Anti-Shark Culture as Strategy at Harvard Business School

October 29th, 2012

Few organizations are as effective at establishing a culture as the Harvard Business School — and it is very deliberate, intentional, and no accident.  I am back at Harvard Business School today and being here reminds me of the strategy and hard work the school performs to set a certain tone.  And, the company culture of Harvard Business School will probably surprise most people because it is opposite of what you may expect.

Here are some things that the school very intentionally focuses on establishing in the culture of each class, each section, and at the school in general.

  1. Company Culture - No SharksNo Sharks.  Disagreement and debate is the objective of the case method and classroom discussion, but it needs to be done respectfully and professionally to be effective.  To signal to someone that they were too aggressive or confrontational in their comments, most all HBS classes have a shark stuffed animal that fellow students toss at someone who crosses the line.  It is a friendly, fun way to give feedback to the aggressive types and help them keep things productive.
  2. Everyone needs to participate — it is not cool for certain people to dominate.  In life and business, we need input from everyone to make the best decisions.  There is a deliberate strategy at HBS to encourage participation from everyone (your grade depends upon it) and to encourage the students to listen and glean wisdom from everyone.
  3. Idea diversity leads to insight and learning.  There is value placed on a diversity of comments and observations and an active attempt to get different ideas into the discussion.  I was always delighted with the diversity of comments and thoughts.  Having such diverse good ideas makes you a little more humble that there are plenty of good ideas in addition to your ideas.
  4. Helping others is key.  HBS indoctrinates you that everyone has an obligation to share ideas and offer explanation or assistance to your fellow classmates.  It is a recognition that no one gets anywhere alone.  And, teaching someone something is the best way to make sure you learn it yourself.  Our comments were graded on how helpful they were in assisting others in their learning.
  5. Open discussion of “norms”.  The school had us actively discuss the “norms” that we wanted our classes to have — how we wanted to be treated, how we wanted to treat others, etc.  It made us actively think about the culture of the school and help get us all aligned like in a company culture.

While I do not remember the details now, I remember being amazed at the activities, hints, discussions, speeches, etc. organized by the school that were aimed at indoctrinating us into the culture of the school.  It was not an accident.  The culture was deliberately designed to establish the optimal environment for learning and for teaching the all-important soft skills of behavior that are important for success in school and after school.

Categories:Culture Is Strategic
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Company Culture Key to Growing A Business

October 25th, 2012

Every day in a small business I know, 100,000 interactions happen among employees, customers, and external parties — the only way I know to align all of those interactions is through a strong company culture.  So, company culture is key to growing a business and to scale.  To me, a company culture is something that allows everyone to make decisions throughout every day and know that they are aligned with their colleagues.  They can handle all sorts of issues with confidence that the organization will back them up because everyone is aligned.  That confidence is huge for long-term satisfaction and company performance.Company Culture Drives Interactions

I have a back-of-the-envelope math exercise that demonstrates how important culture is to enabling an organization to scale and grow.  Follow me for a second.  At a school I own, there are 700 students and they are with us 4.5 hours every day.  If every student has 5 interactions with staff and 20 interactions with other students each hour, each student has 112.5 interactions while they are at our school every day.  Multiply that by 700 and that is 78,750 interactions student interactions every day.  At the same time, if our staff of 115 has 10 interactions per hour with colleagues and people outside the company, that is 80 interactions per staff member per day, or 9,200 interactions for a total student and staff interactions of 87,950 every day.  Let’s assume roughly 260 school days per year, or 22,867,000 interactions per year.  And frankly, my guesstimates are probably low.  Imagine if your organization grows to thousands of employees and millions of customers — that is a tremendous number of interactions every day.

There is no operations manual that can anticipate every nuance of our 23 million interactions.  And, everything is much more efficient and smooth when everyone is aligned and able to use their own judgment on how to handle all those situations that is in alignment with the organization.  There is much less double-checking or CYA with your boss.  There is freedom for each employee to handle a difficult student situation in the way they deem appropriate — how many times have you seen an employee follow policy even though common sense suggests that the policy shouldn’t apply to this particular circumstance?  Sometimes, employees can just make a decision that affects other people with confidence rather than having to get sign-offs, etc.

If you want to grow a business, invest in making sure that your people are aligned with your company’s purpose, cause and belief.  It will pay big dividends and allow you to grow.  If you do not, it will be impossible to keep people aligned and on track.

