this. I had the freedom to run my store as I wished, but I was measured on four things – debtors’ days, creditors’ days, stock turnover and profit. Reed realised during these early days that leaders must have good benchmarks in place across all areas of management. “I was great at sales and merchandising, but not so good at accounts. Luckily, I learn very quickly, and my time with Mica Hardware also gave me a solid understanding of cash flow.” In his late 30s, Reed realised that he was wasting his time working for other people. He wanted to go into his own business, but could not afford to start at the bottom. He had also had enough of an industry that was confined to four walls. It was at that point that he got an offer from Control Instruments to head up its IT business DataPro, a company that had provided IT support for Reed’s stores. The incumbent MD knew Reed well and was moving into another area of the group. “I made the decision based on gut feel,” Reed says. “DataPro was a small company at the time, turning over R150 000 a month. I took a salary cut and bought 30% of the business.”
The move from hardware retail to IT was not too much of a leap. Reed had always had a keen interest in technology and had rolled out systems that were ahead of their time in the somewhat conservative hardware sector.

“My goal was to transform DataPro into a national Internet service provider. I took over a company that had no business plan in place. The first three years demanded 12-hour days, six days a week.” In 1998, DataPro launched Internet services aimed at small and medium businesses, and was the first company to offer cheap dial-up-based email. By the end of that year, monthly recurring revenue exceeded R183 000. DataPro had 257 business clients and 51 contract customers. In 2000, it was one of the first ISPs in the country to become cash positive. “This was a big thing for us,” says Reed. “Even when you have budgeted to lose money, it’s horrid.”

Control Instruments, an electronics company that dealt with aviation and vehicle tracking, decided it was time to sell DataPro. “We were not core to Control Instruments’ business, and it would have been pointless for us to remain within the group. This was Internet boom time and I wanted to grow the company.”

Reed approached three financiers. BoE Private Equity Investments took the bait and agreed to fund a management buy-out from Control Instruments. DataPro was sold at a premium: the company was worth R15 million at the time, but Reed and his team paid twice that, recognising the value of a customer base that no other ISP could match. The relationship between DataPro and BoE got off to a good start, with a five-year plan in place that would have seen the shareholders make R50 million, but then Nedbank took over BoE and, as Reed says, their objectives were no longer aligned. “The bank wanted to sell us to the highest bidder and we had no desire to be owned by anyone.” Fortunately, a R65 million offer from MWeb was turned down. But while the bankers focused on the numbers, Reed and his team were looking to the future and the relationship grew ever more tenuous. The company ended off 2001 with monthly revenue exceeding R890 000 and with first-tier ISP status. It seemed there was no stopping DataPro. A year later it was achieving organic sales growth of 218% and launched South Africa’s first SOHO leased line solution. It also switched its international links from satellite to fibre, boosting the speed of its services. Monthly revenue soon exceeded R3,8 million.
In 2003, the company launched a least cost routing (LCR) division, as well as a high speed Internet access solution for the hospitality industry, enabling in-room and wireless connectivity. This was also a year of rapid consolidation and rationalisation in the Internet industry, and DataPro emerged as a strong player with significant market share. In 2004, BoE and DataPro parted ways when the company reverse listed on the JSE’s AltX. Ask Reed what he learnt from the transaction and his answer is blunt. “If you ask for money from a bank, you’re screwed. But if there is no alternative, the best thing to do is hold onto as many shares as possible, and then double the size of the company so that your money doubles, work hard for five years and buy back your business.”

Shopping spree

In 2005, DataPro branded its voice division as Vox Telecom. A number of significant acquisitions followed: WickIT, a regional Durban-based ISP; @lantic, a consumer-focused ISP; Pretoria-based corporate ISP Netralink; Definity Telecom, South Africa’s fourth largest LCR provider; Orion Telecom, the biggest LCR provider in the country and consumer ISPs MJVNET, XsiNet and Shisas. “Every acquisition has been a learning experience,” says Reed. “These transactions have a major impact on both the company being bought and the buyer. Each time we conclude a deal, both sides stop in their tracks for a few months, which costs us a lot of money. It’s vital to plan everything in great detail beforehand so that you minimise downtime. Rather take longer to conclude the deal and have the ability to hit the ground running. When we bought Storm Telecom, we did not have enough time to plan properly and it took four months to get the business going.”

