Peter Rosen, HR Strategies & Solutions
I would not ask a trick question with no purpose other than to put the candidate on the spot. Speaks poorly of the culture of the company.
Peter Rosen, HR Strategies & Solutions
I would not ask a trick question with no purpose other than to put the candidate on the spot. Speaks poorly of the culture of the company.
Corporate culture was a buzzword long before the New York Times published an exposé on the alleged nightmarish experience of working for Amazon. It even predates millennials, Silicon Valley, and ping-pong tables in the break room.
But before you dismiss corporate culture as touchy-feely nonsense, think about how important job satisfaction is for employee retention. If you want to build a business that people want to work for, avoid these three blunders that can tank you culture.
Many entrepreneurs take a hands-off approach to culture, assuming that it will simply grow out of the everyday actions of their employees. For the most part, they’re right. A culture will develop if left unattended. Unfortunately, it might not be the culture they envisioned when they started the business.
“You’re either going to have a culture that has been intentionally built or there will be a culture forming because nothing is being done directly to build it,” says Peter Rosen (@pfrosen), the founder and president of HR Strategies & Solutions. “A culture can be anything, like people showing up late for meetings and it being tolerated. That becomes part of the culture.”
Do you want a business where people collaborate? Have high energy? Put clients first? Those values need to be articulated.
Cultural fit tip: According to Rosen, establishing your company’s values is the cornerstone of building a business culture. However, it’s one thing to create values; it’s another thing to make sure they are integrated into the fabric of the organization.
Reward individuals who exemplify the business’s values. You can even incorporate your values into your performance reviews.
Once you’ve established your values, think about them when you’re hiring. “Let’s just take a sense of urgency as a value,” says Rosen. “Somehow in the interview process, you’re going to want to question candidates to determine if they have a sense of urgency.”
That’s not always easy to do in interviews where candidates often say what they think you want to hear. In some cases, a personality test may help you figure out the best fit for your business. You might also find that the more interviewing practice you get, the more accurate your instincts become.
Cultural fit tip: Hiring for cultural fit does not mean you get to ask questions about the candidate’s cultural background. Avoid questions like the ones listed in this Huffington Post article, and consider buying Employment Practices Liability Insurance. It helps cover your defense expenses if an employee or job candidate accuses you of discrimination.
For more information, check out “What Is Employment Practices Liability Insurance (EPLI)?“
Finding, hiring, and training new employees is huge cost for small-business owners, so it’s little wonder that many hesitate to let an employee go. However, sometimes it’s the right thing to do. (Related reading: “Small-Business Owners: What Happens When You Hire the Wrong Person?“)
According to Rosen, the impact of one person in a small business is a lot greater than it is in a large organization. “If they’re not living the values and demonstrating them on a regular basis, it’s going to be pretty obvious to their coworkers,” he notes.
Terminating the relationship lets your other employees know that the culture really matters to you. Your values aren’t just a nice poster on the wall; they’re the principles that inform your business decisions.
Culture fit tip: A tight-knit group can be slow to warm up to a new hire. Make sure current employees understand the how the new person fits into the organization, and give everyone a chance to work out the kinks before you assess their cultural fit.
Establishing your business’s culture can help keep employees satisfied and engaged. Unfortunately, that appears difficult to do. Learn more in “Why Small Businesses Shouldn’t Hire 70% of Employees.”
You’re a director of marketing. You’ve identified the perfect candidate for your content marketing manager opening, a position that requires a mix of creative storytelling skills, out-of-the-box thinking and a maverick streak. However, your organization insists on having a human resources (HR) representative in first and second round interviews—and perhaps beyond—to sanity-check your hand-picked candidate for “organizational fit,” whatever that means.
“In general, when HR is given veto authority on candidates selected by hiring managers, this represents a corporate culture that has deficient trust in its managers,” says Mason Wong, independent consultant, ZWD, a Silicon Valley HR firm. “I advise clients against such a process. Best practice is for in-house recruiting to screen applicants and identify traits the company doesn’t want among its employees before interviews with hiring managers.”
