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Meet Doug & Polly

Doug and Polly White love working with small businesses. Through their columns, which appear weekly in several online publications including Entrepreneur.com, their books, videos and speeches, Doug and Polly focus on helping small business owners and their managers grow and improve profitability, understand and manage their people and their finances and achieve organizational efficiencies.

Doug White
Doug White spends his time solving business problems for entrepreneurs and their organizations. His background in physics, math, engineering and business gives him an ability to go beyond the easy, surface solution; to dig deeper and find unique answers to the problems that plague small businesses. Read more...
Polly White
Polly White spends most of her time on the "folks." Whether it is helping owners and managers learn how to get the best out of their people or walking companies through a complex HR situation, Polly's expertise is unparalleled. She has that unique ability to understand people, their behaviors and personalities. Read more...
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How to Reward Employees with Equity

Q.  I have an employee who is key to my business. She brings a skill set that is different than mine and she has added tremendous value. As a result of her work, I’ve taken the business in a new and better direction. She has said that she wants to share in the value she has helped and will help create and has asked me about letting her have 20 percent of the business. I want to reward her for what she brings to the table, but I am reticent to part with equity. If the business does what I hope it will, 20 percent will be worth millions, perhaps tens of millions, of dollars. Do you have any advice?

A.   You are right to be reticent to part with equity. We have seen too many small business owners give up equity in their company only to regret it later. The reason for giving your employee equity is to keep her engaged and motivated. However, before agreeing to give up 20 percent (or any other amount) of your company, we suggest that you consider four questions.

1.      Would 80 percent of your business with this key employee be worth more than 100 percent of your business without her? If the answer to this question is clearly no, then don’t give your employee the 20 percent she wants. However, if you think your business could grow to a value of $100 million with this key person, but would likely be worth only $50 million without here, consider what she has requested—$80 million is more than $50 million.


2.      Can you keep this employee engaged and motivated at a lower cost? If there are less expensive ways to keep your employee engaged and motivated, you might consider these as an alternative to the 20 percent equity she has requested. Perhaps she would be happy to settle for 10 percent instead of 20 percent. Maybe a generous incentive compensation plan that gives her a share of the current year’s profits, but not a piece of the long term value of the company would be acceptable. If there are less expensive ways to accomplish the same thing, consider them.
 

3.      Can you hire the skills she brings to the table at a lower cost? Your key employee is likely not the only one in the world with her skill set. If you could replace her easily at a lower cost, this may be a good option. Be sure you are considering all of the value this woman brings to the table—her specific skill set, work ethic, fit with you and your business, experience and judgement, knowledge of your industry, etc. If you are reasonably certain that all of these things can be replaced at a lower cost, don’t part with the equity.

 
4.      Is there a cost to having this employee compete with you? You said that this employee has helped you take your business in a new direction. Presumably the two of you have discovered something of value together. If you aren’t willing to include her in the upside you will generate together, don’t be surprised to find her working with a competitor who will—a competitor who brings your skill set to the table. If you think you can create tremendous value without her, perhaps she will conclude that she can create the same value without you. At the end of the day, you should do what is in your own best interest. However, your employee will also do what is in her best interest. Remember this when you are thinking through the pros and cons.

 
Parting with equity in your business is a big decision. You are right to consider the situation carefully before giving equity to employees, but there are times when it is the right decision. Many businesses have been hugely successful, at least in part, because the owners were willing to share the upside with employees who helped create the value. Consider all of the large corporations who attract, retain and motivate their people with stock option plans. By all means, do what you think is right for you, but don’t be penny wise and pound foolish. Depending on your answers to the four questions above, you may want to incent your key employees with equity.

Read more...

A Quick Guide to Overtime Rules


Q.  I own a business that has about $5 million per year in revenue. I have just heard that the minimum annual compensation for employees who are exempt from overtime is being raised from $23,700 to $50,400. In my small business, I have about 15 exempt employees that are making an average of $35,000 per year. They are each working about 50 hours per week. If I have to pay overtime, I don’t think I’ll be able to pay myself. Do I have any options?


