Why targets matter

I love golf. I love everything about it. I love the game, I love being outside, I love the mental side of it, I love the strategy and I love the competition. I even love the practice. When I was a kid in a junior golf clinic one of the club professionals observed me hitting balls on the range. He asked what I was aiming for. But I wasn't aiming for anything. I was just trying to hit the ball well. It didn't take long for him to drill into my head the fact that if you're not going to pick out a target you might as well not even practice. This early lesson has stayed with me to this day.

In our work with clients adopting open book management practices we strive to get them to have team members report their numbers in group staff meetings every week. The basic idea is that the person responsible for sales posts the sales number for the week and explains why it did or didn't meet expectations. Then the production person gets up and posts the cost of goods number for the week and does the same thing. On and on it goes until the entire income statement for the week is presented by those managers responsible for the various income and cost centers of the business.

In the early days of a new system like this we do a lot of baseline measuring. For instance, we not only want to measure gross sales. We also want to measure total number of transactions, transactions per customer, average dollar value per transaction and transaction frequency. Once these baseline measures are established we start to understand how operational changes can drive revenues and costs. For instance increasing the number of transactions per customer from 1.5 to 2 should result in a 33% revenue increase. This baseline measurement process usually takes one to two months.

The struggle is getting teams to move beyond the baseline and start setting targets. This is understandable. It's one thing to report a number I'm responsible for. It's another thing entirely to report that number when everyone else in the room immediately knows I didn't hit the target that was set for me. This type of accountability is scary until a team builds enough respect and trust in one another to put ego aside and focus on the business as a whole.

But you absolutely must have a target or you shouldn't even bother going through the exercise. As uncomfortable as it will be to sit through that first staff meeting and ask tough questions of those who don't hit their numbers you have to do it. Many managers are reluctant to hold people accountable to firm targets because they're afraid of destroying the team culture they've built. But the truth is if you're not holding everyone accountable to preset standards you're showing favoritism to some on your team and favoritism is the number one enemy of team building.

Other times managers are afraid to hold people accountable because they don't want to be held accountable themselves. If this describes your company and you are the problem you need to make a commitment to be truthful with your employees, show a little vulnerability and get over it. Your company will never achieve its full potential as long as you are sticking your head in the sand.

The last big reason I run into resistance in this area is because managers are afraid their team will fail. But that is precisely the point. You need everyone to fear failure a little bit in order to foster a sense of urgency and commitment to getting the job done. Your employees will surprise you. If you put the target out there and tell them what is expected they will usually exceed it. Then you'll put up a higher target and they'll exceed that one. Then things get really exciting. The employees start setting their OWN targets and exceeding those. Of course they need to be rewarded for their efforts but if you follow an open book management approach that's not a problem. The resources will be there to reward them and there will be plenty left over for the owners to enjoy.

So be bold. Tell your employees what you plan to start measuring. Baseline it for several weeks. Then start setting targets. That first staff meeting will be one of the most uncomfortable things you've ever done but push through it. The rewards are just too great to pass up.

Why less is more when it comes to paper

When I started my business I made a conscious decision to go paperless from day one. That's no small task for an accounting firm, but we've been pretty successful. We still have paper but it's limited to work in progress. Once a project is done we don't store any paper or hard copies. After nearly three years here's what I have learned about the benefits of going paperless.

1. It's safer. My business is on the gulf coast of Florida. Hurricanes are a major concern every summer. If we're about to get hammered by a storm all I have to do is unplug an external hard drive from my server and I have a complete, encrypted backup of all our client files and critical program files. If a storm really was bearing down I could just load up my trunk with all of our computers and the server. We could be up and running in another location within three or four hours and we would have all the supporting documentation for prior projects and all perm file documents at our disposal. That's just not possible with a traditional paper filing system. We also have more than one backup which eliminates the possibility of someone losing a file.


2. It's faster. Retrieving documents from your desktop is so much easier than walking to a file room or tracking down a file in an employee's office. One of the huge benefits for me is being able to take my laptop anywhere in the office and pull files while reviewing a matter with an employee. Gone are the days of passing perm files back and forth looking for loan documents or shuffling through last year's tax binder to find an amortization schedule. If I want a document I just double click on the file and pull it up on my laptop while the staff member continues to work on the project using the desktop machine.


