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Tuition is expensive at tough times U

Posted: September 16, 2008 8:37 p.m.
Updated: November 18, 2008 5:00 a.m.

Imagine that your life as a business owner is going fine. Clients are buying and paying, your employees are happy and you've got money in the bank for rainy days and opportunities.

One morning, a letter arrives from the Business Software Alliance accusing your firm of possessing and using software that was not purchased. The letter goes on to remind you that this is a federal crime, punishable with a fine of up to $250,000 and imprisonment of up to five years. The BSA seeks $2 million to settle the alleged actions that some of your employees were using software on your company's computers they had no right to use.

Tough Times U
It was Keith McFarland who received the letter, and that was only the beginning of his matriculation at what he calls "Tough Times U." In his book, "The Breakthrough Company: How Everyday Companies Become Extraordinary Performers," McFarland explains that the software issue was quickly settled and a badly needed round of venture capital funding was secured only to have the company deal with the dramatic loss of revenue from their single biggest client. Some companies close their doors when difficulties arise. McFarland says, "...when companies with character face off against tough times, giving in or giving up is not an option. Rather, they embrace those moments as opportunities for learning and improvement."

What did McFarland learn? To begin, he says that tough times force those in charge to face facts. In good times, the attitude is all too often that: If something isn't broke, why fix it? Change is resisted because no one sees the need to improve or learn. Taking a long, hard look in the mirror is what an owner needs to do rather than hide from bad news.
Second, tough times usually separate employees and vendors into two camps: Those that are willing to fight for survival and those that run. Some will head for the exits; others will hide and still others will ask, "What can I do to help?" Those that step up are renewing their commitment to the company, to the owner and to each other. McFarland said he put those who wanted to fight to the best possible use and he rewarded them when things got better.

Third, get to the root causes of the problems. In the BSA situation, apparently there was no clear company policy on the use of software and no audit procedure in place to monitor ongoing software use. The firm simply expected all employees to know and honor the law. When Collectech lost their largest single customer, it was a combination of laziness and lack of inertia that got them into the almost deadly trap of "revenue concentration" for the bulk of sales, cash flow and profits.

Don't do it alone
Fourth, seek outside guidance. Owners should tap into trusted advisers. Many belong to formal peer groups and all should have attorneys and accountants. There should be nothing but full disclosure when describing what the company is going through. When advice is given, there should be nothing but openness as to what is being counseled. Set aside ego and defensiveness and listen with the spirit that the advice is given with a genuine interest in helping make things better.

Do not bunker
Fifth, overcommunicate. The natural response to facing tough times for most is to hunker down and have a "bunker mentality." When employees and vendors do not hear from those that lead, they are left to their own devices to create scenarios far worse than what is really happened, is happening and is going to happen. McFarland says leaders need to take charge and tell people what the plan is, what their role is and what the expectations are.

Finally, do what needs to be done, however unpleasant. McFarland recommends not dragging things out any longer than they need to be. If vendors will be paid late, tell them. If employees will have hours cut, wages cut and some will lose their jobs, tell them. Being part of an organization that is in trouble is no fun. However, the longer the owner waits to deal with the unpleasantness of the present is just more delay to getting to a better future.
McFarland paid a lot of tuition at Tough Times U, including reducing the number of employees from 390 to 90 and shifting or eliminating eight of the top 11 executives.

It was both the low point in his CEO role and a high point. He blames himself and the others on his executive team for becoming complacent, impacting 300 individuals and their families. However, he also learned that given good leadership, people will rise to the occasion.

Eventually, most organizations hit tough times. McFarland's eventual graduation from Tough Times U was not the end of his education; it was only the beginning, a commencement.

He knew that to avoid repeating his "real world college" courses again he was going to have to avoid the complacency and inertia that got Collectech in the first place.

Kenneth W. Keller is president of Renaissance Executive Forums in Valencia. His column represents his own views and not necessarily those of The Signal.


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