Unfortunately, HR has vetoed your pick in favor of some mediocrity that seems a safer bet from a “cultural” point of view. Does this make sense? And if it does, just what are the pros and cons of letting HR—or what’s sometimes euphemistically called people operations—have veto power over hiring choices of frontline business units like marketing? (more…)
Hiring your first employee is exciting, but it’s also fraught with risk. As with most things in the world of business, a little preparation goes a long way toward success. Here are some items to cross off the to-do list before you extend that job offer.
“One of the biggest risks when adding employees is not knowing the proper labor laws and classifications that go with having employees,” says Lois A. Krause, a practice leader in HR compliance with KardasLarson, LLC (@KardasLarson). “There are many regulations that are important to hiring and managing employees, such as payroll taxes, Worker’s Compensation Insurance, and having employees fill out I-9 forms to ensure they are eligible to work in the US.”
Before you balk at that long list, Krause also notes that there are people and organizations you can turn to for help. First, she recommends visiting the US Department of Labor website to learn about regulations, but she says you can also ask other small-business owners for their pointers.
Get prepped: The US Small Business Administration is another site that provides clear instructions for getting all your legal ducks in a row. Check out its list of tasks to complete when first hiring employees, such as getting an Employer Identification Number and posting required notices.
No doubt about it, figuring out compensation is intimidating. You have to weigh what you can afford with what your competitors are paying, all while trying to forecast future revenue. And compensation isn’t just salary. You need to factor in benefits, too.
“In most states, there are only a few basic benefits that must be offered to employees,” says Samantha Reynolds, the communication coordinator for A Plus Benefits (@APlusBenefits). “Businesses must pay Social Security, Medicare, and Federal Insurance Contributions Act (FICA) taxes for all employees. They also pay state unemployment insurance and Workers’ Compensation Insurance for their employees.”
Reynolds adds that some states have additional paid disability or sick leave requirements, so it’s important to know the laws in your area.
Get prepped: You don’t have to do the calculations on your own. The article “Can You Afford a New Employee?” from QuickBooks lists some of the hidden costs of hiring staff.
Bonus tip: “Offering voluntary benefits, such as dental, vision, life insurance, and disability insurance, can be cost-effective ways to increase your benefits offerings,” says Reynolds. “You can also look into options for 401k, flexible spending accounts, and supplemental benefits like accident and critical illness policies. These often cost a company very little to offer to employees.”
Small-business owners, he says, may not know how to minimize the chance of making a poor hiring decision because they’re not experienced in interviewing and listening. But, he says the biggest problem is that most aren’t sure what they are looking for.
Rosen recommends writing a mission statement or value proposition before you hire staff. These can serve as “guide rails” you can use to develop your culture and build passion in your candidates.
Get prepped: Rosen says creating your business’s values and vision is not something to take lightly, so he advises you to “get help and involve the key players.” But even with a clear understanding of what you want, he says an objective outsider is a good way to maximize your chance of success.
Find out if you’re on the right track with “5 Signs You’re about to Hire a Rock Star.”
“People don’t realize what an impact it can have,” Herran says. “For example, and it sounds obvious, but people always forget to put this on their checklists: Where are they going to work? Is their phone set up? Is their email already set up?”
According to Herran, these simple considerations show your employee they are welcome and that you’re ready for them to get to work.
Get prepped: Herran also suggests having an informal conversation to set expectations. Your new hire may know the mechanics of the job, she says, but they don’t necessarily know how you want them to do it.
This requires a little reflection on your part. Take a moment to outline all the little things that are important to you that wouldn’t show up in a job description.
“How you bring somebody on board on that first day shows them they’re wanted, and that helps them want to live up to your expectations,” says Herran. Make sure your new hires have a solid footing with the tips in “4 Important Things Most Small Businesses Forget When Training Employees.”
Andrea Herran is the principal of Focus HR Consulting, which “uncomplicates the people side of your business.” Knowledgeable in the full spectrum of human resource activities, Herran’s passion is in assisting small businesses achieve success through their people. She works alongside entrepreneurs, managers, and owners as an advisor to ensure legal compliance, as a consultant to set up human resource programs, as a coach to make them great people leaders, and as a mentor to on-site employees.
