Anyone can become a CEO by buying a business, but it's another matter to acquire the confidence you need to be an effective leader. This month one of our experts advises a reader on how to make that transition. In addition, we hear thoughts about how to develop a stream of recurring revenues and what to do when you screw up with customers.
Growing Up As a CEO
I'm an American living abroad and running two businesses that I bought a year ago. One is a motorcycle dealership and the other a wholesale importer of motorcycles and motorcycle parts. I've worked very hard to build support in our local motorcycling community, and my efforts have paid off nicely, but marketing is about the only thing I've done right.
Maybe I don't have the right skills. I know how to manage large groups of young, unskilled workers, but that's not what I'm dealing with here. My management team is much more mature and experienced than I am, and the company has many long-term employees. Whereas I tend toward consensus management, the previous owner had a dictatorial approach. Nevertheless, I think he was a more effective leader than I am turning out to be. I don't regret having moved halfway around the world for this opportunity, but I feel completely lost at times. I just can't see that I'm adding much value. Sometimes I think that if I were an employee, I'd be fired for incompetence. Help! --Chris
"It doesn't sound as though you're having much fun, Chris, and you probably won't until you stop acting like a wimp," says Jack Stack, the CEO and cofounder of SRC Holdings Corp., in Springfield, Mo., and the pioneer of open-book management. "What do you mean, you can't see how you're adding value? Aren't you fronting the cash that's keeping the company afloat? Without cash, you wouldn't be able to get parts or pay your franchise fees or finance your inventory. The business wouldn't be around, and your employees would be out on the street.
"Look, it doesn't matter that some people have more experience than you do. Your job as owner is not to do the work of your managers and employees. It's to provide them with the resources they need to be successful, and cash is the most important resource any business can have. Your employees need to know that. Who's going to tell them if you don't?
"Of course, they may not want to hear it. I get the feeling that they have you intimidated, which may suit some of them just fine. In that case, you probably need to have a direct confrontation. You need to let them know in very blunt terms what it's going to take to make the company successful. I'm not saying you have to be dictatorial to provide effective leadership, but you do need the guts to stand up for yourself and the business. As long as you're moping around feeling like a loser, people will never take you seriously as a leader -- and they shouldn't."
I have a small company that specializes in helping customers locate hard-to-find information-technology products. My revenues, which fluctuate monthly, come mainly from selling used and refurbished equipment, although I do sell new equipment as well.
Recently, I've had an idea about how to get more consistent monthly revenues. For customers who want new IT products, I would charge no markup. Instead they would pay me a monthly fee of $1,500 to $2,500. Obviously, I'd have to target firms that could afford such a service -- those that purchase at least $100,000 worth of new IT equipment a month. I have no doubt that I could save them money, and my customers would know they were getting absolutely the lowest price from me, since my cost would be their cost. At the same time, I could continue to pursue more lucrative margins from sales of used and refurbished equipment.
I see one major problem with my idea: the approach I have in mind is almost exactly the opposite of the way purchasing is done today. Do you think it's too radical? What are the pitfalls? --Eric
One pitfall could be that the idea won't fly. "The kind of customers you're talking about are so attuned to their costs that I doubt they would see any value in paying a monthly fee for an unknown amount of savings," says Rick Inatome, who founded a computer reseller called Inacomp, which he took first to the Inc 500 and then, as Inacom, to the Fortune 500. "Besides, now is probably the worst time to try reversing the way that customers go about getting value for their money. Experiences with companies like Priceline.com have made people extremely skeptical of such efforts, and that skepticism would be a major barrier.
"That said, you might be able to achieve your goal by combining with a small IT-servicing organization and becoming an outsourced technology department for small-to-midsize businesses. A lot of those companies have downsized and gotten rid of their network administrators, leaving them with no IT staff at all.
"Meanwhile, there's new software available that allows you to monitor networks from a remote office. As a result, an outsourcing firm can handle all the technology functions that a small company needs, from setting up a network to running a help desk to purchasing new or used equipment. I know some firms that are beginning to perform those services for their customers quite successfully. It's one way to generate the kind of recurring income that you're looking for."
In Search of Forgiveness
My three-year-old investigative business had great growth for the first two years, but the third has been a nail-biter. It was my fault. I didn't pay attention to the basics. I started missing deadlines and not following up with my clients in a timely manner. I recognize now that timeliness is as important as high-quality work, and I'm determined to make my company viable again, but I'm not sure how to correct the wrongs I've done to my clients. What can I do to regain their respect and confidence? --Paul
"There are three things I'd advise you to do," says Jim Ansara, who started Shawmut Design and Construction with a pickup truck and built it into a five-time Inc 500 company by relentlessly emphasizing customer service. "First, you need to decide whether you're really up for the challenge and, if so, start modeling the behavior you want. I've never seen any small business provide great client service if the leader isn't a demon for it with a tremendous sense of urgency about making it happen.
"Second, you need to put some mechanisms in place to make sure you don't have such problems in the future. You could decide, for example, that if you don't deliver a report on the day you promised it, the customer gets an automatic 20% discount. You can make your own rules, but they have to be real commitments.
"Third, and most important, you should go to all the clients you've let down and apologize to them in person. Don't beg for another chance. Don't tell them you've changed. Just say, 'I know I screwed up, and I want to apologize. If there's ever an opportunity for me to help you in the future, I'd be thrilled to, but I'm not asking you to hire me back.' Then listen.
"That's the only way you're going to put this failure behind you. If you go to your ex-customers begging for a second chance, some of them will say yes, just to avoid a confrontation, but they won't respect you. Their anger will still be there, and they'll look for ways to get rid of you as soon as they can. It's much better to say, 'I understand you're unhappy and you're not going to be using me again, but I still wanted to come here, take responsibility, and apologize.' If you handle the discussion maturely, my guess is that many customers will give you a second chance -- and they'll mean it."
Having Trouble Sleeping Lately?
Could you use some advice from an experienced entrepreneur who's been where you are and figured out what works and what doesn't? Send your questions to IncQuery@inc.com. Editor-at-large Bo Burlingham, aided and abetted by Street Smarts columnist Norm Brodsky, will find the best people around to answer them. And if you don't like their answers -- well, you can tell us that, too.
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