Good vs. Great

What is the difference between good and great?  I don't necessarily mean good and great companies (I think that book has already been written!) or even good and great employees, I mean good and great in everything and anything.  Good and great companies, good and great employees, good and great restaurants, good and great lovers, good and great customer service, good and great vacations…I believe that the difference between good and great is the same in almost all cases--or at least, all the cases I can think of.  Not being a columnist for Cosmo or a lifestyle magazine, I will limit the discussion in this article of this idea to the difference between good and great in companies, employees and customer service.

So, how do we define "good"?  Good is about meeting expectations.  A good customer service experience is one that where the company acts reasonably within the realm of expectation if I have a problem.  When I go to a restaurant, I know what a good restaurant is, the restaurant meets my expectations around service, quality and price.  A good employee is one who does their job as it is spelled out by their manager.

Great can be a difficult thing to get our hands wrapped around.  What defines "great"?  In my view great is an employee who goes beyond what is expected of them.  An employee who comes into your office one day and says, "I had an idea over the weekend (imagine that!  He/she was thinking about work outside their regular hours!  Try not to fall off your chair!) and I did some interesting research you may want to look at…"  Wouldn't that be great?  Wouldn't it be great if an employee came up with something new to save money or increase revenue outside of their specific job function?  Wouldn't it be great if it was a "fully baked" thought rather than just a random thought? Wouldn't it be great if you went to a restaurant that completely exceeded your expectations?

What has become clear to me is that the difference between something good and something great is about whether expectations are met (good), whether expectations are exceeded (great) or whether expectations you didn't even imagine are exceeded (very great).  This is true even when expectations are very high and are met.  Imagine if we only know excellent restaurants, our expectation for restaurants is very high and we don't get as excited as someone who only knows mediocre restaurants who would go to these same restaurants.  In other words, what one person considers good, someone else may consider great based on the different expectations.  I call this the living in Manhattan restaurant effect.  You have very high expectations for restaurants so it is hard to call one great.

When I lived in New York, I used to go to a French restaurant in my neighborhood regularly and I became acquainted with the owner over time.  One day he told me he was closing the restaurant and opening a restaurant in Knoxville (or was it Nashville?).  When I asked why, he said, "On the day I open in Knoxville, I will be the best French restaurant, if not the best restaurant of any kind, in town.  I would like to be the best for once in my life!  Here in New York, I am just a good neighborhood French restaurant.  In Knoxville, I will be all the rage."  I guess the expectations of restaurants are different in New York than those in Knoxville.  What is good in New York, becomes great in Knoxville.  What is good customer service at the Department of Motor Vehicles becomes substandard at a five star hotel.  What is good anything at a five star hotel is great at a Holiday Inn.

What I have found to be really interesting about this as it pertains to managing employees is that an employee really becomes great when they meet expectations that their manager didn't even have for the employee or the employee met a requirement the manager has with his or her boss.  They have met a requirement that hasn't even been assigned to them, it may not have even been articulated to them.  What this really shows is that the employee is in alignment with what is important to the manager.  The employee is not just meeting the requirements of their own role but is looking beyond the role to helping their manager be successful.  This is greatness in an employee.

A great employee is in this kind of alignment with their manager.  What is important to the manager is important to the employee.   The employee loses sleep over the same things.  If the job doesn't end for the manager at 5PM, it doesn't end for the employee either.  If the manager is striving, the employee is striving.

Likewise, in customer service, greatness is about not just exceeding expectations but resetting in a customer's mind what is even possible.  Like the employee who is exceeding manager's expectations, in customer service the staff provides a level of service to the customer that satisfies a need they may not have didn't even know they had or a need they didn't know they had.

Next month, I will present an article with my ideas on how to manage an employee to greatness. No, it isn't a perfect system that works every time!  Nothing is that good!

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Residual Compensation Plans Neuter Your Sales Force

There are a number of businesses I have worked with that have sales commission plans based on "residual" revenue.  What does this mean?  It means that in situations where the sale creates a monthly stream of revenue the sales reps commission also has a monthly component that follows the revenue stream into the future.