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Categories:Business Growth & Opportunities, Culture Is Strategic
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Long-term Investment Value the Clif Bar Way

October 23rd, 2012

On a plane last week, I read the book Raising the Bar by the founder of Clif Bar, Gary Erickson.  Great book — particularly good at ideas around long-term investment.

Long-term investment

Erickson discusses attempts to maintain focus on sustainability and long-term investment horizon at Clif Bar.

Erickson wanted to manage his company in a way that was not aligned with traditional financing sources (banks, venture capitalists, private equity, etc.) and it was amazingly difficult for him to find financing that would allow him the flexibility he wanted. I wish my investment fund, Greybull Stewardship, had been around when he needed capital because we would have been a great fit for Clif Bar.  Erickson uses the analogy of a road map of Switzerland with the large roads colored red and the much smaller roads colored white.  The red roads are about the destination — the way he felt that banks and venture capitalists were focused on the exit.  White roads were focused on the journey, which is how he preferred to manage his company so that they were focused on success today and over the long-term and not toward some magical moment of exit.  He writes, “I believe that many people sell because they think they have to.”

Ultimately, Erickson never sold his company or took venture financing and retained 100% ownership.  This allowed him to pursue an unconventional path of tremendous business growth.  He has a clear and articulate voice for a different way of looking at business, at investment, at business growth, and exit that is worth listening to.  To Erickson, “shareholder value is long-term stewardship or sustainability.”

If you find yourself in a similar situation, my investment fund Greybull Stewardship is a good answer.  We can provide financing and funding without forcing a particular growth rate or exit strategy, but allow you to pursue the path for your business that makes sense for you.

Categories:Business Financing & Funding, Business Growth & Opportunities
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Best Mobile Scheduling App From Appointment Plus

October 18th, 2012

Manage your Appointment Schedule with an excellent Mobile Scheduling App

Mobile Apps from Appointment Plus

Appointment Plus has a newly redesigned website and features the mobile products.

Appointment Plus, a portfolio company of my investment partnership, released their latest native appointment scheduling apps for iPhone, iPad and Android and they are awesome.  The apps enable organizations to manage their customer appointment schedules while they are on-the-move:  open up appointments, cancel appointments, change appointments, enter customer data, view the schedule, and more.  The apps are fast, sharp, and easy to use.

Appointment Plus Apps: iPhone Interface Screens

The response has been excellent with hundreds of new customers signing up for Appointment Plus every day.  Appointment Plus is the clear leader in online appointment scheduling with many thousands of clients, millions of appointments booked each month, and more integrations with key software in the marketplace (Quickbooks, many calendars, many email marketing companies, etc.).  We imagine that most business owners will manage their business through their mobile devices rather than through a desktop in the future.  Appointment Plus has made this easy.

In the future of mobile appointment scheduling, Appointment Plus is developing apps with a “customer view” scheduling application for Apple and Android as well, which will further simplify the scheduling process for its clients’ customers, patients and students.

Categories:Competitive Advantage & Differentiation, Execution
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Optimal Owner for a School — Not Private Equity or Wall Street

October 16th, 2012

The School Business

The School Business often requires a long term ownership perspectiveFinding a perfect match between a business and an owner is not easy.  This hit home to me last week at a gathering for private post-secondary schools in California where I heard an owner of a private, post-secondary school describe an epiphany he had 20 years earlier.  The school business clicked for him when he realized that “My school is a business, and also my business is a school”.  He was saying that there was a balance to owning and managing a school between managing the business well (and making sure the economics worked all around), but also not forgetting that a school business needs a bit more perspective than just a bottom-line focus.

Many of us feel that way about our businesses — a for-profit legal structure is the optimal, most efficient way to manage the organization but it is also much more than just a profit-making endeavor.  There is more to it.  As a result, every business should spend time thinking about who is the optimal type of owner for their business.

Align Business with the Proper Owner

Some businesses should be owned by venture capitalists — rapidly growing businesses targeting huge markets — because the vc’s have a ton of expertise in building those businesses.  Others are perfectly suited for mom-and-pop ownership — many wonderful local businesses serving their communities.  Others are perfectly suited for Wall Street and mutual funds because they are large enough to have a lively market for their stock every day and it works best if these businesses have smooth, predictable and growing earnings power so that Wall Street will not be surprised.  Or, some businesses should be owned by private equity firms to enable them to invest heavily or transform themselves under the privacy of private ownership and be ready to sell again on a quick time frame — 3 to 5 years.  On the other hand, life can be miserable when your business is owned by the wrong type of owner.