A.   You are correct, this change is coming and small businesses will have to comply. One thing politicians seem to forget is that when they change the rules to try to force higher pay, the money has to come from somewhere. There are only three places from which it can come: (1) the profits of the business (or perhaps in this case, your compensation), (2) your customers, or (3) the employees themselves. We’ll explore each.


Do you have a great product or service, but you can’t find a way to get access to the key decision makers who can buy from you? In this book, Doug and Polly share their secrets to get four meetings with the decision makers who are critical to your business. Their technique, “Research Marketing” helped them to take their struggling practice and inability to sell and turn it around in a matter of months. Now they can do the same for your business.

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The profits of the business – One approach is to divide your employee’s salary by the standard number of straight time work hours in a year (2,080 hours) and make this their new hourly compensation. For your employees that make an average of $35,000 per year, this would be $16.83 per hour.

If your employees are working an average of 50 hours per week, you would have to pay 10 hours per week of overtime. Given that you have 15 employees making this amount and assuming that you will pay overtime 46 weeks out of the year (we are assuming that because of vacations and holidays, you won’t pay overtime for six weeks out of the year), your costs will increase by $174,191 per year ($16.83/hour X 10 hours/week X 1.5 X 46 weeks with OT X 15 employees). In effect, each employee will get an $11,613 per year raise ($174,191 / 15 employees). This will represent a 33% pay increase for your employees ($11,613 / $35,000). If you don’t do anything else, you will have to survive with $174 thousand per year less in profit. We’re not sure about your situation, but many small businesses couldn’t survive this. We don’t think many small businesses will choose this option.

Your customers – You could try to pass this cost increase on to your customers in the form of a price increase. In your case, that would be about a 3.5% increase ($174,191 / $5,000,000). This may work if all of your competitors increase their prices as well. If not, it is likely that the price increase will result in a loss of sales volume. This would, of course reduce your profit, so you would still be funding, at least a portion, of the cost increase out of your own pocket. By the way, depending on the amount of volume you lose, you may find that you need to reduce your costs by laying off some of the very employees the new rules were intended to help—another example of the law of unintended consequences.

The employees – Finally, the employees themselves may be called on to fund the changes. One way this could happen is to set an hourly pay rate that will mean that they work about the same number of hours per year they are currently working and make about the same total compensation they are currently making.

For example, let’s assume that your employees will be paid straight time for 2,080 hours each year (40 hours/week X 52 weeks/year). You will also pay each employee 460 hours of overtime (46 weeks/year X 10 hours/week). Because overtime is paid at time and a half, the 460 hours of overtime would be the equivalent of 690 straight time hours (1.5 X 460). This means that your employees will be paid the equivalent of 2,770 straight time hours per year (2,080 + 690). If the employees were paid $12.64 per hour, they would make approximately the same thing they are currently making. $35,013 = ($12.64/hour X 40 hours/week X 52 weeks/year) + (10 OT hours/week X 46 weeks with OT X $12.64 X 1.5). This keeps you whole and has the advantage of leaving your employees whole—they work the same number of hours and make the same thing as before the change.

A second way that employees might be called on to fund the change is through increased productivity. Many employers allow salaried employees considerably flexibility. For example, they might be able to take a longer lunch break to run errands. Watercooler chat with colleagues is accepted. Checking Facebook or personal email is allowed. All of these things are fine because the salary is fixed and the job has to get done. Time spent on other activities during the day simply means working later to get the job done. Once employees become hourly, employers would be reasonable to demand an end to these types of activities.

Another option would be to hire additional employees to do the work on straight time and keep yourself whole. In this case, you would determine the straight time hourly wage by dividing current compensation by the total number of hours worked. In your case $35,000 / (2,080 + 460) = $13.78 per hour. Employees would then be limited to working 40 hours per week. To make up the slack you would hire three additional people at the same rate ((460 formerly OT hours X 15 people) / 2,080 hours per year per person). You would still be a third of a person short, but you could make this up with increased productivity or by hiring a part time person. Your costs would remain unchanged. Your employees would work fewer hours, but would actually see their compensation decline to $28,662 (an 18% pay reduction)—another example of the law of unintended consequences.

The new regulations are coming and you’ll have to comply. You do have options, but you’ll need to plan ahead. Read more...