For example, if a business sells services like annual or monthly services programs that are paid monthly or quarterly and may extend for years with renewals the companies paying residual commission plans map their commission program to the timing of stream of revenue.  In this case, the sales rep is then paid a percentage of the contract as commission as the contract is paid by the client into the future.  The rep draws a commission for the duration of the contract and its renewals.  Many companies implement this kind of compensation system by paying the sales rep that makes that sale a bigger piece up front when the contract is initiated and then a recurring residual commission based on the ongoing stream of revenue from the customer  through the life of the contract.

The reasons a company would like this residual based commission structure are generally three fold:  Firstly, they like this structure because it allows them to match cash inflows with the cash outflows for commissions.  The alternative commission structure of just paying a big commission on the signing up of a new customer for a sales with constant monthly payments will inevitably mean that the company will be cash flow negative on the sale in the first  month or for several months.  This is because the set up cost in services and/or the cost of goods sold in products or services is not sufficient cash flow to pay the all upfront commission.  Secondly, there is the belief of business leaders that this type of structure aligns the interest of customer retention with the sales rep.  In other words, the sales rep has an interest in keeping the customer happy and on board so that their commission stream continues.  Thirdly and finally, companies like the residual commission model because they believe that it forces loyalty.  Sales reps need to stay on board to continue to receive their residual commission.  If the rep leave to go to a competitor or leaves at all they can forfeit their residual commissions.

For a very long time, the insurance industry worked in this residual way such that, for example, when an insurance broker sold a life insurance policy, the broker got a stream of commission payments that spanned as long as the insured kept paying on the policy.  The insurance industry is moving away from this model by reducing magnitude of the "backend" over time and, if your company has a commission structure like this, in most cases, I believe you should too.

While I accept that the cash flow consideration is real for many companies, this type of program ignores some important issues.

• It is de-motivating for new sales reps - This type of plan is de-motivating for new sales reps because it is predicated on the idea that a sales rep only starts to make "good" money once they have established a "book of business" that can produce a monthly recurring commission stream for them.  The downside of this thinking is that it ignores that it will very likely take a sales rep some considerable time before they develop that book of business.  In the meantime, a new sales rep is probably struggling financially and being frustrated which negatively affects their performance.  This type of commission system, in my experience, leads to a lot of unnecessary new sales rep turn over for this reason. 
• It is de-motivating for established sales reps - When a sales rep knows that they are going to get a chunk of residual commission whether or not they lift a finger it doesn't exactly create an intensity in their new sales efforts.  By contrast, when a sales rep is getting exactly zero or even a recoverable draw if they don't perform there tends to be a greater intensity to their sales activities.  I think every company would prefer to have a high intensity sales team than a low intensity sales team.
•  It leads to neutering "hunter" sales people and turns them into "farmers" - As a sales reps "book of business" grows, it is inevitable that he/she will be either spending more time on keeping their base of clients happy or ignoring their responsibilities in keeping their base of clients happy.  If they are spending more time keeping their book of clients happy ("farming"), they are not spending that time looking for new customers ("hunting").  If they are very focused on hunting and not focusing on their book of clients, then the company is neglecting its most profitable customers and will be underperforming in customer retention. Generally speaking, a company is always looking for more hunters in its sales department and once a company finds a good one, the last thing they should be considering doing is turning the proven and successful hunters into farmers.
• Customer retention for a recurring service or product sale is primarily an operations issue, not a sales issue - While it is extremely important to maintain an ongoing dialog and relationship with clients, in most businesses the dissatisfaction that lead to losing a client or the elements that keep a client happy and an ongoing client are the result of operations--the delivery of the promised value of the goods or services.  For each company the issues of managing customer retention remains an absolutely critical one.

By comparison, the benefits of a front loaded commission structure are:

