We are surrounded by budget crises these days. There’s the City of Chicago, the Chicago Transit Authority, the State of Illinois, and of course, the Federal Government. Hearing about these financial crises can be discouraging to business owners. Is this the new “normal,” where it’s ok for expenditures exceed revenues?

If it were “normal” for businesses to consistently spend more than they made, they wouldn’t be in business for very long. With that in mind, is there any advice you can offer our elected officials on how they can balance their budgets? Let us know what tactics you would take if you were in charge of balancing a governmental budget.

I know that I’m reading a really great book when I keep nodding at each page, “yes, yes, exactly…”  The authors are telling me something that I knew intuitively, yet somehow they have given voice to that hunch and even explained it with elegance.  That’s exactly the experience I had while reading “Switch” by Chip and Dan Heath.

Switch is a follow up to Chip and Dan’s excellent first book “Made to Stick” about how to communicate in a way that people will remember what you said.  In Switch they look beyond communication to actually getting people to make change.  As a business growth advisor my business is entirely dependent on getting people to do things they may not want to do, I do this every day.  But the Heath brothers not only taught me some new things about making change, they also gave me a simple framework that helps me think more clearly about why change might be difficult for a client, for a friend or even for my kids.  The book is broken down into three sections, each describing one necessary ingredient for successful change.  First there is The Rider, the rational part of the brain that steers the course.  The Rider needs good reasons, and needs to understand why.  But The Rider’s influence is limited because he sits on top of The Elephant, our emotional dinosaur brain that so often interferes in The Riders lofty plans. The Elephant responds to feelings, to emotions and needs to be on board to make any real change.  Then there is The Path, the situation or system surrounding the person trying to change even a well coordinated Rider and Elephant can’t find their way if The Path is obscured or full of obstacles.  Sometimes a change in the system is all that’s needed to get change to stick.

This framework is immensely helpful when trying to identify why people aren’t making the change you expect, is there a lack of skill, a lack of will, or an environment that hampers their success?  The book even provides little practice cases where they give you an example and you can diagnose what you would do.

My first read through the book is reminding me of my first pass through some of my favorite books of all time.  I keep finding nuggets that I carry around through my day, that are immediately practical and usable.  I also know that there is stuff in here that I will need to ponder and practice for many years.

If this sounds intriguing to you, and you want to learn more, Chip and Dan will be all around the country to discuss the ideas and sell some books.  They will be in Chicago March 11, you can get more information and register at the Switch Book Tour page.  I look forward to seeing you there!

Switch is available starting February 16th, I received a free advance reading copy from Chip and Dan’s Web site.

Just Added:  I found another great review at the San Jose Mercury News: “You Wanna Change Things?”

Leaders are readers, or so the saying goes.  I frequently get asked what books I would recommend to improve the skills of founders of creative service firms. These are my typical recommendations.

E-Myth is the classic work on running a small business.  Michael Gerber has some crucial insights about how to structure and organize your small businesses to so that you can run your business instead of having it run you.  If you feel like the whole business depends on you, and you can’t get your employees to take responsibility this book has the answers.

Jim Collins is my #1 most favorite business author.  Built to Last & Good to Great are must read books for every leader in business.  I think that Built to Last is the best of his books, it’s clear and actionable, and holds terrific insights into how you can create an enduring great company. There’s also a great monograph, Good to Great for Non-Profits, highly recommended after you’ve read the books themselves.

David Maister is the unchallenged guru of professional service firm management.  As with Jim Collins it’s hard to pick favorites, but I find clients are most often impacted by the business development lessons in The Trusted Advisor.  True Professionalism can be a terrific book to take younger professionals through to help them to orient themselves to what the job of a “professional” is.  Managing the Professional Services Firm is a more advanced work, more applicable for larger firms, but with lots of meaty lessons. These books are must reads for my team members.

Vern Harnish’s The Rockefeller Habits, has a great structure for how to run a business well. He has the best system for reporting and a meeting rhythm to keep all the parts of your business connected and well fed with information.  It’s short, but packed with practical information.