Reed believes in being ruthless. “If the company you take over is your core business, then people are not an issue and we take virtually none of them into the fold; however, if it’s not our core business, it’s vital to buy a company that is well run, which means we bring the people on board.” Having consolidated its position in the market, DataPro became the largest listed company on the AltX in 2007, with a market capitalisation of R2,3 billion. The DataPro Group changed its name to Vox Telecom that same year to re-position it as a full-service telecommunications provider.What kind of personality does it take to build a R2 billion business? Reed refuses to work with people who are not self-motivated and driven. “Experience and education come second for me, because managing someone has to be the biggest waste of time. I believe in strong controls, but few of them.”
This philosophy runs deep throughout the group, with all companies having their own teams and cultures. Some are conservative and process-driven, while others are far more relaxed in their approach. “I make snowballs, roll them down the hill with my team, and then others take over and run with them. Most companies in the group manage themselves, so I spend my time focusing on innovation and getting new ideas off the ground. We introduce a major innovation every eight months; it’s critical in our industry, but I believe it’s a strategy that should be applied everywhere.” Reed says he treats everyone in the business as a partner, and leaves the hiring and firing of people up to line managers so that each employee knows that they will be rewarded or punished by the person who employed them. He believes in continuous learning and reads a business book at least every two weeks. Among his favourite writers is John Kehoe, who appeals to Reed’s naturally optimistic and positive personality. He also enjoys stories about real entrepreneurs, rather than books written by “professional managers”.

Re-Writing the rules: The Vox Telepreneur Story

Reed is sanguine about the fact that all Vox Telecom’s products lose money for the first 12 to 18 months. “Six months before we listed, we went big on uncapped ADSL; we ran it at a loss, but today it accounts for 30% of our earnings. The reality of this business is that you launch innovative products that gain traction over time and then become hugely cash generative.”

That’s how Vox Telecom’s latest offering, Vox Telepreneur, came about. “I always had it at the back of my mind that telcos are particularly well suited to multi-level marketing – telecommunication is an annuity product and it’s basically a necessity,” says Reed.

Then he read Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant. “I realised we were on a hiding to nothing by selling what everybody else is selling. The book got me thinking about how we could differentiate and grow our market share by selling something different to different people.

Because Vox Telecom cannot compete with the service provided by tiny IT companies, or with the products supplied by Telkom, Reed decided to create a market segment that no-one else is in: “I saw that the best way to grow the business is to bring in customers as part of the team and to harness small entrepreneurs. If we could bring them in, we would have an 18-month lead on other companies by the time they caught on. By the end of January 2009 it will be a year since we launched Vox Telepreneur, and it has been our most successful start-up ever, with the customer base growing by 20% a month.” The business model aims to empower entrepreneurs to endorse telecommunication products and services through their own social networks and, in return, have the opportunity to both save on their telephony costs and earn residual income. It’s new in the local market, but has proved to be successful in the US and Europe, with companies like Sprint and MCI (now part of Verizon) having used similar methodologies to achieve great success.
Leverage and community are the two key elements.
Leverage, says Reed, is a particularly powerful method of harnessing entrepreneurial energy to achieve rapid market penetration. By adopting a referral-marketing strategy, Vox Telepreneur is able to achieve lower overheads and do something that no telco has done before – reinvest in its customers. Up to 57% of gross profit is redistributed to the communities that generate it, and up to 43% is redistributed to product-focused resellers such as small IT outlets and PBX vendors. Vox Telepreneur aims to grow its community to more than 300 000 customers by 2010, which will make it the largest reseller of telco services in South Africa.
Vox Telepreneur’s community of customers and dealers are at the heart of the business model. “Telecommunications has entrenched itself in the daily lives of people,” says Reed. But telco costs, particularly in South Africa, are still high. Add to this the fact that debt is rising, disposable income is shrinking and convergence is gaining popularity, and it is clear that there is a consumer need for choice – a lower-cost, cutting-edge, converged, easy-to-use choice.” The growth of this new venture proves one of Reed’s business tenets: “To grow, any business has to improve a little every day. Many become stale after a few years, not noticing that the window display is dusty and faded. To avoid this, you have to constantly keep up to speed with what is happening in your market, understand the latest trends, and know what the theoretical driving forces of the business you are in. Remember that you don’t have to be original; use ideas that have worked in other countries and make them work here.”