Lois Krause has over 25 years’ experience in HR and has held senior HR leadership positions. Her expertise is in labor law and compliance, employee relations, organizational development, performance management, and recruitment. Lois has advanced certifications in HR and is a consultant with KardasLarson, LLC, an HR consulting firm in Connecticut.
Samantha Reynolds is the communications coordinator at A Plus Benefits, Inc, a Professional Employer Organization (PEO) based in Lindon, Utah. Working for A Plus Benefits for over nine years has given Reynolds the opportunity to work in client services, human resources, and communications. She has connected with business owners across multiple states and various industries, giving her a keen understanding of the challenges business owners face.
Known for his ability to quickly build trust and credibility with his clients and colleagues, the founder of HR Strategies & SolutionsPeter Rosen has a unique capacity to understand and assimilate into a variety of corporate cultures at different stages of the corporate lifecycle. With over 25 years of experience in both domestic and international companies, he is able to tailor his approach to specific HR situations and translate his larger corporate experience into startup and growing environments.
Copyright 2012 The Atlanta Journal-Constitution
The Atlanta Journal-Constitution
November 19, 2012 Monday
LIVING; Pg. 1D
Cash left on the health care table
Nedra Rhone; Staff
Ways to use those FSA dollars and how to plan better for 2013.
It’s a busy time for eye doctors.
The year-end surge in patients seeking vision exams and prescription eye wear being reported by several metro area optometrists has little to do with patients’ declining eyesight. It’s mostly because of the unused cash in their health care spending accounts.
I recently had an occasion to speak with a young man whose first job out of college is on the sales front lines in a fast growing technology company. I was hearing about the many organizational issues that face him, including unclear job responsibilities, evolving pay plans, and “who’s on first” type confusion. My first thought was that Peachtree Software must have looked that way to many of my employees when I was learning the ropes as a young CEO. For the most part they were kind enough not to make fun of the situation, at least until my going away party when we sold!
According to a 2009 CareerBuilder.com survey of 2,700 employers, 30 percent expected to hire freelancers or contract employees in 2010, up from 28 percent in 2009.
That statistic makes a lot of sense to Melissa Packman, CEO of addONE Marketing Solutions LLC, an Atlanta firm that provides contract workers for the marketing industry.
When a Society for Human Resource Management (SHRM) member recently sought the guidance of fellow HR professionals on SHRM’s HR Talk bulletin board, respondents got straight to the point. The question was: If a worker who was on the verge of being terminated for “issues with stealing” and “not following manager instructions” was transferred to a job in another department—a job that didn’t involve handling money—would the move be seen as “retaliatory?”
The founder of this colorful discussion did not respond to a query about how the case was resolved. However, e-mail and telephone conversations with HR practitioners, consultants and lawyers produced a variety of opinions and one consensus: Lateral transfers can make sense for a variety of reasons, but, with a few exceptions, disciplinary retaliation is not one of them.
What’s the Motivation?
“Why are you transferring?” asked yet another respondent to HR Talk. “The answer to that question is critical…”
Experts agree and note that there are cases in which a transfer makes sense.
Peter Rosen, SPHR, president of HR Strategies, a consulting firm in Atlanta, said a lateral transfer to address a discipline problem “is a bad idea for a lot of reasons [but] if a person was put into the wrong role because of the mismatch of skills possessed and those needed then it may be appropriate.”
“[It] avoids the discomfort and awkwardness associated with managing a problem employee’s performance,” agreed attorney Nancy Leonard of Constangy Brooks & Smith, a labor and employment law firm in Kansas City, Mo. “Often, the employee does not even know the transfer is disciplinary in nature, as the performance problems are never identified and addressed.”
Leonard offered the example of a customer service worker who has trouble getting along with customers. HR professionals believe that the employee is salvageable and could succeed in a different role, and there is a warehouse job for which the worker is qualified. “Transferring the employee to the warehouse position may be appropriate,” she said, adding that “a transfer under these circumstances could be fairly characterized as an ‘opportunity,’ as opposed to ‘discipline’!”