Business Growth and Ownership: My Own Experience and Observations

I have owned a private, for-profit, post-secondary school for nearly 10 years (the National Holistic Institute massage therapy school).  I believe that tax-paying schools serve a vital role in our society that will become even more important in the years to come as it becomes more obvious to the general public that our traditional colleges cannot serve every educational need of our country.  Yet, many of these schools need to find a long-term ownership structure that is not Wall Street or private equity or mom-and-pop.  It is something in between that has a long-term perspective, is sophisticated about building organizational capacity and handling regulations, and maintains the creativity and strive for efficiency best characterized by private enterprises.

Throughout the ownership of my school, I have observed schools that are large publicly-traded companies and how their Wall Street ownership is misaligned with the optimal way to manage those schools.  There are cycles to the school business based upon the economy, unemployment, and the public’s interest in various careers.  Even though we are all aware of the cycles, they are not easy to predict or manage through unless you have a very long-term perspective.  Being publicly-traded makes these schools too oriented to short-term results and therefore they manage their schools with more volatility (amazing success during good times, and serious blow-ups during the bad times) and maybe too oriented to the business side and forgetful that it is also a school.  Sometimes, private equity investors have done well with schools when they hit the cycles correctly, but I often find they are a little too aggressive with growth and not understanding enough of the human side of education.

I don’t have an answer, but feel many of these schools would be most successful for themselves and for our country with focused attention on developing an ownership that is optimal for the “school as a business and the business as a school.”

Categories:Business Financing & Funding, Investment & Business Models
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Honey, I Shrunk the Definition of “Long-Term Investing”

September 26th, 2012

Defining Long Term Investing

Three years is “long-term investing” according to a discussion I attended last week.  The discussion was among a handful of family office investors who help manage money for Haim Saban (participated in sale of Fox Family to Walt Disney), Eric Schmidt of Google, a wealthy Chinese family, and others.  Endowments and foundations used to be long-term oriented investors and they are now feeling the short-term pressure and are being measured quarterly against their peers.

The single greatest edge an investor can have is a long-term orientation,

says Seth Klarman of the Baupost Group, a renowned value investor with an excellent track record over several decades.

Investment Hold Period

Here is my impression of the optimal investment hold period for various types of investors:

Long Term Investing - Comparative Investment Hold Periods

Investing & The Long Term Advantage

In a world where investors need every advantage they can find, being able to hold an investment for the long-term is a big advantage.  Nothing can be more beautiful than a good business compounding in value over a long period of time.  It also helps avoid the problem of having to sell a good company and then find another company to replace it (sometimes, it is very difficult to find something as good).  Some family offices for wealthy families still recognize that their ability to hold investments over the long term is one of their core strategic advantages.  That also used to be the situation for the best managed endowments (Harvard and Yale), but it seems that has been shaken a bit by the extreme market pullback several years ago that left many of them in need of short-term cash.  Thus, endowments and foundations are measured quarterly and have much more short-term pressure than before.

If you own a business and are looking for an investor/partner, you certainly should understand the investing time horizon for your partner to make sure you are aligned with them.  I am grateful that my investment partnership, Greybull Stewardship, is set-up in a way to let us hold good investments for the long-term.

Categories:Business Financing & Funding, Competitive Advantage & Differentiation
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50th Post Since April — How am I doing?

September 20th, 2012

Today’s post marks my 50th blog post since I began the blog on April 22, 2012.  To me, it feels good to be writing posts and I hope it is helpful to some business owners and investors out there.  To make sure it is helpful, I would appreciate some feedback:

  • Any feedback on the topics that you like and do not like?
  • Any feedback on the frequency of posts (most weeks have about 2 posts with some weeks at 1 or 3)?
  • Any feedback on the length of the posts, shorter or longer?
  • Any other feedback?

Of the 50 posts, here are links to some of my favorites:

Categories:Sell or Buy a Business
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Learning Business Lessons: Business as a Dojo Space

September 17th, 2012

Business Lessons

Business LessonsLife and business lessons can be gleaned from all directions when managing and owning a business.  This idea was captured for me when a long-time employee of the National Holistic Institute said, “NHI is everybody’s dojo — or a space where we learn our lessons.”  As we manage our organizations, I think it is helpful to keep a focus on learning lessons as it helps us roll with the good and the bad and keep our focus on long-term improvement.

I read this excerpt last night and it reminded me of the power of a business as a dojo space. This is from Joe Hyams in Zen in the Martial Arts
.