Why the listing

Fearing that the company was going to be sold to the highest bidder, Reed and his team wanted to make sure that DataPro remained independent. The reverse listing sped up the move to autonomy.

Reverse listing defined

A reverse listing is a complex transaction that occurs when an unlisted company uses an already listed entity as a vehicle to bring its assets to market. Rather than starting from scratch, the unlisted company sells its assets into the existing listed company. You have to comply with all the same requirements as a totally new listing. The big benefits lie in timing and discussing and transacting with current owners. By using an existing listed entity you have the certainty that you are already listed and you start out with an existing shareholder base. Even with the need to meet the JSE’s requirements, the process does not take as long. The costs of the reverse listing route are similar to those involved in a new listing.

How DataPro did it

The company listed at a premium with Reed and his team buying back the business from BoE and listing it for double the amount the next day. “We were lucky because deregulation had been announced just three weeks before,” says Reed. “We only had to raise R36 million, but because it was a reverse listing, it was expensive and no cash went into the business. Had we not reverse listed, we could have pumped R30 million into the company.”

What was involved in the listing?

Aside from raising the cash, DataPro also had to prove that its expensive shares were priced correctly. The share price ran on sentiment and it ran high. “We had to rapidly grow the business into the rating it had received,” says Reed. “As a result, we had to do exceptionally well just to remain in the same position. That took an enormous amount of time and money. We made a few mistakes which cost us in the short-term, but we also did a lot of things right.”

The pros and cons of listing

“The biggest con is that listing makes the company very visible,” says Reed. “It also means that you are reliant on others, which is not great considering that the stock market is based on fear and greed.” Reed also points out that South Africans view a long-term investment as six months. “That means you have to grow the value of the shares like mad and build a telco at the same time,” he adds. “All the while you are told what your gross profit should be and what is wrong with your business model. Brokers use your price to earnings ration (stock price divided by per share earnings over the previous year), but you cannot be measured by PE only when you are building a business for the future.” On the positive side, Reed and his team would never have acquired the business back without the listing. “Being public property is unpleasant, but we had to do it.”

Monique Verduyn is a freelance writer. She has more than 12 years’ experience in writing for the corporate, SME, IT and entertainment sectors, and has interviewed many of South Africa’s most prominent business leaders and thinkers. Find her on Google+.

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Entrepreneur Profiles

7 Self-Made Teenager Millionaire Entrepreneurs

These teenager entrepreneurs have already made their first million and more. How did they do it and what’s their secret to success?

Catherine Bristow

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1. Evan of YouTube

evan-of-youtube

Evan and his father Jarod started a youtube channel ‘Evantube’ to review kids’ toys. The channel was a resounding success with other kids – so much so that today it boasts just over 6 million subscribers.

Evantube brings in more than USD1.4 million a year from ad revenue generated on the channel.

How did it start? With a father-son fun project making Angry Birds Stop Animation videos, and morphed into doing reviews on toys and video games. But Jarod’s dad is aware of the responsibility of Evan’s sudden fame and hopes to teach Evan about the importance of being a good role model for others.

“Most recently, we had the opportunity to work with the Make-a-Wish Foundation, and were able to fulfill the wish of a young boy whose dream was to meet Evan and make a video with him at Legoland,” explains Jared. “It was a really incredible experience. YouTube has definitely opened many doors, and the kids have gotten to do some pretty amazing things.”

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Expert Advice From Property Point On Taking Your Start-Up To The Next Level

Through Property Point, Shawn Theunissen and Desigan Chetty have worked with more than 170 businesses to help them scale. Here’s what your start-up should be focusing on, based on what they’ve learnt.

Nadine Todd

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shawn-theunissen-and-desigan-chetty

Vital Stats

  • Players: Shawn Theunissen and Desigan Chetty
  • Company: Property Point
  • What they do: Property Point is an enterprise development initiative created by Growthpoint Properties, and is dedicated to unlocking opportunities for SMEs operating in South Africa’s property sector.
  • Launched: 2008
  • Visit: propertypoint.org.za

Through Property Point, Shawn Theunissen and his team have spent ten years learning what makes entrepreneurs tick and what small business owners need to implement to become medium and large business owners. In that time, over 170 businesses have moved through the programme.

