Chapter 7 Management – Profit

CHAPTER 7

Management

Great, you have your business moving forward, making a decent profit and growing. Now you have to practice management, leadership, and planning skills.

The good news is that if you paid attention to the salesmanship chapter and learned how to serve your customer, you have the basic skill to be a good manager.

There are several textbooks on the subject; however, I am a believer in just being honest, not only with your customers but also with your employees (your team). Decades ago there was a switch from the old-time belief that a worker was just someone who did exactly as he was told. This was updated with a theory that called that type of management theory X. They believed that management should use a style called theory Y. Theory Y wanted the management and employee to work as a team. This eventually evolved in what the textbooks call team building and some other terms. These days the word transparency is used. In other words, the manager working with his crew is so noninterfering that it is transparent. I have seen some top managers manage this way, and they have been very successful and profitable. It seems obvious that when you can get more done by the team working with you, you can work on higher priority items and become either larger or more profitable.

With transparency, you empower your team with more authority, freedom, and responsibility. This means that you have to learn about your people and know where they need help. This is where the comparison to being a salesman is appropriate. Just as you would serve your customer, you have to serve the people on your team.

I like the idea of team. This incorporates all the ideas of theory Y and transparency. It isn’t you who is doing the work, but the team, and the credit goes to them and the profit goes to you. I say that, however, I always tried to work with a program of remuneration where I tried to have a bonus or percent of profits go to the workers. This idea was used at a steel mill where the union got a share of the profits. I was in that mill one week and we couldn’t assemble a ring into a shell. One of the millwrights, after working on it for about an hour, came to me and said that he would have it assembled the next morning. However, I was to be there at 7 am with two dozen donuts. Needless to say, he came up with a unique method and had it installed and was waiting for the donuts. By the way, I didn’t just bring donuts, but pastries and donuts. Serve the customer, team members, and workers. So, because of the profit-sharing program, he didn’t just get donuts, he also got a percent of the profits that he was instrumental in making.

Management requires the same characteristic that we talked about in salesmanship. For a long-term and a mutually beneficial outcome, you have to develop a relationship with your team. You want them to want to come to work, just as you want your clientele to want to do business with you.

Skills that most managers/leaders need to learn and practice are the following: knowledge of the work, instructing, improving methods, communications, and collative capability.

Knowledge of the Work

In the restaurants, we promoted waitresses, cooks, and bookkeepers to the positions of general manager. Obviously, they didn’t have all the skills; however, they did learn enough of each skill to work with their team members and know where they needed help. We promoted one of our young cooks to be a manager on the midnight shift. He more than doubled sales (he earned some nice bonuses). I had to go in on his shift to see what he was doing. It turned out that he was increasing his sales on the bar nights (Friday and Saturday from midnight to 3 am). On bar nights, the customers are a little bit impatient. This cook, now a shift manager, recognized this and made it a goal to have all meals out of the kitchen in 4 minutes or less. The customers didn’t have time to cause trouble and were happy to get their food and kept coming back and spreading the word. Great marketing. I like this shift manager’s story as it leads me into talking about learning the metrics (some books refer to this as KPIs, Key Performance Indicators) or details that determine the unique factors that can help your business. For instance, we found that our sales on Monday were a good indicator of the sales for the week. If sales were up 10 percent over the usual Monday sales, we had a good chance of having sales up for the entire week. If you remember the lessons about variable costs, this helped us adjust our labor schedule for the week, and we could adjust our other supplies accordingly.

Skill in Instructing

You started a business; consequently, you knew your product, service, or customer. You need to learn the basics of teaching, so that as you grow you can teach your team members. Teaching has some of the same basics that are used in marketing and sales. General Physics, a company out of Canada, has summarized this very well:

Adults remember the following 72 hours later:

1. 10 percent of what they read

2. 20 percent of what they hear

3. 30 percent of what they see

4. 50 percent of what they see and hear (the reason TV ads are more expensive and effective.)

5. 70 percent of what they repeat (an excellent reason to take notes in class or while on a sales call, to emphasize the importance of this. I know a sales manager who terminated a new hire in his first week as he didn’t take any notes on their joint sales calls.)

6. 90 percent of what they repeat and perform (this reminds me of flight school, as you have to solo that plane sometime, but that instructor had you perform the takeoffs and landings while they were with you before they signed off on our solo [Perform]).

Skill in Improving Methods

This is where I use the term metrics. Find out what defines your business. Just like we learned that in the restaurant business, labor was a large variable cost that needed to be controlled. On a million-dollar store, our labor was about 36 percent. The general manager and I went into several restaurants and counted the wait staff and the number of customers per hour. We found that the well-run restaurants had 11 customers per waitress hour. We then scheduled using this metric. Our labor dropped to 30 percent, which, on a million-dollar store, resulted in a $60,000 increase in profit. We also found out that our sales went up as we had servers available when the customers were there.