• Puts a healthy management focus on retention - Management needs to focus on customer satisfaction and retention because management needs to earn back the commissions that they paid out on signing up the client.  By not having to pay commission on the residual, the monthly or quarterly payments from the customer become more profitable than they were before to the company so the impact of improving retention has a bigger affect on profits than it would in a residual commission model.
• It creates sales intensity and encourages hunting - Every day, every week, every month the sales reps have to keep a focus on their pipeline or the commission checks won't come in.  It is that simple.  The reps who want the Porsche know what they need to do and can affect change NOW, not down the road when, in theory, the residuals build up.
• It simplifies and clarifies the expectations of the sales team - I have personally found that most employees benefit from having a simplified mission.  For the sales team in a front loaded commission structure the mission is simple:  Make the sales, make the money.  Actions performed today will benefit you in the near term.
• It rewards top performers - Top performing sales people don't have to wait months or longer before they rewarded for their efforts.  The first rule of reward and punishment is to closely tie in time to the reward or punishment to the act that created the response.  If you are going to reward someone, tie the reward closely in time to the behaviors that brought about the reward to reinforce that behavior and its reward.  Rewarding a sales rep on the long tail of a transaction doesn't create that connection but paying them up front does.
• It matches the sales rep personality - Guess what?  Most sales reps are motivated by money and success and aren't terribly good at long term planning.  I know that this is a generalization, but it does usually hold true.
• It automatically culls the weak reps - Weak reps will not be able to hide.  Everyone's sales and compensation will be immediately evident to their peers (peer pressure) and management.

No sales commission is simple because baked into it is that we are trying to encourage certain behaviors, discourage other behaviors, reward success, allow our sales reps to make a living through their development and during downturns outside of their control.  This is never done perfectly and cleanly without some negative unintended consequences popping up.  With that consideration in mind, there are certainly some commission plans that are better than others and management shouldn't be shy about tweaking their commission plan from time to time to get better behavior   Next time, I will write more about these ideas of how we shouldn't be afraid of losing money on a new customer during the first few months or first order or two.

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The Unsellable Business

Here is an all too common scenario:  a business is profitable, been in business for 15 years and the business earns for its owner $150,000 - 200,000 per year in normal years, a little more in good years and somewhat less in leaner years.  Overall sales volume is flat to slow growth.  As the years go on, the owner is starting to look forward to more of a life of leisure and wants to sell the business and move to retirement.

Every sale of any type, whether it is a widget or a company, is first and foremost, about the buyer and what the buyer’s needs and desires are.  It is not about the seller.  Why would someone want to buy this kind business--a business that just keeps the owner more than fed with an executive level income?

The answer is that a buyer would only buy a business that just keeps the owner fed is if the price were particularly attractive or if there was something about the business that has a synergy or creates a specific opportunity for the buyer.  Examples of these types of synergies or specific opportunities include:

• The buyer can roll the acquisition into existing operations to reduce cost structure and consolidate management - This would be the example of a the acquisition being made by a competitor or a company in the same business in a different or overlapping geographic market.
• The buyer has a method to immediately improve profit.  This might be because they already have access customers to which they could immediately sell the acquisition's products or services
• The buyer is a competitor that wants to eliminate a competitor and cherry pick the business’ key employees, customers and assets.  Additionally, with less competition, the buyer may very well be able to increase their margins through higher prices and through getting greater price discounts on higher volume raw material purchases.
• The buyer sees some specific value in the business assets such as real estate, trademarks, market positioning, patents or other intellectual property and is willing to pay a premium for it.
• The acquirer believes that they can make an operational change in the business through the application of its technology or management methods that can really have a dramatic impact on the profitability.

In short, strategic buyers are the only likely buyers to pay an attractive price for the business because they see the business as an opportunity to achieving a bigger strategic objective.  There are not many sane individual buyers who would want to pay money upfront or sign a personal guarantee only to buy a job for themselves.

For many small businesses owners looking for a buyer for their business, the absence of these types of conditions dramatically reduces the number of interested buyers willing to pay more than a token amount of cash in an acquisition.  As a practical matter, if your business is not generating more than a few hundred thousand dollars a year, the chance of finding a buyer is dangerously low if these conditions are not clearly present.

The problem presented here is also compounded by the number of baby boomer owned businesses coming on the market over the next 10 or so years as the boomer business owners reach retirement age.  This supply of available businesses combined with the recent financial downturn that has made investors and lenders much more conservative.  In essence, it will be harder to find a buyer because there will be more businesses available (more supply), fewer buyers (less demand), and less risk capital available --in other words, there is a perfect storm brewing on the horizon.

So, what's a business owner to do?