Sometimes employees ask for a lateral transfer, recognizing that they have problems that might be solved to their companies’ advantage as well as their own. “It could be they’re not happy with the supervisor but also they want to change careers but don’t want to leave the company,” suggested Bettina Seidman, whose firm Seidbet Associates in New York offers outplacement services and executive coaching. “I’m really in favor of that stuff because you end up with a more motivated and productive employee.”
Grooming or Cross-Training
Many companies have organized programs of lateral transfers aimed at developing the skills of high-potential workers. “Some companies say there is no vertical movement unless you’ve had two to three lateral moves,” observed Alan Vengel, whose Danville, Calif., consulting group offers seminars and training for managers, including HR professionals. “Moving from marketing to operations to sales … develops a well-rounded business sense in the employee.”
“Lateral transfers can be extremely useful to both the organization and employees in terms of cross-training and eventual promotions,” agreed Seidman.
“It also renews the motivation of the employee,” Vengel said. “About every three years, on average, most employees plateau.” At that point, he said, a lateral move can “get them charged up again [by giving them] new skills, new leverage to old skills, new learning.”
Many employees might look at such altered responsibilities with suspicion, regarding them as sugarcoated denials of an outright promotion. “But you know what?” Vengel asked. “There aren’t as many promotions these days.”
“There’s definitely a cultural stigma” in lateral transfers, acknowledged Claudia Saran, partner in charge of KPMG’s People and Change advisory group in Chicago. “You have to reinforce them—when you take high-level performers and put them in a lateral move—that there’s still recognition” of their worth to the company.
That cultural stigma, experts say, comes from a widespread and unwise use of lateral transfers. “Some companies have a history of ‘parking’ people who should be in a progressive discipline process or terminated,” Seidman said. “The reasons are many. Sacred cows who can’t perform … an employee who is ill and underperforming … a long-term employee with anger-management problems. These are companies in denial.”
“This method of ‘discipline’ is really just a way to avoid properly and effectively managing an employee with performance problems,” said Leonard. “The problem employee remains a problem, but for a different manager, in a different department.”
And that might be the point.
“Sometimes one manager wants to get rid of a problem but doesn’t tell the other manager,” Vengel said. An unethical supervisor might even file intentionally inaccurate performance reviews to avoid responsibility for his or her own deficiencies in managing the problem employee—something that Vengel said is “really terrible.”
In many cases, the supervisor won’t get away with it indefinitely. “If someone is such a poor leader and manager,” Saran said, “I would think that would rear its ugly head sooner or later.”
But, meanwhile, these disposal transfers can become “a roadmap for other problem employees,” Leonard observed. “Don’t like your manager much? Cause enough of a disruption and you, too, will be moved to someone who might go easier on you.”
An accumulation of shuffled, unproductive employees usually opens the company to legal exposure, said Vicky Brown, SPHR, president of Idomeneo Enterprises, an HR outsourcing firm in West Hollywood, Calif. “The longer a nonperforming employee is kept on the job, the in West Hollywood, Calif. “The longer a nonperforming employee is kept on the job, the greater the chance of claims such as harassment, workers’ comp [for stress], etc.”
Leonard laid out a scary scenario: “Suppose a male employee is a jerk to everyone in his department. Instead of attempting to correct his behavior, the company transfers him to a new department, reporting to a new manager, who puts up with his behaviors. Then, a female employee has similar behavior problems but the company refuses to transfer her. Instead, her employment is terminated. Arguably, the female was treated less favorably than the male employee. Without a solid, legitimate, nondiscriminatory explanation, this scenario could spell trouble for the employer.”
Alternatives to Transfer
“Instead of transferring the problem employee, management should take steps to address the performance problem,” advised Leonard. “The goal here is to identify the problem and allow the employee the opportunity to correct it.”
She suggests that management:
“And, of course, document, document, document!” Leonard said. “Remember, if it isn’t in writing, it didn’t happen.”
Steve Taylor is a freelance writer based in Arlington, Va.