Lastly, Crucial Conversations by Patterson et al is a terrific book about how to have conversations when the stakes are high. So many of our conversations with employees, partners, prospects and clients get emotionally charged.  Each person is bringing in their own story about what’s happening and what should happen.  This book can help you to keep a clear head and communicate effectively even when others can’t.

Lastly, there are a number of Harvard Business Review articles that have been as useful and powerful to me as any book, Who’s Got the Monkey for managing tasks with your subordinates, Manage Your Energy, Not Your Time is important work for keeping you fueled, and energized for the long haul.

This is quite a reading list, and of course it’s not exhaustive, just my favorites.  What books, articles or Web sites keep you up to date and growing?

RESOLVE.  Strong in the face of uncertainty, forceful in doing good work in turbulent times, unflinching in making the changes needed to thrive in the environment we find ourselves in. Bart Clevland chose it as his word for 2009 (see his post on the AdAge Small Agency Blog) but I’m thinking about it for 2010.

We need the type of resolve that Bart saw in 2009, but in 2010 I also think we need RE-Solve. If we look in the dictionary we find that resolve means “making an earnest decision”, but it also means “convert or transform”, “separate into constituent or elementary parts”, and ” deal with conclusively”.  It’s in these contexts that we need resolve in 2010.   We need to conclusively deal with issues in our business.  We need to convert and transform our business by breaking it down into component parts, parts that we thought were solid,  and rethinking and re-engineering them.

Most of us are running businesses with some success, we have survived the turbulent “first few years”, we have found processes and ways of working that achieved some success, but in 2010 we may need to re-solve some of the problems that we thought we have put behind us.

We knew how to attract and close business in 2008, but we may need to sharpen that message, improve our positioning and really target a specific issue/problem, or demographics/psychographic to stand out from the crowd.  We may even need to reconfigure our whole service offering to take us out of the mob of competition and into new markets or services.

We knew how to manage our people in 2008, but we have cut their salaries, given no bonuses (and for some no raises), their healthcare costs more and we need them to achieve results more than ever before.  Now is the time to increase transparency, give your team members access to information and processes that they have never seen.  Engage their best thinking not just in producing good work, but in producing a great environment within the constraints that we have.

We knew what our role was in 2008, but now we see CEO’s drastically shifting their roles (one example).  This is a time when leadership is at a premium, can you lead your team through this?  When you need to be the chief rain-maker and create an environment of engagement, transparency, and trust; it’s a lot to ask; but its got to be done.

2010 is bringing change, like every year before it, and it’s time for a clean slate.  Time to start fresh and RE-solve some of the basics.  It was fun the first time, I’m sure it will be fun again (and again)!

During January many of us spend time setting goals and making plans. Often these are based on our aspirations, who we want to become. But there’s another side to this, sometimes we need to set goals based on who we don’t want to become.

Matt Linderman on the SvN Blog had a great take on this, start with an enemy, what you don’t want to become. Is there a firm that you just hate, can’t stand, don’t respect? What is it that makes your blood boil? How can you design your service offering to be totally the opposite from that? Better yet, how can you design your service offering to appeal to a large market segment that also hates that thing?

Maybe it’s worth an hour or so to thing about what you don’t want out of 2010, who you don’t want to become, and things that you shouldn’t be spending your time on. This is tricky, you don’t want to trigger a fear response, “If I don’t accomplish this thing then I’m going to be doomed to be that person I hate.” But we can use these things we are driven away from to set a direction or position, then set a positive goal of what you want to become.

For example, I don’t want to grow my business just for the sake of getting bigger. I want us to impact more businesses and create workplaces where people love to come to work. I hate the idea of growth for the sake of getting bigger, but I do want us to work with more companies and have more impact. So I might set a positive goal of finding better ways to measure the impact we’re having on our client companies. This would both insure that we are making positive change and prevent us from taking on work where we can’t have that kind of impact.

What do you hate enough to get out of your comfort zone and accomplish this year?

An employee receives a nice bonus for successfully completing a long and difficult assignment, but the next day decides to leave the company.  How could this happen?  Peter Bergman tells the story in his HBR blog, and in doing so he talks about a point that I’ve been speaking about all year.  Compensation is not about meeting the economic needs of your people, it’s about recognition.