Can Two Captains Sail One Boat?

Q.  A friend and I are starting a new business together. We’re going to be 50/50 owners and co-CEOs. This seems like a good idea. Do you have any concerns or advice?

A.  When two friends start a company, in many cases, deciding who should be in charge is challenging. Neither friend feels empowered to take the lead. After all, they are doing this together. They are equals. It just makes sense. In our experience, co-CEO arrangements or 50/50 partnerships can work, but they are fraught with danger.

One obvious problem is that if the joint leaders cannot agree on a way forward, the business can grind to a halt. This happened with Premier Pet Products a pet supply manufacturer. Sharon Madere, a visionary entrepreneur, started the business in her guest bedroom. Sharon developed a product called the Gentle Leader--a bridle for dogs that allowed the owner to control the animal without hurting it. On the strength of this product, the business grew into the tens of millions in revenue.

If you are looking for help with sales, strategy and marketing, you might want to check out our newest program, The Three Questions Every Successful Business Person Must be Able to Answer. These three videos and workbook walk you through the powerful questions that Doug and Polly use with their personal clients to create successful business/marketing plans.

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Then, Sharon decided to acquire a related business that made coats for dogs which was owned by Chuck Mann. In merging their businesses, Sharron and Chuck became equal partners. Things went along fine for a while. Eventually, differences began to surface. The partners had different visions for the company. The impasse on vision led to conflict on smaller issues. Unfortunately, as 50/50 partners, there was no way to break the deadlock. Premier Pet Products literally ground to a halt. In the end, Sharron and Chuck concluded that the best course of action was to sell the business.

On the other hand, we have seen businesses flourish with co-leaders. When Capital One was spun off from Signet Bank in February of 1995, Rich Fairbank and Nigel Morris headed it. Rich and Nigel divided the titles. Rich was the Chair of the Board and CEO. Nigel was President and COO, but when underlings presented, the pair was most often seated side by side at the head of the table. They ran Capital One together and it thrived.

Clearly, some co-CEO arrangements and 50/50 partnerships work well. Others fail. If you enter into such a relationship, the three tips below will help ensure that your business will be among those that flourish.

Establish a clear division of responsibilities – Our own management consulting business, Whitestone Partners, is a 50/50 partnership. We both use the title Principal. We are co-equals. For us, dividing the responsibilities has been a key to success. We play to our strengths. For example, when working with clients, Doug handles the strategy, operations, finance and analytics. Polly focuses on human resources and people management. We divide administrative duties as well. Doug does the accounting. Polly manages the employees. However, as a married couple, if we can’t make a decision for our business, we have bigger problems.



Each employee should report to only one person – We’ve seen businesses try to have employees report to both co-CEOs. Invariably, employees get caught between a rock and a hard place. When the leaders give different directions, what does the employee do? When the co-CEOs want the same scarce resource, to which does the employee give it? Don’t put employees in this untenable situation.

Have a tie breaker – Premier Pet Products was deadlocked, in large part, because there was no mechanism to adjudicate disputes between the co-owners. Conversely, when Rich Fairbank and Nigel Morris reached an impasse regarding the strategic direction of the company, the Board of Directors made the call. Nigel retired from Capital One in 2004. Alternatively, a small business might divide ownership between partners on a 49/49 basis, awarding the remaining 2% to a trusted advisor who would cast the tiebreaking vote when necessary. However you do it, make sure that there is a clear mechanism for resolving disputes.

Co-CEO arrangements and 50/50 partnerships can work, but there are dangers. The tips above will help you navigate safely around the potholes and bumps in the road.

Read more...

Five Steps to Overcome a PR Crisis

Q.  My small business is facing what could be a PR crisis. One of our local television stations may be planning to run an unflattering piece about my business. Do you have any advice for how to handle this effectively and minimize the damage?


A.   First, if 60 Minutes calls, hang up! Seriously, the five tips below will be helpful when you are facing a PR crisis.