While Property Point is an enterprise development (ED) initiative, the lessons are universal. If you want to take your start-up to the next level, this is a good place to start.

Risk, reputation and relationships

“We believe that everything in business comes down to the 3Rs: Risk, Reputation and Relationships. If you understand these three factors and how they influence your business and its growth, your chances of success will increase exponentially,” says Shawn Theunissen, Executive Corporate Social Responsibility at Growthpoint Properties and founder of Property Point.

So, how do the 3Rs work, and what should business owners be doing based on them?

Risk: We can all agree that there will always be risks in business. It’s how you approach and mitigate those risks that counts, which means you first need to recognise and accept them.

“We always straddle the line between hardcore business fundamentals and the relational elements and people components of doing business,” says Shawn. “For example, one of the risks that everyone faces in South Africa is that we all make decisions based on unconscious biases. As a business owner, we need to recognise how this affects potential customers, employees, stakeholders and even ourselves as entrepreneurs.”

Reputation: Because Property Point is an ED initiative, its 170 alumni are black business owners, and so this is an area of bias that they focus on, but the rule holds true for all biases. “In the context of South Africa, small black businesses are seen as higher risk. To overcome this, black-owned businesses should focus on the reputational component of their companies. What’s the track record of the business?”

A business owner who approaches deals in this way can focus on building the value proposition of the business, outlining the capacity and capabilities of the business and its core team to deliver how the business is run, and specific service offerings.

“From a business development perspective, if you can provide a good track record, it diminishes the customer’s unconscious bias,” says Shawn. “Now the entrepreneur isn’t just being judged through one lens, but rather based on what they have done and delivered.”

Related: Property Point Creates R1bn In Procurement Opportunities For Small Businesses

Relationship: “We believe that fundamentally people do business with people,” says Shawn. “There needs to be culture match and fluency in terms of relations to make the job easier. As a general rule, the ease of doing business increases if there is a culture match.”

This relates to understanding what your client needs, how they want to do business, their user experience and customer experience. “We like to call it sharpening the pencil,” says Desigan Chetty, Property Point’s Head of Operations.

“In terms of value proposition, does your service offering focus on solving the client’s needs? Is there a culture match between you and your client? And if you realise there isn’t, can you walk away, or do you continue to focus time and energy on the wrong type of service offering to the wrong client? This isn’t learnt over- night. It takes time and small but constant adjustments to the direction you’re taking.”

In fact, Desigan advises walking away from the wrong business so that you can focus on your core competencies. “If you reach a space where you work well with a client and you’ve stuck to your core competencies, business is just going to be easier. It becomes easier for you to deliver. Sometimes entrepreneurs stretch themselves to try to provide a service to a client that’s not serving either of their needs. This strategy will never lead to growth — at least not sustainable growth.”

Instead, Desigan recommends choosing an entry point through a specific offering based on an explicit need. “Too often we see entrepreneurs whose offerings are so broad that they don’t focus,” he says. “Instead, understand what your client’s need is and address that need, even if it means that it’s only one out of your five offerings. Your likelihood of success if you go where the need is, is much higher.

“Once you get in, prove yourself through service delivery. It’s a lot easier to on-sell and cross sell once you have a foot in the door. You’re now building a relationship, learning the internal culture, how things work, what processes are followed and so on — the client’s landscape is easier to navigate. The challenge is to get in. Once you’re in, you can entrench yourself.”

Desigan and Shawn agree that this is one of the reasons why suppliers to large corporates become so entrenched. “Once you’re in, you can capitalise from other needs that may have emanated from your entry point and unlock opportunities,” says Shawn.

Building a sustainable start-up

While all start-ups are different, there are challenges most entrepreneurs share and key areas they should focus on.

Shawn and Desigan share the top five areas you should focus on.

1. Align and partner with the right people

This includes your staff, stakeholders, partners, suppliers and clients. Partnerships are the best thing to take you forward. The key is to collaborate and partner with the right people based on an alignment of objectives and culture. It’s when you don’t tick all the boxes that things don’t work out.

2. Make sure you get the basics right

Never neglect business fundamentals. Do you have the processes and systems in place to scale the business?