•  Get bigger so that there is greater more free cash being generated making the business more attractive to a non-strategic buyer (a cash flow buyer)
• Grow your market share
• Make operational improvements to lower costs, improve customer value, and competitive advantage
• Make changes to become attractive to a strategic buyer
• Build a stronger brand and pursue an intellectual property strategy.
• Make the business run on "remote control" profitably so it can either become a financial investment for a buyer or a passive income source for the current owner
• Get comfortable with the idea of selling the company for less cash at closing combined with creative owner financing.

In summary, the improvements necessary to attract buyer interest and perhaps fetch a premium price are also not simple window dressing that can be bolted on at the last minute.  Making a business truly attractive to a buyer who is willing to pay a premium is something that owners should be working on for years before they intend to sell.  Designing and implementing change, and demonstrating the positive results of that change that can be factored into a selling price do not happen overnight.

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Entrepreneurs: Don't Hire Sales People In Your Own Image

Entrepreneurs have a certain set of characteristics and skills that often make them very successful at sales but, at a fundamental level, entrepreneurs are entrepreneurs who can sell, but they are not salespeople.  When I have asked entrepreneur/business owners about what qualities they are looking for in hiring their ideal salespeople, what I typically hear are:

• I want someone hungry 
• I want someone self-motivated
• I want someone who is adaptive and can figure it out on the run
• I want someone both very smart and creative
• I want someone who is a team player
• I want someone who I can build a team around (leader)

Guess what?  This description of an ideal sales person is really a description of the entrepreneur themselves!  It is the description of an entrepreneur, not a salesperson.  While there are going to be exceptions, the vast majority of journeyman, successful salespeople:

• Have limited ambition
• Need direction and focus
• Are not great at figuring a sale process on their own and need information about the sales process defined for them
• Tend to be focused on themselves and less interested in doing things to advance the business or even their career beyond what benefits them directly and immediately
• Aren't great team players
• Are often lazy
• Have limited creativity and like to work within a defined procedures and bounds

In short, salespeople and entrepreneurs tend to be different personality types.  This gap between entrepreneur's dream salesperson and the reality of what is in the salesperson marketplace leads to trouble over and over.  Inevitably, entrepreneurs find salespeople that are either:

• Like themselves who end up becoming competition to them (since the salespeople hired are entrepreneurial) by leaving to start their own businesses, or
• Too expensive to hire, too demanding and too impatient, or
• Employees who will, inevitably, fall short of the entrepreneur's expectation because they are not as ambitious, not as creative, not as smart, not as self motivated and not as hungry as the entrepreneur.

Entrepreneurs need to understand this and manage both their hiring process and their expectations accordingly.  They will not find people as smart as they are.  They will not find people as self motivated as they are.  Stop looking!

What is needed first and foremost is a sales process that can be executed by an employee of reasonable and hire-able qualities and performance.  A sales process needs to be built that is realistic.  It has to be able to be executed by people the company can afford, can find and can be trained and that are not the dream candidate of the entrepreneur.  The dream candidates are either too expensive to hire or just don't exist. 

This may be the biggest hurdle that small companies have in getting to the next level.  It is the transition of the company to one that runs on defined and realistic management processes and systems rather than just the will and efforts of the entrepreneur.

Often, transitioning to using management processes and systems means a company needs to "dumb down" or simplify the entrepreneurs sales process to something more easily described, taught, executed and managed.  For example, when the entrepreneur is doing all the sales him or herself, maybe sales reports, notes and a CRM system aren't really necessary because the entrepreneur can keep track of opportunities and is naturally very good at following up.  Once a company begins to have to manage a sales team made up of those who are less self motivated and are generally lower skilled than the entrepreneur, more formal systems and management protocols are going to be inevitably necessary.

In hiring, entrepreneurs need to develop a hiring and training process (as part of the sales process) that balances supply and demand.  Supply is what kind of candidates are available.  There is no point spending time writing job descriptions for candidates that don't exist at what the company can afford to pay.  Demand is the aptitudes, experiences and performance history that are needed.  If the company can't find candidates that meet the requirements it must also consider changing the sales process and thus changing the skills necessary to accommodate the candidates that are, in fact, available.

I can't write this article without reflecting on hiring successes and failures that I have made in hiring sales people and lessons from the best sales processes and teams I have seen over the years.  The best sales processes are repeatable and scalable sales processes that allow a company to grow its sales team and sales results by just upping their level of investment.  They just need to add bodies through their hiring process, add training resources and desks and then they will get a predicted number of sales people who emerge as successful and a predictable number of sales people that will not make the grade and a predictable bump in sales.