3. It's more convenient. I get sick of working in the office. With our system we can dial in and remotely access any file on the server. This isn't hard and most offices with a dedicated file server will have this ability built-in. This time of year it's nice to take a long lunch, bring the laptop along and bang out a few pieces of correspondence from nice outdoor restaurant. I also have access to these files when I'm sitting in a client's office. No more audit bags stuffed with prior year tax binders.

All that said paperless only works if you do a few things right. Otherwise don't even bother.

1. Setup a standard filing system (folder structure) in a central place and make everyone religiously store ALL their documents on the file server. If everyone is maintaining their own little system or if they're making "working copies" to store on their individual machines it won't work. You need to be confident that your system is complete and current. The filing system should make sense. We have four primary places where information is stored: a) a client files directory on the server, b) a sharepoint site for internal documents, c) a sharepoint site for vendor documents and d) a "misc" directory on the server for everything else. Employees are told not to copy documents to their hard drive, EVER.


2. Setup a naming convention. I'm not a big fan of proprietary software packages that setup their own filing systems. I like the straightforward, hierarchical folder structure provided by windows. For instance, we have folder for each client number and subfolders for tax years, projects, etc. Using this system we can store any kind of file and no one needs special software to see what documents are in a file. But if you do it this way you really need a naming convention. This means EVERY file in your system will be named a certain way. Ours goes like this "xxxxx-yyyy-a-yymmdd-description.pdf" where xxxxx is the client's number, yyyy is the fiscal year the document relates to, yymmdd is the creation date in the format year month day, followed by short text to describe the document. A file named 10003-2006-a-080320-irs notice response.pdf is a response to an IRS notice received by client number 10003. It relates to the 2006 tax year and it was drafted on March 20, 2008. This simple naming convention gives you a lot of information about the file and it allows you to search for documents using any file system search tool.


3. Backup, backup, backup. I'm not trying to emphasize a point here. I'm saying you need three backups. We have redundant hard drives on our server, a nightly backup to an external hard drive, and synchronization software that copies files to a laptop. This is the only thing that makes paperless systems safer than hard copies. If you don't have backups you're flirting with disaster. You should also test your backups and make sure that they are encrypted. One of the nice things about a three hundred pound filing cabinet is that a thief can't put it under his arm and walk out the door with it. Not so with a two pound hard drive.


4. Invest in good equipment. I don't know that paperless systems are more expensive. When you factor in the additional rent to store paper documents and the lost productivity there's probably an argument that they're cheaper. However, you need to get good equipment. For us this includes more memory in computers, dual monitors for ALL employees, multi function printers that can scan documents on every desk and at least one high speed scanner for the entire office. Dual monitors and the high speed scanner are the most important. Don't think about going paperless unless you're willing to give everyone two screens. Once you do they'll treat you like a god and you'll never even consider going back. The high speed scanner is pricey (ours cost $1,300) but if I would have known how much time it was going to save us I would have bought it on day one.

Done right I don't think there's a better way to run an office. Most industries are moving this direction or are already there. In addition to the things discussed there are a lot of other benefits such as improved business processes that we haven't talked about. If you're considering going paperless give it a try in one office or one department. We learned a lot in our first year and made significant changes along the way. If you have a small office you can probably implement paperless systems all at once. It's not as hard as you think.

A higher calling

Every month I get to spend a whole day out of the office with an extraordinary group of fellow business owners through an organization called C12. We discuss business specifics and actual scenarios happening in our businesses, but we tend more to the strategic side of things. This month we discussed the case of a business owner performing a SWOT analysis and what recommendations and advice we would give him.

Our discussion reminded me of a struggle all too common among our new clients. It is this: businesses without a vision, without a calling, find themselves constantly troubleshooting, constantly trying to find an answer that will take them somewhere other than where they are right now. The problem is that if you don’t know where you’re going anywhere will do. A business without a vision of where it wants to go is like a rudderless ship where everyone is busy running about the deck tending to the rigging. They’re making great time, but to what purpose?

It’s no coincidence that the first thing we want business owners to do is spend a half day with us where we flesh out and articulate their vision. It takes time and it takes some discipline but the results are well worth it. At the end of the day you need to have a higher calling, something bigger than yourself that you answer to and use as a yardstick to measure your progress. It’s true for your life and it’s equally true for your business. Activity without a vision, without a calling is just busy work.