3. Understand your value proposition

Are you on a journey with your clients? Is your value proposition aligned to the need you’re trying to solve for your clients? Are you looking ahead of the curve — what’s the problem, what are your clients saying and are you being proactive in leveraging that relationship?

Related: Want To Start A Property Business That Buys Property And Rents It Out?

4. Unpack your value chain

If you want to diversify, understand your value chain. What is it, where are the opportunities both horizontally and vertically within your client base, and what other solutions can you offer based on your areas of expertise?

8. Don’t ignore technology

Be aware of what’s happening in the tech space and where you can use it to enable your business. Tech impacts everything, even more traditional industries. Businesses that embrace technology work smarter, faster and often at a lower cost base.

Ultimately, Desigan and Shawn believe that success often just comes down to attitude. “We have one entrepreneur in our programme who applied twice,” says Shawn. “When he was rejected, he listened to the feedback we gave him and instead of thinking we were wrong, went away, made changes and came back. He was willing to learn and open himself up to different ways of approaching things. That business has grown from R300 000 per annum to R20 million since joining us.

“Too many business owners aren’t willing to evaluate and adjust how they do things. It’s those who want to learn and embrace change and growth that excel.”

Networking, collaborating and mentoring

Property Point holds regular networking sessions called Entrepreneurship To The Point. They are open to the public and have two core aims. First, to provide entrepreneurs access to top speakers and entrepreneurs, and second, to give like-minded business owners an opportunity to network and possibly even collaborate.

“We believe in the power of collaboration and networking,” says Desigan.

“Most of our alumni become mentors themselves to new entrants to the programme. They want to share what they have learnt with other entrepreneurs, but they also know that they can learn from newer and younger entrepreneurs. The business landscape is always changing. Insights can come from anywhere and everywhere.”

The To The Point sessions are designed to help business owners widen their network, whether they are Property Point entrepreneurs or not.

To find out more, visit www.ettp.co.za

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Bain & Company Give You The Data On How To Become 40% More Productive

Top performing organisations get more done by 10am on a Thursday than most companies achieve in a full week. They don’t have more talented employees than everyone else though — they’re working with the same people and tools as you. Michael Mankins unpacks what separates these businesses from everyone else, and how you can learn to be more like them.

Nadine Todd

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Vital Stats

“Engaged employees are 45% more productive than satisfied employees. An inspired employee is 55% more productive than an engaged employee and 125% more productive than a satisfied employee.”

When Bain & Company partner, Michael Mankins evaluates businesses, he clearly distinguishes between efficiency and productivity. Efficiency is producing the same amount with less — in other words, finding and eliminating wastages. Productivity, on the other hand, is producing more with the same, which requires an increased output per unit of input and removing obstacles to productivity.

Interestingly, when businesses face challenges or tough operating conditions, the first response is always to become more efficient, instead of more productive. Restructuring and ‘rightsizing’ are the result. The problem, says Michael, is that when companies take people out, they don’t take the work out, and so the people end up coming back, along with the costs.

A better response, he says, is to identify the work that could be removed to free up time, which could then be invested in producing higher levels of output.

While businesses have become very good at tracking the productivity levels of blue-collar and manufacturing workers, tracking the productivity of knowledge workers is entirely different.

“There’s no data around white-collar productivity,” says Michael. “The problem is that the world is shifting towards knowledge work, and so, if we can’t measure productivity, output and obstacles in that space, businesses will never get the great levels of performance they’re looking for.”

Because of a complete lack of statistics in this area, when Michael and his colleague, Eric Garton, were approached by Harvard Business Review Press to write a book dealing with this issue, they had to devise a way of looking at the relative productivity of organisations comprised of white-collar workers.

The results were unexpected. “We were asked to research the difference between top performing organisations (the top quartile) compared to average organisations. I honestly thought the answers would be obvious, even if we didn’t yet have the tools to track them. I thought the best companies would have the best people. That’s 90% of the answer. Simple as that.”

As it turned out, it wasn’t that simple at all. Of the 308 organisations in the study, drawn from a global pool, the average star performer or A-player was one in seven employees. This statistic held true whether the company was in the top 25% of performers or an average performer. The difference was that the top performing businesses were 40% more productive than their counterparts — and yet their mix of talent, on average, was the same.