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Supershopping Leads to "Penalty" Pricing and Bad Business

We live in the era of the supershopper.  The supershopper is consumer with a distinct buying style such that they constantly and endlessly seek out the most product information and the lowest price often making an effort beyond any rational return on investment for their time and effort.  This is a shopping behavior that has always been present but, now with the full search power and convenience of the Internet, it is easier and easier to be a supershopper.  This behavior is most evident in consumer buying practices but is also present in business to business buying practices.

How do supershoppers operate?  Supershoppers may drive BMWs but will drive across town to save a few cents per gallon on gas.  Supershoppers are rarely supershoppers in every aspect of their lives.  They may wear designer clothes purchased from a high-end boutique but will also spend an hour on various travel sites on the internet looking to save a few dollars on a flight across various travel sites.

Merchants/vendors have responded to supershoppers by changing the way the rules are played.  No longer do merchants/vendors make their money on the price for the primary products or service, they make their money in hidden little ways.  What do I mean by this?

They make their money through extra fees.  For example:

• Airlines compete on fare prices (the primary service) but look for every opportunity to up-charge consumers for baggage, overweight baggage, beverages and snacks, ear phones, reservation and ticketing changes, and fees for curbside check-in (peripheral services).
• Consumer electronics companies do little more than break even on product sales and make their money on selling service contracts, interconnect cables and accessories.
• Online retailers make their money on shipping and handling fees that bear little resemblance to the actual costs associated with shipping and handling.  They have to keep their prices unreasonably low to win the search engine price wars.
• Banks compete on "no fee" checking but hit you on every fee under the sun.
• Car dealers make their money on dealer options, financing, service, trade ins and service contracts and will sell cars below invoice.
• Ink jet printers are priced below cost but the ink refills are very profitable (the Gillette razor business model).
• Cell phone companies make money on those who use significantly less than their contracts call for or those who run over their contracts or, heaven forbid, those who use their phones while overseas.

The list goes on.  In the business to business world, there examples like this:

• Building contractors who underbid on a contract but push for change orders at full rate for every little deviation in the design.
• Service providers who compete by dropping their labor rate by using illegal labor or not having the required insurance they claim to have and hope for the best if there is a liability claim or investigation.
• Hidden expenses and kickbacks to vendors on all sorts of deals from off-bid subcontractors.
• Fees that rise with the rise in price of certain commodities but don't come down unless the customer is diligent about demanding it.
• Eliminating post-sale and pre-sale customer service.
• Service providers doing substandard service and promising warranties that they know they are unlikely to be able to actually deliver on.

The question, of course, is whether these buyers are really saving any money or just deluding themselves.  There are those very rare buyers who can successfully navigate the waters of the fees and hidden costs and manage to keep their total costs low in these situations but those people are the minority. The irony, of course, is that the merchants and vendors that are most honest and upfront with their pricing based on a real cost structure and lean but reasonable profit margin often lose the deals to those using this penalty pricing model--that is a pricing model predicated on finding ways to cost the customer more when then least expect it.  The buyer loses and the honest vendor and merchants lose.

So, the question is this:  What is an honest vendor or merchant to do in a market like this?  I think there are only two real strategies:  The first possible strategy is to join the fray and be a bandit like your competitors.  Clearly, this is the strategy that most airlines and banks are taking as they cut services and increase fees to follow the likes of Spirit Air and Citibank.  

The second strategy is to educate, or attempt to educate, and market to prospective clients about the total fees involved and the value of the services provided to convince them.  It is vital that prospective clients understand what the cut rate vendors are really costing them.  The bad news about this strategy is that it requires mental investment on the part of consumer and some won't be willing to invest the energy into learning and possibly changing their behavior.  Additionally, as long as the consumer hope holds out hope that they can be one of that minority that actually saves money in the penalty pricing model, they are going to be difficult to convince.