For most executives in transition, the end goal is landing a new full-time position in their industry. But many are starting to find that short-term (or interim) assignments are a viable career option that can provide the salary and work experience they need as they continue their quest for a permanent placement.
Still more prominent in Europe, interim posts are increasingly gaining traction in the US with both organizations and executives for a variety of reasons.
Executive search firms, which bring hiring companies and job-seeking executives together, are also benefitting from this interest in interim executive positions. According to data from ExecuNet’s Executive Job Market Intelligence Report (EJMIR), those firms supplemented their recruiting business with a 36 percent increase in interim executive placements in 2009. They are certainly seeing an increase in candidates interested in and available for such placements.
For both companies and executives, interim positions yield many benefits, as they are a viable way in which business operations and careers can move forward without the risks associated with permanent staffing.
“I have seen a significant trend in companies using interim executives and professionals to meet a short-term need,” says Peter Rosen, president of Atlanta-based HR Strategies & Solutions. “There is a very large pool of very talented people who are not working and are willing to do this. There is also a new breed of talent who have chosen this path as their new career.”
In addition, company business plans used to span five years, says Vince Papi, principal of Executive Smarts LLC, while those plans today are much shorter — just one or two years long. By bringing in an interim project manager, companies can more easily change gears after a year or two, if necessary.
Interim assignments are being used in companies to fill director-level and above positions, and they can be used to manage specific projects or even fill needs created by acquisitions. “Some companies are looking at projects that might be a year or two in length, and they need some help on the team,” says Papi. “They realize that after a year or two, they might not have a place for these people. So interim makes sense. You don’t have the cost of recruiting, moving them and a [severance] package if they have to terminate them a year or two down the road.”
Who Accepts Interim Posts?
While many executives who seek interim positions today are individuals in transition seeking a new opportunity, some are more financially secure and in the later stages of their career — and are instead only seeking a leadership challenge. “Some executives are doing this because they don’t have other career options, and some are choosing to take this route because they find it stimulating, rewarding and enjoy the flexibility,” says Rosen.
“The typical interim executive is sensibly overqualified,” adds Papi. “They’re coming into a situation where they’re working as an interim at a level below they were in the full-time world. They’ve got a lot of expertise, so they can ramp-up pretty quickly and hit the ground running. Unlike consultants who come in and make recommendations, the interim will also follow through on the recommendations for project completion.” Yet, one ExecuNet member recognized that changes in the marketplace meant a change in her career strategy was necessary, and she opted for interim work. “The market was terrible, and I was fairly confident that healthcare IT vendors were not going to be investing in marketing and product management executives during such uncertain times,” says ExecuNet member Carrie Bauman, who served as an interim director of new product development. “Since my husband was laid off too, it made business sense for our family for me to take an interim role even though it meant more travel than I was comfortable with.”
For ExecuNet member Mike Wichelns, an interim assignment didn’t represent a major change in career strategy, since he was accustomed to project work as a consultant. “My consulting plate was not too ‘full’ at the time, and they were willing to pay me well for my services,” explains Wichelns, who worked as an interim president and general manager. “I just viewed the interim position like any other consulting project. So having it last just three to five months did not seem that out of the ordinary for me.”
How Interim Positions Work
The typical interim assignment can last from nine months to a year, but some can even last two or three years. Companies sometimes begin with a short contract to ensure they are pleased with the executive’s work. Once they are, they are more apt to extend that interim contract.
ExecuNet member Jerry Happel says three of his interim posts lasted five years, 10 years and five years, respectively. “My fourth interim CEO position was supposed to be for three to four months and it lasted 12 months.”
Wichelns’ role was projected to last about three months, but was extended to five months — enough time to meet the objectives of the work. “Toward the end of five months, I recommended shutting down that office and moving the functions to another location in the Northeast,” he explains. “That strategy was approved by the owner, and I facilitated the shut down and move.”
Interim assignments require a formal contract among all parties: between the interim executive and a firm like Papi’s, as well as one between Papi’s company and the client company, which hires the executive. The executive and the company then agree on the deliverables and outcomes the relationship is expected to yield. Salary is discussed at this point. If the interim assignment is not in an executive’s local area, he can usually expect to be compensated for living expenses.