“There were some exceptions, but on the whole, the best in our research accomplishes as much by 10am on a Thursday as the rest do the whole week. And they continue to innovate, serve customers and execute on great ideas — all with the same percentage of A-players as other, more mediocre businesses.”

Related: (Slideshow) Top Advice From Local Entrepreneurs That Will Change Your Business In 2019

So, what were the differentiating factors?

What’s dragging your organisation down?

First, we need to understand how Michael and Eric approached their research before we can understand — and implement — their conclusions.

“We began with the notion that every company starts with the ability to produce 100 if they have a workforce that’s comprised of average talent, that’s reasonably satisfied with their job and can dedicate 100% of their time to productivity — bearing in mind that no-one can dedicate 100% of their time to productive tasks.

“The question we were focusing on was around bureaucratic procedures, complex processes and anything else that wastes time and gets in the way of people getting things done, but doesn’t lead to higher quality output or better service to customers. That’s what we call organisational drag. You start at 100 and then the organisation drags you down. The good news is that you can make up for organisational drag in three ways: First, you can make better use of everyone’s time. Second, you can manage your talent better by deploying it in smarter ways, which includes placing it in the right roles, teaming it more effectively and leading it more effectively. Third, you can unleash the discretionary energy of your workforce by engaging them more effectively.”

This trifecta — time, talent and energy — became the basis for Michael and Eric’s book, Time, Talent, Energy: Overcome Organizational Drag & Unleash Your Team’s Productive Power. “The way you manage the scarce resource of talent can make up for some, potentially even all, of what you lose to organisational drag,” says Michael.

What the research revealed: Time

time-management-productivity

“Wasted time is not an individual problem,” says Michael. “It’s an organisational problem. The symptoms include excess emails and meetings and far more reports being generated than the business needs to operate.”

These are all manifestations of an underlying pathology of organisational complexity, which is managed by senior leadership. “The best companies lose about 13% of their productive activity to organisational drag. The rest lose 25%. The most important thing is to reduce the number of unnecessary interactions that workers are having. That means meetings and ecommunications need to be relooked.”

The easiest manifestation for Michael and Eric to observe were hours committed to meetings and how much time workers spend dealing with ecommunications. What’s left-over is the time people can actually get some work done.

What they found is that the average mid-level manager works 46 hours a week. 23 hours are dedicated to meetings and another ten hours to ecommunication. That leaves 13 hours to get some work done — except that it doesn’t.

“It’s difficult to do deep work in periods of time less than 20 minutes. When we subtracted all the other distractions that happen daily, we were left with just six and a half hours each week to do work.” What’s even scarier about this statistic is the fact that meeting work and ecommunication time is increasing by 7% to 8% each year and doubles every nine years. If left unchecked, no-one will have the time to get any work done. “This is why everyone plays catch-up after hours and on weekends,” says Michael.

“One of my clients told me that his most productive meeting is at 6.30am on a Saturday, because it doesn’t involve one minute that isn’t required or one individual that doesn’t absolutely need to be there. If the same meeting was held at 2pm on a Tuesday, there’d be twice as many people, it would be twice as long and there’d probably be biscuits.”

The point is clear: We don’t treat time as the precious resource that it is, and if we did, we would radically shift our behaviour.

Start by asking what work needs to be done and then figure out the best structure to do that work. “Don’t confuse having a lean structure that does the wrong work with being effective,” says Michael. “One of the biggest problems we see is that companies are not particularly good at stopping things. Things get added incrementally, but nothing ever gets taken away. For example, we found that 62% of the reports generated by one of our clients had a producer — but no consumer. Time, attention and energy was invested in reports that no one needed and no one read.

“Ask yourself: How many initiatives have you shut down? If you made the decision that you could only do ten initiatives effectively, and each time you added an initiative, one had to be eliminated, what would your organisation look like?

“Unless you routinely clean your house, it gets cluttered. The same is true of companies. Initiatives spawn meetings, ecommunications and reports, which all lead to organisational drag.”

What the research revealed: Talent

According to Michael, the biggest element in their research that explained the 40% differential in productivity is the way that top performing organisations manage talent.

“We conducted research in 2017 that revealed the productivity difference between the best workers and average employees. Everyone knows that A-level talent can make a big difference to an organisation’s performance, but not everyone knows just how big that difference is.”