What is the formula for a successful business? You know the ones we mean, the ones that thrive. These are the businesses that throw off a lot of cash and provide a great lifestyle for the owner and his/her family. Then there is the other kind of business. Those that struggle and never seem to reach their potential. Doug and Polly’s award winning and best-selling book, Let Go to Grow: Why Some Business Thrive and Others Fail to Reach Their Potential uses real life examples gleaned from their more than 100 interviews with small business owners and entrepreneurs.

LET GO TO GROW
$16.47
Buy Now!


·         Have a plan for dealing with the media – Your first decision is whether you will accept an interview to comment on the story. If you choose not to comment, it won’t stop the media outlet from running your story. They will probably say something that indicates you declined to comment. However, you will avoid being put on the hot seat and potentially being made to look bad on camera. This may also allow you to avoid having your face on the local news.

 
If you do choose to comment, beware of several things. You are highly unlikely to convince the reporter not to run your story. Your interview will be edited. The media outlet can choose to take your comments out of context and may simply misunderstand what you are trying to say. Therefore, if you are going to accept an interview, have a very simple message and stay on point. Don’t get sucked into conversations for which you are not prepared.

 
·         Determine who will speak to the media – Whether you plan to speak to the media or not, you don’t want to have random employees, who may not know the whole story, interviewed. Communicate to your employees that they are to refer all requests for interviews or statements to a specific person. If you are going to communicate with the media, identify a specific person to be the spokesperson. In a small business it may be the owner. In larger concerns, you may have an employee such as the head HR communicate with the media. Regardless of who speaks, make sure that the person has a concise message and stays on point.

 
·         Consider hiring professional help – Depending on the size and severity of the story, you may be well advised to hire a professional who has experience in crisis management. Such people can provide useful input into how to handle a difficult situation. If you are likely to face criminal or civil charges as a result of the report, consult an attorney who has experience with these types of issues.

 
·         Don’t do things to make the situation worse – If you are facing charges of unsafe working conditions in your plant, this is not the time to give the VP of Manufacturing a big bonus. This may seem obvious, but it is amazing how often companies make mistakes like this when they are under the spotlight. Our advice is to be very careful about handing out bonuses, promoting people or holding company celebrations. Don’t let your actions make it look like you aren’t taking the issue seriously.

 
·         Own up to your shortcomings – If you have made mistakes, our advice is to own up to your shortcomings, fix them and take what you have coming. Trying to cover things up almost always makes matters worse. With this said, if you are facing criminal or civil prosecution, we suggest that you follow the advice of your attorney.

Of course you will be better off to avoid such situations by not engaging in activities that are illegal, immoral or unsafe. Further, it is important to create a culture in your company that doesn’t tolerate such behavior. It is important to have checks and balances so that it is unlikely that one rogue employee can consistently behave in a way that will get the company in trouble. However, if the time comes when you and your company are on the hot seat, these five tips will be helpful.

Read more...

How to Save Your Company by Performing a Business Triage

Q.  I’ve got a terrible problem. My business with 25 employees is underwater. I can’t pay all of the bills. We have plenty of revenue, but things have gotten away from me. I’m overwhelmed and don’t know what to do next. What’s your advice?

A.  It sounds like you are in a tough spot. You’ll likely have to make some difficult decisions and will need to take decisive action to save your business. We’ll give you some general thoughts on how to address your most pressing needs. However, you may be well advised to reach out to someone with experience in this area for help.



If you are looking for help with personal productivity, you might want to check out our book let go to GROW: why some businesses thrive and others fail to reach their potential. In this award-winning book, we teach you how to get your life back by delegating effectively – one of the hardest skills for entrepreneurs. We will also cover the other critical skills necessary to grow a smoothly running operation.

LET GO TO GROW
$16.47
Buy Now!
 

1.      Ensure that you have a positive variable contribution – That is, make sure that the price you receive for your product or service exceeds what it costs you to deliver an incremental unit (e.g., make one more widget or perform one more hour of service). Do this for every product, if you have multiple products. If you price customers differently, the analysis must be done at the customer level. When you find situations with a negative variable contribution, increase price, reduce the cost of providing the incremental unit, or stop offering that product or service. There may be rare exceptions to this rule, but in general, you have got to ensure that you are making money to cover your overhead on each sale.

