Critical Review

"...keeping you great" Ten Minutes with the Growth Guy

HEADLINES:
 
"Breakthrough Company" Review -- with all the hype and promise, I was expecting to be blown away by Keith McFarland's book -- maybe I'm too close to the subject -- but I could hardly keep focused -- it was so full of platitudes and generalities with very little real insight or specifics -- and in many places his advice, because of the lack of specifics, is dangerous. However, I did find three good pages. See my complete review along with a list of the three pages I recommend under DETAILS below -- and I would love to hear from you if you've read the book -- again, maybe I'm too close to the subject and missed something.
 
Worth Reading -- Quiznos Turnaround -- FORTUNE had a great article this week on how Greg Brenneman, who turned around Continental Airlines, seems to have turned around Quiznos. In every case, a turnaround involves just a handful of key strategic decisions. For Quiznos, Brenneman slashed discounting, simplified the menu from 29 to 21 items, created a $2 Sammie to compete on price with Subway, and developed a web-based ordering system. It's important to examine Brenneman's "playbook" as you look at your own firm.

Stop Doing -- a key to Brenneman's success is analyzing profitability at a granular level (by product, by route, by store, etc) and then stopping the unprofitable stuff!! Duh!! At Continental he started by eliminating inefficient routes. At Quiznos, he eliminated 8 menu items that were the least profitable (this also reduced complexity). Plants need pruning. So do our companies. What are you doing that is unprofitable? Do you even know? When you find out -- prune it NOW!! -- especially in volatile times. Here's an excellent piece on his turnaround of Continental.

Self-funding Bonuses -- Brenneman also did something very simple at Continental. Focusing on the basics, he notes "In one way it was simple: we had to get people to their destinations on time -- with their underwear -- and serve up good food when passengers wanted it. Plus we had to make sure that employees liked coming into work." Therefore the incentive was simple: "We were at the bottom of the on-line list, so let's take the money we save on putting passengers up in hotels, or on other flights, and return it to the workers," he said. This is what Jack Stack means by picking a Critical Number (some measurable target) that will generate real dollars and then use some of the gain to fund rewards.

Bad Profits at eBay -- Meg Whitman, CEO of eBay announced her departure. And her replacement, John Donahoe, announced in the FIRST HOUR that he was reducing upfront fees that have alienated users and driven them to Google and Amazon! Today's NY Times piece provided the best management decision overview.

Listen to Customers -- and this excerpt from FORTUNE: A prominent eBay members network - that the San Jose-based company closely monitors - says that its members listings dropped 14% in the fourth quarter from the previous year. "eBay's marketplace isn't set up to scale well for sellers. Whether you list one item or one million, it's a flat price structure," says Jonathan Garriss, the executive director of the Professional eBay Sellers Alliance. "As sellers build bigger businesses, it makes sense to have their own platform and participate in shopping engines like Google or sell on the Amazon platform."

Finding Opportunity in Economic Turmoil -- FORTUNE Small Business magazine is doing a story and looking for:

• Small businesses and owners who have seen opportunity in the economic turmoil. These could be companies that are seizing the moment to grab market share from weak competitors of all sizes; companies that are buying and leasing capital equipment for rock bottom prices; even companies that are hiring highly skilled workers who are newly available and so on.
• Small businesses and owners who saw the chill coming and prepared themselves, by building cash reserves, for example, or holding down costs.

Contact Malika Zouhali-Worrall at [email protected].

FORTUNE 100 Best Places to Work list out this week -- Google #1, Container Store #20. Top 10 includes Quicken Loans, Wegmans, Edward Jones, Genentech, Cisco, Starbucks, Qualcomm, Goldman Sachs, and Methodist Hospital Systems.

The Private Company Index (PCI) hit an all-time high (so much for a cross-industry recession, right?) with a 1.7 % increase in December and an overall 33% gain in 2007. And the five companies honored with the Growth Company Award 4th quarter 2007 saw an average of 56.3% higher revenue than their own Q4 2006 figures (sense of pride: four of the five are Gazelles clients and the top two participated in our Rockefeller Habits 2 program last week -- congrats).
   
The Top Five Growth List:
Appletree Answering Services -- Wilmington, DE -- Live answering services and call center serving the business  sector.
    High Performance Technologies -- Reston, VA - performance-based architecture service provider for the information technology marketplace.
Indigenous Designs -- Santa Rosa, CA -- Handmade fashions created from organic materials using fair trade practices.
Nationlink Wireless  -- Franklin, TN --  Wireless solutions and software for both businesses and individuals.
Ticketcity.com -- Austin, TX -- Sports, entertainment and major event ticket broker.