Skill in Communicating

Anthony Robbins stated, “The way we communicate with others and with ourselves ultimately determines the quality of our lives.”1

Knowing yourself can give you the ability to confidently guide you toward your goals. Great communication skills allow you to encourage others. Items to improve your communication skills are the following:

1. Learn how to actively listen so others feel you understand them.

2. Ask questions so that you can judge what you have said has got across. A group may be too embarrassed to ask a question. However, if you are paying attention, you can judge whether it has understood your point and ask an appropriate question to check and make sure you were understood.

3. In written communication always write a draft (this is what I call a first iteration). Review your draft and make sure it gets your point across. Even on written or oral communication, I try and use an executive summary in the first paragraph (just like on our PowerPoints).

4. After you finish an oral presentation, ask the listeners if they have formulated the next steps. If not try and start the process. This is not just a great sales tool, it is a managerial and organizational technique.

Collative Capability

One of my professors, Dean Alfred, authored a paper titled “Checkers vs. Choice in Career Strategy.” The main point was that he correlated different jobs with an IQ range. However, he made the point that IQ alone didn’t guarantee success. During the class, he related the aspect that having a collative capability was present in most successful managers. In his discussion, it became clear that a person who could relate something from one field that he or she was familiar with and carry this over to another field had collative capability. I will relate two examples; a restaurant owner, who was an engineer. He was able to understand from his engineering job that any product had a bill of materials, which was shown on the drawing. He carried that over to the restaurant and remade the menu into a bill of materials for each item. He used this bill of materials when he was raising prices or looking at recipes. The food costs at this restaurant lowered by about two percentage points.

I think most inventors have this capability.

I happen to have had the pleasure of knowing the gentleman who came up with the material used on the stealth fighter. We helped him get his product into the industrial market. John was trying to come up with a better plastic bearing. However, after several tests, he wasn’t getting anything different. All he was doing was heating the various additives and hoping for better results with the right combination. Finally, he thought about powdered metallurgy, where they heated the powder under pressure and came up with a steel product. Consequently, he heated the plastic under pressure and hit the jackpot. The first stealth fighter flew several years before it was first used. We asked John two questions we were curious about: (1) Was he upset that he wasn’t given a patent? He related several things to indicate he felt he was treated very fair. (2) Did he have any restrictions from the time he developed the material till it was introduced to the public (which was several years)? His answer was that he wasn’t allowed to travel out of the country. Over a few beers, in front of John, we mused that he probably had a few agents with him at all times and couldn’t get into a bar fight, even if he wanted to.

Collative capability has been recognized, and it is evident at Case Western Reserve University. They have established a Think Box where students from different disciplines can meet and develop ideas. They have had success, and one group of students has received a patent for a device to help train surgical nurses. I urge you to think outside the box and look for solutions to your business from other businesses or disciplines.

NEM

This is my own management term. It means no excuses management.

We found that one of our restaurant managers was telling the wait staff to let the customers who wanted to order pancakes that the store was out of pancake mix. Note: The store was out of pancake mix, not her. There was a grocery store only minutes away and she didn’t think about her or one of the bus boys going over to pick some up. We had an all managers’ meeting shortly thereafter. It was explained that since they are in charge and getting a percent of profits, they shouldn’t make excuses. Which president said the buck stops here? The second aspect was that if you make excuses the people under you think it is okay.

As a manager, you have to make decisions. Early in my career a manager I respected told me that if you wait for 100 percent of the information you will never make a decision. Consequently, think of a decision when you have about 70 percent of the data, and see if a clear path to a decision is evident. He further explained that you can make decisions on this basis as long as a wrong decision won’t bankrupt you. Some of the nation’s top MBA programs have taught statistical decision making with success.

This leads to one of my favorite phrases, “A good plan today is better than a perfect plan tomorrow.” This phrase causes some people to wince. Therefore, I will give two examples. My wife and her girlfriend Carole like this one. If you and a friend are in the woods, do you want to take time to calculate the best direction to run (a perfect plan)? Or do you want to run and change directions if you see the necessity? One of my mentors used this example. You are in your office, which is an hour’s drive from the customer. The order will be placed tomorrow. Do you study the proposal some more, work on trying to come up with some better features and benefits, all the time trying to come up with the perfect offering? Or do you get in your car and drive to the customer? Our experience has shown us that if you wait, your competitor might be at the customer’s facility getting some information to help him. In other words, take action, even if it is not perfect. Your customer might tell you you are wrong and let you make changes today, but not after the deadline tomorrow.

 

1T. Robbins. 2012. Unlimited Power: The New Science of Personal Achievement (UK: Simon and Schuster), p.34.