To put it in context, the top developer at Apple writes nine times more usable code than the average software developer in Silicon Valley. The best blackjack dealer at Caesars Palace in Las Vegas keeps his table playing at least five times as long as the average dealer on the Strip. The best sales associate at Nordstrom sells at least eight times as much as the average sales associate walking the floor at other department stores. The best transplant surgeon at Cleveland Clinic has a patient survival rate at least six times longer than that of the average transplant surgeon. And the best fish butcher at Le Bernadin restaurant in New York can portion as much fish in an hour as the average prep cook can manage in three hours.

It doesn’t matter what industry you investigate, A-level talent is exponentially more productive than everyone else.

This is why Michael thought that the obvious answer to why some organisations perform better than others is the mix of talented employees they’ve attracted.

“When we asked senior leaders to estimate the percentage of their workforce that they would classify as top performers or A-level talent, the average response was slightly less than 15%. And that’s despite the fact that most companies have spent vast sums of money in the so-called war for talent.”

The big difference, as Michael and Eric discovered, is how that talent is deployed. “It’s what they do with that one in seven employees that makes the biggest difference,” says Michael. “Most companies use a model called unintentional egalitarianism, which basically means that they spread star talent across all roles. The best on the other hand, are more likely to deploy intentional non-egalitarianism. They ensure that business-critical roles are held by A-level talent.”

The challenge is that approximately 5% of the roles in most companies explain 95% of a company’s ability to execute its strategy, and very few organisations articulate which roles those are — but the ones that do tend to be top performers.

“There’s an excellent historical example of this at work,” says Michael. “Between 1988 and 1994, Gap was a high-flyer in the retail sector. They performed globally on all levels — they grew faster than anyone else, were more profitable, had higher shareholder returns, and were the most admired company.

“During that time period, the organisation was led by Mickey Drexler, and his strategy was to focus on what he believed was Gap’s critical role, which was merchandising. He wanted every merchandiser to be a star. ‘No one will tell us what the colour is this year — we’re going to tell the world. We’re going to determine which styles are in and what everyone will be wearing.’

“And they did. If you want proof that Gap’s merchandisers were in fact stars during that period, you can look at today’s CEOs and COOs of the world’s largest retailers. Most of them were merchandisers at Gap during those years.”

The challenge of course is that everyone is always trying to hire stars, and yet only 15% of employees can be described as A-level talent. What can organisations do to utilise their stars wisely?

“First, move a star into a different position if they’re not in a business-critical role. To achieve this, how you define a star might have to change. Some companies hire for positions, and others hire for skills across positions. Stars, in my view, are more the latter. They can learn different skills and fill different roles.

“Second, start defining your business-critical roles. If you ask executives what percentage of their roles are business critical, most say 54%. They’re not discerning. It’s unintentional, because they don’t want to signal to their workers who aren’t in a business-critical role that they’re not as valuable to the organisation, but the reality is that people figure it out anyway, and you just end up with business-critical roles that aren’t filled by the right people, and stars in positions that anyone else could fill.”

Related: Entrepreneur Erik Kruger On The Importance Of Clarity And Embracing Failure

Teams perform better than individuals

To understand how important teams are when deploying talent, Michael uses an example from the world of racing — Nascar in the US to be precise.

“Between 2008 and 2011, there was one pit crew that outperformed everyone else on the track,” he says. “A standard pit stop is 77 manoeuvres, and this crew could complete them in 12,12 seconds, which was faster than any other team. However, if you took one team member out and substituted them with an average team member, that time jumped to 23 seconds. Substitute a second team member, and it was now 45 seconds. The lesson is simple: As the percentage of star players on a team goes up, the productivity of that team goes up — and it’s not linear.”

Michael and Eric also discovered that the role leadership plays on team productivity is both measurable and exponential.

“In 2011, the National Bureau of Economic Research wanted to quantify the impact of a great boss on team productivity. They found that a great boss can increase the productivity of an average team by 11%, which is the same as adding another member to a nine-member team.

“If you take that same boss and put them in charge of an all-star team, productivity is increased by 18%, and this is with a team whose productivity was exponentially higher to begin with. Great bosses act as a force multiplier on the force multiplier of all-star teams.”