DETAILS:

"The Breakthrough Company" Review

First, let me list the best three pages:

p. 44 -- bottom of the page McFarland tells the story how Roger Staubach handled a dispute over commissions that two brokers brought to him. After listening to the two brokers he announced he was giving the entire commission to charity and told the brokers next time to "work it out between yourselves." This became a legend that prevented any further commission disputes throughout the company! I'm going to use this with my children as well.

p. 180 -- McFarland makes an excellent point in involving more people in the strategic planning process in order to create broader buy-in and garner a more diverse set of opinions (research shows that a true dialogue requires 40 -- 60 people). He suggests involving "board members, select managers, and members of the sales team, up to twenty-five to sixty people in all, when setting the firm's direction." We're going to emphasize this more with those using the One-Page Strategic Plan.

p. 197 -- McFarland quotes Scott Cook, founder of Intuit, "Anyone can run a company during the tough times -- it's the good times that actually challenge the leaders." As McFarland notes "what great leaders like Cook understand is that rather than coast during the times that the business is flying high, the company should continue asking hard questions about where it is going, digging more aggressively for ways to tap its latent potential."

Over $250 million -- I did enjoy reading about the nine breakthrough firms McFarland chose to highlight: ADTRAN, Chico's FAS, Express Personnel, Fastenal, Intuit, Paychex, Polaris, SAS, and The Staubach Company, although I personally knew most of their stories through reading the popular press and had already received, in more depth than McFarland provides, the keys to their success. FORTUNE magazine, Fast Company, and Inc. have covered many of these companies over the years and I find their writers much more adept at capturing the nuggets of brilliance and depth of ideas than McFarland. The bigger issue -- McFarland shares that only .10% of firms make it to $250 million. What the world needs is the book on how to get from $1 million to $10 million which is different than what it takes to go from $10 million to $50 million, which is different than what it takes to go from $50 million to $350 million (this is the better cut-off point). None of the critical nuances in making these multiple leaps are captured in McFarland's work.

Made Up Terminology -- what the world DOESN'T need are more made-up business terms. It's driving me crazy how everyone wants to make up labels. And some of his labels are bad -- like calling a company's support system (board of directors, advisors, consultants, mentors, CEO groups, etc) "scaffolding" which he defines as "temporary structures outside the company..." My key advisor of 25 years, Arthur Lipper, has been more permanent than any of my employees, for instance, as has been my involvement in the Entrepreneurs' Organization.

Contradicts Jim Collins -- along these same lines, he contradicts Jim Collins in several places without any relevant proof i.e. he attacks the notion of a company having core values and instead, chooses to describe the importance of a company having "character" -- he's simply splitting hairs and playing to the fact that many firms, admittedly, have botched the whole core value thing. However, it's not a reason to discard the entire notion of core values and replace it with something that will likely be botched even worse since there's no depth to McFarland's analysis. And his relating of charisma and character, again, is just outright wrong -- they don't even come from the same etymology.

Totally Misses the Dynamics of Growing a Business -- much of his advice, since he doesn't provide boundaries or specifics, is downright dangerous. For instance, he drags out the age old platitude of companies having too many layers. It depends on where you are in your growth between $1 million and $250 million. For smaller firms, the issue is often not enough layers. And in India, many of the growth firms, obviously misapplying the notion of having "flat organizations" have spans of control of 15:1 or greater (a problem giant Dell ran into as well). My analysis and research found a direct correlation between high turnover and overly flat organizations. As another example, McFarland fails to give us the points at which firms added a board or built a formal educational department or "upped the ante" -- was it when they were $10 million, $50 million, or after they went public? And was it before or after they figured out their "hedgehog" (hey, I wasn't happy when Collins made up this term as well). Collins is adamant, and I agree, that you must figure out your focus BEFORE doing many of things McFarland recommends. This critical piece of knowledge is neither acknowledged nor disputed.

Something is Not Right -- OK, I'm going on public record as challenging McFarland's claims to have followed an approach anywhere near the rigor of Jim Collins. His book is really full of his own opinions and observations working with 50 plus clients over the five years he's been a consultant and selectively finding pieces within nine excellent firms that fit his experience. Nothing wrong with this -- I've drawn much of my ideas from the thousands of growth firms we've served over the decades. But I don't wrap my claims in the veil of Jim Collins quality research.

Conclusion -- his handful of suggestions aren't necessarily wrong -- there's just no depth into how, for instance, Intuit systematically gathers customer data (something which has been reported on in depth and is worthy of reporting) -- these are the details companies need. And in many cases, his illumination of a critical point is considerably less clear than what is already currently known i.e. Geoffrey Moore's work around "Core vs. Context" and how companies must navigate between customer intimacy, product leadership, and operational efficiency is more succinct and useful than McFarland's "Bermuda Triangle" discussion. Last, there were so many places where an obvious researcher would have not thrown out "pop" conclusions without taking the most basic of steps to give the reader some real insight and validation.