 

2.      Cut costs – To stay in business, you will likely have to reduce your costs. First, eliminate all discretionary spending. The summer outing or the company holiday party need to go. Next, look to non-people costs. Can you reduce what you pay in travel costs or utilities? The landlord may be willing to reduce rent, at least for a time, if the alternative is empty space because you are out of business. Unfortunately, cutting costs may well involve the difficult decision to reduce labor costs (i.e., lay off people, reduce their hours or reduce compensation). Austerity measures are never easy, but if the alternative is closing your business, it will be better to keep some people employed than for everyone to lose their jobs when the company shuts the doors.

 

3.      Prioritize your payables – You owe more than your available cash. Therefore, you must prioritize what to pay. We suggest prioritizing in the following order:

 

·         Obligations that will shut your business down if you don’t pay them. For example, if you don’t pay your employees, they will likely leave to find work with employers who can pay them. If this leaves you unable to deliver your product or service, you’ll be out of business. Paying employees is typically a top priority.

 

·         Prioritize items that will result in large penalties next. For example, not paying taxes in a timely manner can sometimes result in massive fines. Avoid these if possible.

 

·         Any payment that is late should be next in line.

 

·         Finally, prioritize payments that are not yet late last.

 

4.      Plan your cash flow carefully – Once you have prioritized your payables, assess the cash you have and the receivables you expect to collect. Then build a detailed cash flow plan that lays out who you will pay, when you will pay them and how much you will pay them.

 

5.      Communicate with creditors – When you owe money you can’t pay in a timely manner, it is easy to ignore the situation and hide. This is almost always a mistake. Call your creditors. Explain your situation and your plans to pay your debt. Most people will be willing to work with you if they believe that you will eventually pay what you owe.

 

If you have bank debt and will break a covenant either because you will miss a payment or because some other requirement will not be met (e.g., liquidity requirements), proactively communicate with your banker regarding your situation. Remember, your banker is primarily interested in being repaid. The bank will likely only call your loan if it assesses that there is little hope of being repaid otherwise. If you proactively go to your banker with a sound plan to improve your financial situation and repay the loan, he/she is highly likely to work with you.

The five tips above will help you effectively triage your priorities when your business is struggling. However, don’t wait until it is too late to take action. Move quickly to get your business back on the right track.

Read more...
Q.  I’ve got a terrible problem. My business with 25 employees is underwater. I can’t pay all of the bills. We have plenty of revenue, but things have gotten away from me. I’m overwhelmed and don’t know what to do next. What’s your advice?

A.  It sounds like you are in a tough spot. You’ll likely have to make some difficult decisions and will need to take decisive action to save your business. We’ll give you some general thoughts on how to address your most pressing needs. However, you may be well advised to reach out to someone with experience in this area for help.



If you are looking for help with personal productivity, you might want to check out our book let go to GROW: why some businesses thrive and others fail to reach their potential. In this award-winning book, we teach you how to get your life back by delegating effectively – one of the hardest skills for entrepreneurs. We will also cover the other critical skills necessary to grow a smoothly running operation.

LET GO TO GROW
$16.47
Buy Now!
 

1.      Ensure that you have a positive variable contribution – That is, make sure that the price you receive for your product or service exceeds what it costs you to deliver an incremental unit (e.g., make one more widget or perform one more hour of service). Do this for every product, if you have multiple products. If you price customers differently, the analysis must be done at the customer level. When you find situations with a negative variable contribution, increase price, reduce the cost of providing the incremental unit, or stop offering that product or service. There may be rare exceptions to this rule, but in general, you have got to ensure that you are making money to cover your overhead on each sale.

 

2.      Cut costs – To stay in business, you will likely have to reduce your costs. First, eliminate all discretionary spending. The summer outing or the company holiday party need to go. Next, look to non-people costs. Can you reduce what you pay in travel costs or utilities? The landlord may be willing to reduce rent, at least for a time, if the alternative is empty space because you are out of business. Unfortunately, cutting costs may well involve the difficult decision to reduce labor costs (i.e., lay off people, reduce their hours or reduce compensation). Austerity measures are never easy, but if the alternative is closing your business, it will be better to keep some people employed than for everyone to lose their jobs when the company shuts the doors.