According to Michael and Eric’s research however, what most organisations tend to do is place a great boss with an under-performing team in the hopes of improving them, when what they should be doing is pairing great bosses with great teams.

“We did a survey that asked a simple question: When your company has a mission-critical initiative, how do you assemble the team? A: Based on whomever is available. B: Based on perceived subject matter expertise. C: We attempt to create balanced teams of A, B and C players to foster the development of the team. D: We create all-star teams and we put our best leaders in charge of them.

“We thought everyone would answer D. We were wrong. 30% of our bottom three quartiles answered B, closely followed by C, and then A. Only 8% of them answered D.

“The results were very different in our top-performing quartile though. There, 81% of respondents answered D. In other words, the 25% most productive companies in our study set were ten times more likely to assemble all-star teams with their best players than the remaining 75% of the organisations in our research.”

How talent is deployed makes a difference. “I recently had this highlighted for me through another sporting analogy. The world record for the 400-metre relay is faster than the 100-metre dash multiplied four times. How is that possible? When your role is clear and your position is clear, the handoff is seamless. Under these conditions, the best teams outperform a collection of the best individuals.” Michael does offer a word of advice though.

“Don’t fall into the trap of believing that if you do have the best talent, you don’t need to worry about anything else. I don’t believe that’s true. There are always higher levels of performance that can be achieved because there are always areas you can improve on.”

What the research reveals: Energy

According to Michael, employee engagement and inspiration is a hierarchy. “There are a set of qualifiers that have to be met just to feel satisfied in your job: You need to feel safe, have the resources you need, feel that you’re relatively unencumbered in getting your job done every day and that you’re rewarded fairly.

“To be engaged, these all need to meet, and more. Now you also need to feel part of a team, that you’re learning on the job, that you’re having an impact and that you have a level of autonomy.”

Inspiration takes this a step further. “Inspired employees either have a personal mission that is so aligned with the company’s mission that they’re inspired to come to work every day, or the leadership of their immediate supervisors is incredibly inspiring, or both.”

Why does this matter? Because how satisfied, engaged or inspired your employees are has a real, tangible impact on productivity. “Engaged employees are 45% more productive than satisfied employees. An inspired employee is 55% more productive than an engaged employee and 125% more productive than a satisfied employee.”

The really scary statistic is that 66% of all employees are only satisfied or even dissatisfied with their jobs, 21% are engaged, and only 13% are inspired. “These statistics are pretty constant, although top organisations can improve their engaged and inspired ratios,” says Michael. “What we found amongst those companies that did have more engaged and inspired workers was that they all tended to believe that inspiration can be taught. It’s not innate. You can become an inspirational leader with the right attitude and training.

“For example, one organisation surveys its employees every six months and specifically asks workers to rate how inspirational their leaders are. If you’re rated uninspiring by your team for the first time, you’re given training. If, six months later, you’re still rated uninspiring, you’re given access to a coach to evaluate why the tools aren’t working for you.

“By the third, two questions are asked: Should you be a leader, and should you be at the company? Many productive employees can be effective individual contributors but aren’t necessarily leaders, or aren’t happy as leaders, and would best serve the organisation in a different role. The second question is tougher, but even more important. If an inspired employee is 55% more productive than an engaged employee and 125% more than a satisfied employee, an uninspiring leader is a tax on the performance of the company, and there has to be a consequence to that. We have to constantly enrich our workforce and leaders need to be included in that.”

The problem is that very few organisations are asking how inspiring their leaders are. “If you don’t know if your employees are engaged or if your leadership is inspiring, you can’t address it,” he says. “You can take a satisfied employee and make them engaged, but you can’t inspire someone if they aren’t first engaged — that’s the hierarchy. Employee engagement is largely achieved through the way you manage teams. You have to give people the sense that they are having an impact, working within a team and learning. Get that right, and you’ll unlock a powerful level of discretionary energy that will drive productivity in your organisation.”

Related: How Yoco Successfully Secured Capital And The Importance Of A Pitch

Time, Talent, Energy: Overcome Organizational Drag and Unleash Your Team’s Productive Power, by Michael Mankins and Eric Garton, focuses on the scarcest resource companies possess — talent — and how it can be utilised to drive productivity.

Visit www.timetalentenergy.com to find out more.

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