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Not a Big Enough Ticket To Support Your Sales Cost or Commission Structure

Many products cannot be sold effectively or efficiently because the cost of sales is simply too high. I remember seeing this problem all too well early in my consulting career when I was consulting with a pharmaceutical start-up. They were just getting their flagship first product through FDA approval, had worked out the manufacturing processes, and obtained all the necessary certifications for their production facility. It was only then that we all realized there was a problem with the simple economics of being able to afford to hire, train, pay and manage sales reps to call on all the doctors that could potentially use their product. The sales reps weren't able to write a large enough sales ticket to cover their commission. This is called the "Size of the Sales Ticket" problem.

The analysis of the costs was pretty straightforward, but the essence of the problem was that each individual sales person could not individually generate enough sales to make each sales call financially worthwhile. While their niche product had very good margins, it was unlikely that the doctors, called on by the salespeople, would prescribe enough of it to cover the total cost of the sales team and its management while achieving target profits. The cost of maintaining a sales force that could only call on a set number of doctors per week was just too great for that expected amount of sales per doctor or the amount of sales per salesperson. The cost of sales per unit was too high. The cost of sales was going to be too high because there was a limit to the amount of sales productivity--the number of doctors called on per day or week due to the necessary time of each sales call involved.

I see this type of problem in a lot of the small and mid-sized businesses I work with, particularly for those companies that rely on face-to-face salespeople making sales calls. There are a number of reasons why this problem has become more and more common as time goes on. Primary among them is the indisputable trend toward margin compression in nearly every industry today. Margins are simply getting smaller as competition is increasing and as companies become more creative in reducing costs and finding alternative channels of distribution that are more cost efficient. There is less and less room on the income statement for costly sales models.

The pharmaceutical company found a solution to its cost of sales problem. Their solution was to partner with another pharmaceutical company whose sales reps were already making calls on the doctors that were also the target market for my client. This way, the partner company's salespeople could "write a sales ticket" for my client's products as well as the products of their company which spread the cost of the sales call among a greater number of products sold. There was also enough incremental margin in my client's product with little incremental selling cost that the partner company would benefit from carrying my client's product.

The pharmaceutical company found a workable solution through partnering which was a way for them to outsource their cost of sales to a more efficient channel. To address this issue we have a choice of two basic strategies:

1. Changing the time horizon in your thinking about profit and cost of sales.
2. Change the sales model.

Changing our time horizon means that sometimes we need to factor the lifetime profitability of a new customer in considering whether the cost of sales is, in fact, too high. For example, if we know that on average, a customer stays with us for 5 years and has considerable profitability in the second through fifth years it might be an acceptable business decision to make the sales cost investment in new customer acquisition. That investment may cause you to lose money on the initial sale but is worthwhile because you know you will make up for it down the road with the customer. The first sale is a loss leader for the customer's total profitability. Embracing this strategy also has the advantage of putting the spotlight on customer retention which is a key for any company's long term profitability.

There are a number of ways to look at re-engineering the sales model from the traditional salesperson's face-to-face selling, including:

• Sell online - Selling online can be one of the lowest cost of sales methods of distributing a product or service and is even becoming prevalent in b2b as well as b2c industries. This trend will only continue.
• Telesales - Using an outbound telesales team or service to provide a lower cost sales model. There are a lot of inefficiencies inherent with face-to-face selling that could be avoided with telesales.
• Outsource Sales Functions - Outsource all or part of the sales functions to make your salespeople more efficient.
• Pull (Advertise to "call now") - Use advertising differently to get customers to call in as pre-qualified rather than require your sales reps to reach out to both the qualified and unqualified prospects. With your team focused on qualified prospects, their productivity as measured by their close rate will be much higher.
• Independent Distributors - Use independent third parties to sell your products which can be more efficient than you or can bundle your product in with other products or services in a broader sale (thus increasing the sales ticket to a profitable level).
• Partnerships - Create a partnership with another company (or companies) so that they can sell your products. It might also make sense to have a two way partnership where they are selling your products to some markets while you can have your salespeople also sell their products. This solves the problem for both of you.
• Hybrid - Keep your sales reps focused on big opportunities and use another channel for smaller opportunities or any combination of methods.
• Take on Other Products - Either develop or distribute other products so that your sales reps can increase their sales ticket size and cover their commission and cost.
• Re-engineer Your Products - It can be possible to re-engineer your company's products to make them more efficient to sell. This could mean making them more standardized so that customers can buy them from a web site, a product brochure or in greater quantity.
• Improve Sales Tools - Salespeople with better tools, including better management, can have greater efficiency to increase their close rate or increase the number of prospects they see in a day. This is an increase in productivity.