 

3.      Prioritize your payables – You owe more than your available cash. Therefore, you must prioritize what to pay. We suggest prioritizing in the following order:

 

·         Obligations that will shut your business down if you don’t pay them. For example, if you don’t pay your employees, they will likely leave to find work with employers who can pay them. If this leaves you unable to deliver your product or service, you’ll be out of business. Paying employees is typically a top priority.

 

·         Prioritize items that will result in large penalties next. For example, not paying taxes in a timely manner can sometimes result in massive fines. Avoid these if possible.

 

·         Any payment that is late should be next in line.

 

·         Finally, prioritize payments that are not yet late last.

 

4.      Plan your cash flow carefully – Once you have prioritized your payables, assess the cash you have and the receivables you expect to collect. Then build a detailed cash flow plan that lays out who you will pay, when you will pay them and how much you will pay them.

 

5.      Communicate with creditors – When you owe money you can’t pay in a timely manner, it is easy to ignore the situation and hide. This is almost always a mistake. Call your creditors. Explain your situation and your plans to pay your debt. Most people will be willing to work with you if they believe that you will eventually pay what you owe.

 

If you have bank debt and will break a covenant either because you will miss a payment or because some other requirement will not be met (e.g., liquidity requirements), proactively communicate with your banker regarding your situation. Remember, your banker is primarily interested in being repaid. The bank will likely only call your loan if it assesses that there is little hope of being repaid otherwise. If you proactively go to your banker with a sound plan to improve your financial situation and repay the loan, he/she is highly likely to work with you.

The five tips above will help you effectively triage your priorities when your business is struggling. However, don’t wait until it is too late to take action. Move quickly to get your business back on the right track.

“I HIGHLY recommend Polly and Doug. They have wonderful insight to help small business owners prioritize and identify strategies for growth and improvement. Wish I had met them 20 years ago!”

Sharon MaderePresident / Premier Pet Products

My team and I have had the privilege of working with Polly on our business. Polly's keen business insight and savvy is something special. She was honest, direct, and tactful about her observations and recommendations for our team and how to grow our business. It was a pleasure having her help us and I would tell anyone that’s serious about growing their business to call Polly. She’s great!

John O’Reilly, Broker/OwnerBase Camp Realty

“Doug and Polly, I want to thank both of you! The past few months have been enlightening and overwhelming all at the same time. Your guidance, direction, wealth of knowledge, and wisdom have exceeded all my expectations. No words could ever completely describe just how amazing of a “dynamic duo” you two really are!”

Dawn Beninghove, RN, CCM, CRP, PNChief Executive Officer / Companion Extraordinaire Nursing Network, Inc.

“Doug White took on an unfocused operation (in the financial services sector) and created an efficient, centralized system dedicated to excellence. He did this not by driving change from the top down, but by helping the entire team see how their part of the process could be improved. Doug then mentored us toward effecting the changes ourselves. He taught us all how to bring our “A game,” and how to take ownership and pride in what we do.”

Donna LevinVice President of Operations / care.com

"I have had the privilege of working with Polly White for several years on a variety of projects. She consistently provides clear direction on how to resolve a wide range of employment-related issues. I look forward to my continued relationship with Polly."

Elizabeth WilkinsBusiness Manager / Manorhouse Management, Inc.

I have known Polly for more than ten years. As an HR Manager, I have utilized Polly’s training expertise at my former company and with my current company. Polly exceled at assessing the needs of our management teams and tailoring training programs that resulted in visible positive change. I also know I can count on Polly as a resource on any HR topic or bounce ideas off of her when I need a second opinion. Polly has been a mentor to me and I have always appreciated her willingness to listen and offer valuable advice and expertise.

Leigh McCullar, HR Business PartnerUniversity of Richmond

I am truly impressed with the abilities of Doug and Polly White, thank you! What a difference your expertise have made in helping Associates grow in their careers. Your dedication to excellence through empowering the individual and strengthening the Company is enlightening. I do and will continue to recommend Whitestone Partners to the Executive Market.

Suzanne Pittman, MEd VAMAC, Inc.
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