Executives agree that adhering to tight deadlines — typical of interim work — can be challenging, yet rewarding.
“A lot of interim managers tell me that an interim assignment is like drinking through a fire hose,” says Papi. “It’s usually extremely fast-paced, long hours.”
While the prospect of a steady (if short-lived) income is enticing, some executives are concerned about how an interim assignment will look on their résumé. “There may be some prospective employers who may look negatively on such a short tenure if they don’t understand the interim nature of the assignment,” says Wichelns.
But experts say not having a gap in employment history is more important. “Most interims will use that experience to show companies that they’ve been able to learn new skills or give them additional skills to make them much more valuable to the new organization,” says Papi.
Yielding All the Benefits
But circumstances can create a full-time post. “There have been assignments where the company didn’t intend to hire the interim, but the chemistry was so great and good things happened with the business,” and the company decided to hire the executive full-time, says Papi, noting that scenario occurs about 10 percent of the time.
Time and Travel Still Main Concerns Executives need to understand that interim executive positions oftentimes require a temporary relocation (sometimes within the US, sometimes across the globe). “If someone wants to do interim work, they’ve got to recognize it could mean they’re going to be away from home,” he says. “They’re probably going to have to travel for some assignments. So they’ve got to be prepared for that.” But Happel notes employers will usually pay for executives to visit their homes once or twice a month.
Nonetheless, time management — especially when still seeking a full-time post — can be a true challenge. “It cuts into the time you can spend job hunting,” says Bauman. “This means less family time and/or less sleep if you want to keep looking while you’re in an interim assignment. Any travel needed will further diminish your available time to look.”
Still, the benefits of interim employment seem to outweigh the drawbacks, ExecuNet members agree. “If the right opportunity presents itself, definitely consider an interim assignment,” suggests Bauman. “Even if it’s not perfect, it’s not forever. You can do most anything for three to six months.”
“If it was possible to stay steadily employed, I would enjoy doing these types of assignments on a permanent basis in lieu of a regular long-term assignment,” adds Wichelns. “There is a special adrenaline rush that comes from taking on these types of assignments and virtually no opportunity to ever feel stale or stagnant.” I
Some of the benefits of an interim position are:
• The ability to continue a search while making income.
• Minimizing your employment gaps.
• Staying connected with current events and people.
• Becoming familiar with a new marketplace.
• Having the luxury of previewing a company.
Building their skill set as well as their network through an interim assignment can prove invaluable to executives as they continue their career journey. These assignments may be temporary, but their effects can be long lasting.
“It filled (what could have been) a large gap in my résumé until the market started to recover and HIT vendors began hiring once again,” says Bauman. “I ended up landing an even better position with a very large HIT vendor, and it was good to expand my skills and network during the transition.”
Transitioning to Full-Time
Sometimes, interim positions can lead to full-time work with the employer. But executives shouldn’t expect such an outcome when they accept an interim post.
“Most companies would prefer an interim who is not looking for a full-time job,” says Papi. “There are multiple reasons. When an interim comes into an organization, he or she doesn’t have to play the politics of the organization. If an interim starts to look for a job within the corporation, it may cloud their judgment. It’s much cleaner if they’re not looking.”
“The best way to approach these interim roles from the executive’s perspective is to look at it as an interim role and not a path to the offer,” advises Rosen. “It’s easy to take your eye off the ball if you are looking too far out.”
It’s been nearly two years since the U.S. economy skidded into recession, and the overall unemployment level remains in the double-digit range. While the construction industry finds itself at the top of the unemployment pile, white-collar jobs such as those in the information sector recently posted a sobering unemployment rate of 10.4%, according to a recent U.S. Bureau of Labor Statistics news release. Professional and business services (at 12.4%) fared even worse, and a drop in the number of finance-related jobs saw unemployment rates in that sector jump from 6.8 in March 2009 to 7.7 in March 2010.