A dojo is a miniature cosmos where we make contact with ourselves — our fears, anxieties, reactions, and habits.  It is an arena of confined conflict where we confront an opponent who is not an opponent but rather a partner engaged in helping understand ourselves more fully.  It is a place where we can learn a great deal in a short time about who we are and how we react in the world.  The conflicts that take place inside the dojo help us handle conflicts that take place outside.  The total concentration and discipline required to study martial arts carries over to daily life.  The activity in the dojo calls on us to constantly attempt new things, so it is also a source of learning — in Zen terminology, a source of self-enlightenment.

I hope your business is also your dojo space, or a place of constant learning.

Categories:Balance, Culture Is Strategic, Execution
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Keep Pedaling When You Most Want to Coast

September 13th, 2012

When cycling to the top of a big hill, it is tempting to coast down the other side.  However, I have found that in business it is important to keep pedaling when you most feel like coasting.  It is often those investments made in a calmer time or effort put toward long-term decisions when a decision is not urgent that make a difference. The National Holistic Institute is in a cyclical industry — so far we have been able to make investments that work in good times and bad and steadily improve our organization regardless of the external business climate. Business success comes from never coasting.

Cycling around Napa last weekend (not really any hills) and watching the professional cyclists in Boulder and Denver a few weekends ago reminded me of this.  I first thought about this as I rode my bicycle across the country just after graduating from college in 1993 — the miles went by so much faster through a steady, sustained effort than through shorter sprints of effort.

 

Categories:Balance, Business Growth & Opportunities, Execution
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Buying a Business: Raise Money for the Search or Not?

September 10th, 2012

Search Funds

Buying a Business - Funded Search vs. Unfunded SearchLast week I had a nice conversation with a mid-career person looking to buy a business.  He was contemplating using the “search fund” model to find and buy a business.  As a brief background, a search fund is a model where an entrepreneur raises a pool of capital from investors to cover expenses during their search for an attractive business to buy.  Once a business is identified, the investors have an option, not a commitment, to invest and they get some additional preferences for having funded the search.  For business owners looking to sell, search funds may be an option for you, particularly if you want to exit the business and bring in a new management team.  Most of the time, the entrepreneurs running the search want to manage the business post acquisition.  When I bought the National Holistic Institute coming out of business school, I did not use a search fund — I did what is called an “unfunded search” or basically I paid for the search expenses myself.  I also had a business school friend and classmate use the unfunded search model.

Funded Business Search Pros:

Our conversations were about whether to do the “funded search” or “unfunded search”.  Here are some of the observations that we discussed.  First, the pros of a search fund…

  • Money to pay the bills while searching.  For some, this is essential.
  • Well-established group of investors in search funds that have experience and success with the model.  You will not have to reinvent the wheel.
  • Experience, advice, and guidance.  This is key.  It isn’t easy to find a business, separate the good from the bad, strike a fair deal, not miss anything in diligence, and get it closed.  Experience and guidance at key moments helps a lot.  The search fund investors that I know best are the Search Fund Partners in Palo Alto.  They are quality guys, they are wise investors, and they would be a great help to anyone searching for a business to buy.
  • More certainty of closing because financing is more firm.  Because the investors are already lined up, it is usually much easier to close a deal once you have found the business.  In an unfunded search, it may be a scramble to line-up the financing although good deals have a way of finding capital and getting done.

Funded Business Search Cons:

  • Can limit the universe of potential targets.  Because search fund investors need businesses of a certain size or growth rate, it may limit the businesses you may target somewhat.
  • Will need to sell the business.  Search fund investors will expect a return of their capital in 5-10 years.  If you want to own your business for a longer term time horizon, you may be somewhat misaligned with search fund investors.  Sometimes, there are huge success stories of companies found through a search fund, such as Assurian, that have been successful recapitalizing the business several times to return capital to investors.
  • May not be able to utilize some funding sources, like SBA loans.  This may not matter to you, but having investors will mean certain types of financing will not be available such as SBA loans that require personal guarantees from most owners which search fund investors will not be willing to do.
  • Financial model works best if you can fund it yourself.  Without investors, your financial returns for yourself will likely be better has researched by Richard Ruback of the Harvard Business School in his research on the market for smaller firms.

Most often, people will choose a funded search because the pros outweigh the cons.  That is probably a good choice.  If you do have the option to fund the search yourself, it is worth exploring as it worked for me and a couple of other people that I know.

 

Categories:Business Financing & Funding, Investment & Business Models, Search Funds, Sell or Buy a Business
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