Priorities for business owners

I have this conversation so often I sometimes feel like Bill Murray in the movie Ground Hog Day. It goes something like this...

Client: I'm tired. I'm frustrated. We're so busy but at the end of each month it doesn't seem like we're any closer to getting ahead. We need help.

Me: That's why we're here. We can help you realize your vision for your business, achieve your personal goals and get more out of life. But there's a catch. This is hard work and I'm going to be hard on you. I'm going to hold your feet to the fire. When you don't do what you say you're going to do I'm going to let you have it. There is no substitute for accountability and for this to work you have to give me permission to hold you accountable.

Client: Well...how much work?

Me: A lot. You didn't get into this mess overnight and you're not going to get out of it any faster.

Client: Let's wait to get started until I have some more time. I'm afraid I just won't be able to make the commitment to do all the things you're going to ask of me and still get my regular job done too.

And so it goes. I used to try to talk to these people but I gave up. They just aren't ready yet. Here's the problem...they shouldn't be doing the regular job in the first place! Whether the business is grossing $20 million or $20,000 the story is the same..."but I have to do all these other things...no one else is going to do them." They pay their own bills, they sweep their own floors, they change their own light bulbs, and on and on the list goes. I'm not against thrift but I recognize a poor investment of one's time when I see it. Most business owners are horrible allocators of their time.

Here's a simple rule of thumb I call the half-time principle. When you have enough business to stay busy half time serving customers hire a janitor to sweep your floors for you. When you have enough work to keep an assistant busy 20 hours a week hire one for 40 hours per week. When you have enough new accounts to fill half a territory hire a new salesperson. This is the formula for growing a business.

Running a successful business takes time, but it takes the right kind of time. It takes time spent on building the business, on developing customers, on crafting effective marketing plans, on training and mentoring employees. There's no time for sweeping floors, changing light bulbs, sorting bills or anything else not tied to the LONG TERM growth of the business. Successful business owners know this. Unsuccessful business owners continue to spend their time on low value tasks that just about anyone could perform.

The importance of defining your customer

I had an experience today that drove home the importance of having a clearly defined customer. Before I share the story I'll give you the three reasons why I think this is one of the most important things a business can do, especially a startup business.

1. Having a clearly defined customer helps you understand what products and services you should be offering.


2. Having a clearly defined customer allows you to be profitable when pricing your goods or services.


3. Having a clearly defined customer allows you to feel that you're making the right decision when you turn down the wrong kind of sales.

So here's the story. I had been referred to a prospective client by a colleague whom I've known for only a short time but whom I respect a great deal. I sent this prospect an engagement letter with our fees for some startup year tax work. The prospect called me today questioning the fees and tried to get me to lower my price. During the conversation I learned a few things about the way this person views the services they would be paying for and as a result I was not inclined to lower my price. The prospect got off the phone with me and a short time later I received a call from my colleague asking why the fees were so high. We discussed the matter and I told him our position on minimum fees and my reluctance to start a new relationship with an engagement that was not profitable for our firm. The whole thing was very civil and I have an even greater respect for this person. However, I am fairly certain we will not get the work.

Now, we do have a very specific definition of our ideal client. It is a business owner in need of something more than a tax return and a financial statement. For that reason we have setup minimum fees that discourage price shoppers and those looking for a commodity tax prep service.

So here's how having our very specific definition helped me today.

1. The customers we are looking for are interested in strategic and tactical business advice, not commodity tax prep. For this reason we don't try to compete with low value tax prep services such as payroll. We also take time to setup a fairly thorough client file that assists use with quarterly and annual tax planning.


2. When we have a client who asks that we perform low value services we make sure that we charge a premium to offset the opportunity cost of not performing higher value work. We also build the extensive file setup and tax planning groundwork into our minimum fees.


3. As tough as it is to see revenue walk out the door we feel good about it because we also know that the PERSON walking out the door is not our ideal client. By not taking a less than ideal client we have the time and capacity to go find that person who is a better fit for our firm and for whom we are a better fit in their business.

Defining the ideal customer is a key exercise in setting up or redefining your business. Make sure you go to the time and trouble to decide not only who you want to do business with but who you DON'T want to do business with. It makes all the difference in the long run.