That’s the bad news. But there’s good news, too. Due to the trimming of corporate ranks, C-level talent once out of the price range of fledgling startups is now available. “It’s the grey beard meets the whiz kid,” says Gordon Rogers, president of Atlanta Technology Angels. “It can work to both of their advantages.”
Rogers was one of several panelists who joined moderator Benn Konsynski, chaired professor of information systems & operations management at Emory University’s Goizueta Business School, to address “C-Level Skill Sourcing: New Alternatives.” While startups and companies growing at a rapid rate need the expertise of C-level professionals, executive talent is often priced out of the reach of cash-strapped, nascent businesses. But the current economy presents opportunities for small- and medium-sized businesses to take advantage of outsourced C-level executive skills without coughing up C-level salaries.
In this environment, C-level executives and company founders can form a more symbiotic relationship. The C-level executive can work with the startup on a temporary basis (e.g., six months to a year) and in that time introduce the company founders to potential clients and markets, or even help them get funding. “The Rolodex of these senior execs is far deeper than anything these founders can hope for,” says Rogers. “Where else can you get that kind of talent? This kind of economy is precisely that opportunity.”
What kind of talent is available? Financial expertise, marketing acumen, human resources, legal—just name it, notes Konsynski. “But the first thing they need is a controller,” he adds.
Without structure, a company built around a great concept or idea may never get out of the gate. “Just mention the word ‘budget’ to a founder,” says Frank Pazera, founder and managing partner of CFO2Business. “It’s almost a four-letter word.” Pazera has held CFO, COO and CEO roles in a variety of industries. At CFO2Biz, he and his team provide on-demand financial function support for fast growing enterprises. “I’m an arms merchant,” he says, adding “why should any business waste resources on the total cost—hiring, training, turnover, retraining, and related overhead—of owning a full-time resource when they have the option to invest in a more experienced, powerful and tailored skill set at a fraction of the fully loaded cost?”
Hired guns like Pazera are flexible when it comes to compensation. In general, payment for services involves some cash in exchange for defined deliverables, but an additional equity exchange may also be included. “We prefer to have equity in all the companies in our portfolio,” he explains. The beauty of this arrangement? Startups conserve cash and C-level execs get a stake in the company they’re working with.
This equity position can make a significant difference in overall company performance, argues Pazera. “Rather than operating as transactional consultants, outsourced C-level execs with equity incentive move in concert with the other equity holders,” he explains, “and that alignment provides great assurance that the overall business mission and value creation efforts succeed.”
When it comes to early stage companies and marketing, many are, as Konsynski notes, “loathe to spend money.” With more than two decades of experience as a senior marketing executive, Debra Mercaldo, founder & president of Mercaldo Marketing Group, hopes to help growing companies avoid costly missteps. “I see a lot of beautiful business plans, but their tactics are a laundry list of things that have no relevance,” says Mercaldo. Her role is to help fledgling firms “look at their strategic plans,” she says, “and put tooth to what they’re trying to do.”
Creating and aligning a message is critical, notes Konsynski. “It’s when entrepreneurs pay serious attention to marketing that they build a message both inside and outside [their company],” he says. An expert like Mercaldo comes in, explains Konsynski, “and says what the baby is rather than what [the company founders] think it is.”
Entrepreneurs who believe they are on to the next great thing tend to be optimistic and protective about their ideas. Advice to be more realistic about expectations doesn’t always go over well. “In my experience,” says entrepreneur and startup advisor Greg Foster, “entrepreneurs think everyone is out to get them.” Foster, who serves on several boards (including that of The Onion, the nation’s largest satirical news source), has noticed changes in liquidity events—including what he sees as a new benchmark: “What I’m seeing in the market and what’s changing is small in, small out. You can exit without a press release in the $10, 15, 20 million dollar range,” he says. “A lot of companies will do well and be permanently small.”
The days of entrepreneurs becoming millionaires overnight may have gone the way of the subprime mortgage. “Smart entrepreneurs in this environment know they’re not going public or selling to a large public company,” explains Foster. “They’re thinking about who they can bring on their team to help run the business and sell the business in a fairly condensed period of time. The savvy entrepreneur says, ‘I need someone who knows something about this thing.’”