Solving the "Size of the Sales Ticket" problem is about re-engineering the sales process for more efficiency or re-engineering your business model itself to change the way you do business or think about business. The only thing we can be sure about is change in our business environment and in this age of globalization we can be sure that competition can only increase. For budding entrepreneurs, the "Size of the Sales Ticket" issue is an important consideration in determining whether a business idea/business plan is executable. If a product or service in a business plan cannot be sold efficiently, by covering its sales and delivery costs, then the business plan is not viable.

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What Makes An Under-Performing Employee Tick

I am forever surprised by the difficulty many entrepreneurs, and other managers, have in managing the under-performing people who work for them. This is not about employees who don't have the skill to do the work, but simply about employees who don't perform at their potential. Here is what I hear:

• "John is so frustrating; he never does what I have told him to do. He never follows simple procedures."
• "I don't understand why Bob can't get nearly as much done as Susan. Doesn't he see how much more Susan gets done? Doesn’t he realize that he is recognized as a much worse performer than anyone in his group?"

Isn't it also interesting that it is very rare that when we either fire an under-performing employee, or give a bad review, that the under-performing employee truly knows and admits knowing that there was a critical performance issue leading up to it? They so often respond with surprise and shock. We are all constantly amazed that these under-performing employees don't "get it" that they are critically sub-standard performers. Rarely do they see the ax coming for them. What is going on here?

There are a number of factors at play but I have thought a great deal about the way that I have seen people deal with (rationalize) their under-performing realities. I have found that there are five categories of this rationalization:

• Outright denial of the situation--my performance is not bad, your measurement of it is flawed.
• Acceptance with redirection--it is true but I make up for it in other ways and thus I am valuable which makes up for it.
• Acceptance with an undermining of your position--it is true but I chose not to try hard because I am above all this.
• Denial by changing the norm--I should be measured by you against a different criteria and in this different measure, I am performing well against the correct criteria.
• Denial by bias (he doesn't like women, he doesn't like minorities, etc. and all the good performers have certain qualities) - the measurer can't judge my performance because they are biased against me 
• Disqualification of the measurer - they are not qualified to measure my performance
• True acceptance but nobody else realizes it--it is true that I am a below par performer but I am in denial that the manager realizes it.

When I work with my clients on this issue, I use the following example as an illustration: Clearly there are people who are above average looking, average looking and below average looking. Do those who are below average looking admit that? It is doubtful. There is a often convergence to the norm. In other words, those who are below average would probably say, "I am not the best looking, but I am around average" and that would be good enough for them to avoid dealing with the unpleasant reality and this is an example of outright denial. Another way people deal with it is that they might say, "Yes, I am below average in looks but I make up for it in my personality" which is acceptance but that they make up for it in other ways. For changing the norm, "yes, I am below average by some measures but I have very beautiful eyes." And finally, they also might say, "yes, I am below average in looks but that is only because I don't try very hard to keep myself up."

Aren't these the same kind of excuses that under-performing employees give?

• "Yeah, I do less than Susan but I am the one that plans the Christmas party. (Acceptance but I make up for it in other ways)"
• "Yeah, I do less than Susan but Susan is the exception. I am average in the group except for her. (Denial by changing the norm)"
• "Yeah, but I can do so much more. I under-perform because I am not challenged. (I am above all this)"

If you are an entrepreneur reading this, you have built a business and you did that be being able to look into the face of failure and accept and work with your own shortcomings. You are a performer and you probably don't need motivation--you have it internally.  How do we deal with under-performing people?

The first way we have to deal with under-performance is to simply not allow denial or rationalization to exist in any form. You need to drive this from the mind of the employee. Employees need to KNOW, beyond any doubt, that they are working below expectations and that their employment won't continue at that level of performance--in fact, it won't continue at anywhere near that level of performance. This message has to be loud, clear and beyond any doubt or wiggle room. If you do written performance reviews (which I recommend), this has to be clearly stated. You also must articulate what the definition of the level of performance is. Employees must not be permitted to hide either their performance or behind their excuses for their performance.

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Next month, I will write about how to create a performance culture in your business that goes beyond writing reviews.

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