When Janice makes more than Maurice you are saying that Janice is contributing more value to your organization than Maurice is.   You are saying that Janice has more status, more influence; you appreciate her more.  We all want to be valuable and recognized for the contributions that we make, everybody wants their work to mean something.  The most powerful tool that we have to communicate that value and meaning is through compensation.

But pay alone doesn’t make most people feel valuable.  Robust compensation is an indicator, or a result of having done valuable work.  We must give people regular feedback to  communicate the value that people bring to the organization.  This means everything from regular performance reviews to sending thank you notes.  It can be regular one-to-one meetings where you strategize and plan together, or inclusion in “management team meetings”.  It means being free with both praise and constructive feedback, letting your team members hear all the feedback that you get from clients and partners.

Most of us want our employees to bring more than just their head and hands to work, we are putting our heart and soul into our business and we want team members who are in that with us.  To get that kind of engagement we need to be proactive and think about how we can meet their needs for meaningful work, connection and recognition.

Too often, business owners who want to see an increase in sales think that saying “Get more sales!” to their sales team will make it happen. But, “Get more sales!” doesn’t provide team members with clear instructions on just how they are expected to get more sales. In fact, saying “Get more sales!” paralyzes many people. Sure, most salespeople will agree with you, many will work hard to do more of what they are doing, which yields some results, but few will be able to break that request down and really analyze what “Get more sales!” means.

Further, what things can the team do to get more sales?  Can we entertain more, or should we advertise more?  How much is more?  And what we really need to get more sales is some more sales people…

So “Get more sales!” can mean a lot of different things.  If, when you say, “Get more sales!” you mean you want more new customers; your sales team should be prospecting. If you mean you want to get more orders from the customers you already have, then your sales team will have to manage their accounts more closely. If you mean you want to get more dollars from each sale you make, then … well, you see the point. “Get more sales” doesn’t really articulate what you need specifically.

What does a budget have to do with this? Everything. Business owners who go through a solid, bottom-up budgeting process usually engage in discussions that can provide more specific direction to their team instead of “Get more sales!” So, if the answer is “Get more customers!” the next questions are, “How do we change our process so we can get more customers? Are we going to qualify harder and throw prospects out earlier in the sales process? Are we going to add bandwidth to the sales staff (by taking away non-sales activity, or by adding salespeople)? How much improvement can we expect, and will that add 5%, or 20% to the sales?

These detailed concrete discussions never happen if you don’t sit down and put real numbers into a budget.

Something else magical happens in this process. As the team members engage in these discussions and become part of the decision-making process, they start to become more committed to the outcome. Instead of strategies and goals set “from above,” these are goals and strategies that they choose! Now you can hold them accountable to these goals. The budget is no longer a goal to shoot for (with no consequences if it’s missed) but a baseline that, if missed, will disappoint everyone if it’s not reached. When this is the case, you can set up bonuses such that missing the budget means you don’t pay bonuses. Meeting the budget means your team is doing their job; you can only pay a bonus if the team exceeded what was laid out.

Once you do a budget, you will see that what was once drudgery and an exercise in lying and surprises can turn into a process where you can gain understanding of what drives your business. From there, you can create clear and concrete plans and targets that empower each member of your team to work together to improve performance. Isn’t that well worth your time?

What is going to happen in 2010?  After the topsy turvy ride we’ve all been on for the last 18 months everyone wants to know what’s going to happen next year, and the truth is, it’s anybody’s guess. This uncertainty and risk can be very unsettling for a business owner.  But there is something that we can do about it.  Create a budget.

OK, some of you just spit your coffee at the screen as you laughed out loud, but I’m not kidding.  A budget is a tool that you can use to hold meaningful discussions with your team about what the next year could look like.  I’m not talking about a budget where we take last year’s numbers and say, “We’re going to grow 20%” and scale everything up and move on, no I’m talking about a bottom up budget, starting with each line on the income statement, and identifying what we are going to do differently next year that is going to change this number.  Then creating a plan that reflects those changes and showing everyone how succeeding or failing at these initiatives affects the results.