Knowing “something about this thing” means knowing how to put together a pro forma and having one’s financials in order. “The entrepreneur needs to be dealing with someone who can get him ready for the big show, even if the show isn’t that big,” adds Foster.
An area of business where many entrepreneurs fall flat is human resources. As companies grow, it behooves a company’s executive team to have a clear understanding of what type of culture they’d like to establish, how they’d like the company to be organized, how to define jobs, what kind of people to hire, how to hire them and/or fire them, drug testing, safety issues—the list goes on.
“Large companies have the luxury of compensation departments, recruiting departments, heads of HR that work with the executive team,” says Peter Rosen, founder & president of HR Strategies & Solutions. There’s no reason, notes Rosen, why small companies should do without that expertise—“even if it’s a couple of hours a week,” he says.
Likewise with legal services, says Konsynski. “We’re seeing outsourced, in-house counsel available to startups,” he says. Rather than hire a full-time chief legal officer (CLO) at significant cost, companies like Palladium Chief Legal Officers—one of very few in the field, representing a new model in the legal industry—provide part-time, flat-rate CLOs to companies in search of on-going, internal management team legal expertise. A CLO helps advance and leverage a company’s business model, identify channel partners, and put in place business practices and contractual terms that can create asset value by protecting the company’s ideas, their R&D.
“Entrepreneurs don’t know what they don’t know about where the risks are in their businesses,” says Dawn Ely, founder & president of Palladium, adding that IP law is not intuitive. For example, if an outside vendor provides services and deliverables for a company but is not an employee, “you don’t own anything they’re doing unless you have very specific language in a written contract,” she says. It’s not just about protecting the startup, explains Ely, it’s about “being proactive, advancing your business and creating asset value.”
What a CLO brings to the table in this environment, says Ely, is “knowing your industry, knowing the players in your industry, their businesses and how the legal issues run through your industry, and therefore your business. That’s the greatest value of a CLO—minimizing the pitfalls that result from business managers not knowing what they don’t know.”
What it all comes down to, says Konsynski, is “wise use of available capital.” Not something gung-ho entrepreneurs are often good at. While they may bristle at the idea of parceling out equity in their companies, it’s sometimes the best way to go. “Equity gives [the outsourced executives] a vested interest in your success,” adds Konsynski.
It’s important that outsourced executives believe in where the entrepreneur wants to take his or her company. “You need people around you with expertise in your industry and [who believe] in the direction you want to head,” says Ely. It’s not unlike dating: if there’s a gut feeling it’ll be a match, give the executive a shot. If it doesn’t work out, fire him or her—and do so quickly, the panel contends. Capital is too sparse to waste.
Even with revenue coming in, it matters to investors whether or not the entrepreneur has a track record and whether or not he or she has “assembled the right pieces without spending a lot of money,” according to Foster. “This is the stuff you’ve got to get right. You’ve got to separate building the business from building a company. People are all about building a business and they forget about building a company.”
Foster says he witnesses the fallout from this confusion all the time. “The founder has a great idea, maybe even great execution on a product, but when they approach the venture capital community, their corporate records and information are a disaster. It doesn’t take much time or effort to make sure things like options agreements, the cap table, financials, etc. are all in order.”
While the current economy may make C-level executives easier to employ—even on a temporary or flat-rate basis—entrepreneurs need to be realistic about their businesses. “There should not be a VP of sales until you have sales,” says Rogers. “Until you have a shipment of your product, everyone is a VP of customers. I don’t care if you have a cure for cancer. If you have no paying customers, we’ll never value your company over a million.”
Foster notes that he often sees founders raise their first money at an unrealistic valuation, “which means that when the first round of institutional capital comes in, those original investors’ shares go down in value dramatically. This kind of ‘cram down’ makes for an uncomfortable conversation with those early investors,” he says.
To succeed, and to bring your business to the next level, says Konsynski, don’t be afraid to look for people with different skill sets and expertise to elevate your company’s game. “All too often the people who bring you to one point,” he explains, “are not the ones who bring you to the next.”