That’s right I said “we”. It’s crucial that you have this discussion with your whole management team, your key leaders who can move the needle for the business.  As a team, you need to have shared assumptions, agreeing together what the most likely scenario is for next year, and what options do you have if that scenario doesn’t occur.  They need to know how their efforts can change the results for the company, how they can save a little on expenses and keep the company in the black, how 2 additional customers can drive substantial improvements to the bottom line.  That kind of stuff.

Yes, it may mean that you have to have a discussion about why the owner gets to keep the profits; but that’s a healthy conversation to have.  It might lead you to want to create a performance based compensation plan; good, that’s a step in the right direction.  It also may mean talking about what happens if we lose money next year; which is also a healthy discussion to have.

You are in the lifeboat with these people; you hired them because they are smart, and effective.  Use the budgeting process to engage the best ideas from the whole team to deal with the uncertainty and risk that you are facing.  It will make you feel a lot better, and you may gain some new insights and ideas that could make a big difference.

I love to ski. But, much of skiing is not even skiing; it’s waiting in line and riding the lift. So, you learn to find enjoyment in those down times. When I’m riding the chair lift, I spend my time watching other skiers on the slope below. My eyes are usually drawn to the skiers who blast through the hill and catch an edge, leaving their hat, poles and skis all over the slope like a yard sale. Those are the ones I want to watch! Likewise, if I haven’t had at least one wipeout by the end of a day of skiing … well, I haven’t been skiing! No mistakes means I’ve been playing it too conservatively and not really getting the most out of my performance.

The same thing is true in business. Sometimes you make mistakes – big ones, little ones and everything in between. If you never make a mistake, then you are playing too conservatively, staying within a comfort zone. Sooner or later, you have to push out of your comfort zone.

Business owners make mistakes. Not only is this human but it’s an acceptable and expected part of running a business. At the risk of losing a few of you here, I’m going to cite a line out of The Magic School Bus: “…take chances, make mistakes, get messy!” This quote may as well be the theme song of every business owner out there. Your business can’t grow if you don’t take chances, and doing so may mean you make a mistake on occasion. The business owner who doesn’t make a single mistake is probably not leading a growing business.

What great mistakes have you made recent? Did it lead you to fail forward?

Being a business leader requires us to have confidence in our abilities and our team. But too much confidence, or confidence that is not well founded in reality can turn in to hubris and produce disastrous results.

Recently Malcom Gladwell gave a talk on this topic pointing out that we often gain confidence by having more data, but if that data only reinforces our previously held notions it doesn’t produce better decisions. Michael Hyatt, CEO of Thomas Nelson Publishers had a nice write up of this idea in his blog.

That’s why mistakes are such important opportunities for us to learn. We don’t want to dwell on our mistakes, or beat ourselves up with them. But we do want to use them to build a proper foundation for our confidence.

I saw a fascinating example of this in Vern Harnish’s newsletter last week.

“Black Book of Torres — …Miguel Torres, 5th generation of Torres Wines (60 million cases, 140 countries, 300 year old vineyards), spoke at the EO University in Barcelona. During his presentation he described their “Black Book of Torres” which formally documents the mistakes they’ve made going back 50 years! Whenever a mistake is made, the person responsible writes it up in the black book — then whenever anyone is hired, they are required to read the black book — obviously, the importance of studying failures. BTW, the last entry had to do with the CFO not listening to the rest of the executive team which strongly advised against a certain currency hedge resulting in a $200k loss.”

I could see this practice resulting in a great deal of humility throughout the organization. Sooner or later your name’s going to be in the book. You start your career in the organization by reading about everyone else’s mistakes. It would be hard to have too much hubris in that environment.

But it could also build terrific confidence, here is a whole book full of mistakes we aren’t likely to make again. We have learned these lessons, what a head start we have!

How do you insure that you learn from your mistakes? Does that help you build your confidence as a leader?

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Brad Farris is a small business advisor with Anchor Advisors, Ltd. in Chicago, Il. Since 2001 Anchor Advisors has been helping creative professional firms to grow, by helping them clarify their purpose, get the most from their people, keep their eye on key performance measures, and implement consistent processes