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?

According to a report from Hewitt & Associates, 2009 had the lowest average salary increases (2.5%) in recent memory, and the forecast for 2010 (2.7%) doesn’t look much better. Yet even when money is tight there are some key people on your team who really create value. People that would be hard, if not impossible to replace. How can you reward and motivate your high performers without giving them raises?

More and more companies are adopting variable pay programs to try to do just that. 90% of US companies have some variable pay in 2009, and more of those programs are reaching down into lower and lower levels of the corporation. Bonus programs provide a way to recognize those exceptional individuals on your team without permanently adding to the overhead of your business. But setting up and administering a bonus program can be tricky.

Here are a few DO’s and DON’Ts that I have observed through the work with my clients.

DON’T make it discretionary. It’s way too easy to reward people for things you “like” versus things that really drive the business. When it’s discretionary team members tend to treat it more like a lottery ticket then a reward. DO make it “formula” driven. Define a formula at the beginning of the year and keep people updated to where they stand throughout the year. Make sure people feel like they have the ability to “move the needle” on the numbers they are tied to.

DON’T spring things on people at year end. In order to drive consistent behavior DO make a plan at the beginning of the year and stick to it. This is a lot easier if you create a budget at the start of the year and use budget numbers to drive the bonus.

DON’T make a different plan for everyone. It’s so hard to make a plan that’s fair and drives consistent behavior when you figure one out you want to use it as broadly as possible. DO vary the goals for different people and departments so that what you are measuring is meaningful to them.

DON’T promise fixed dollar amounts. When you set a bonus of say $5000 if our numbers are above budget, it means you have to renegotiate it year after year, or risk it falling out of relevance. DO set it as a percentage of salary, this way it always stays a relevant component of the employee’s compensation as their salary changes.

Bonus plans give you a terrific opportunity to recognize & reward your exceptional team members without adding overhead to your business. Who are you thinking about right now who needs a bonus plan?

If you’ve been following our “Narrow Your Focus to Grow Your Sales” series you know that by narrowing your focus you can customized you business to make it super attractive to a narrower segment. Because of that customization you can gain a significant advantage over competitors who have not made those customizations. In Part 2 we talked about using stories of what prospects actually do to elicit the kind of feedback that can lead to the customization ideas that yield great results. Today we explore how to choose that ideal niche market.

What is your business best at? What type of prospect could walk into your business and you would be 100% confident that you could help them? Each of those could lead you to your target market. One great tool that can act as a guide is this simple Venn diagram with three domains:

• Work that you love to do
• Work that you are great at
• Work that pays well

The intersection of these three circles is your ideal engagement.

Once we’ve identified a target market, we need to define their buying criteria. Unfortunately, prospects can’t usually provide this data in response to direct questions. Imagine asking a middle-aged guy to describe his ideal hair-cutting experience … would he have even imagined a place like Sports Clips? As we said in Part 2 the best ideas come from observing clients and prospects as they work with a service provider. While you are observing them, ask yourself:

• What bothers you about this?
• What is great for you about this?
• How can we make this experience more customized to your concerns and motivations?

Fortunately, you are probably working with many of your target clients right now, so you can conduct this research by listening to your own clients and observing them as they buy other services or products.

What if some of your clients are not be your target clients? Maybe you are attracting too many small clients, or clients with problems that you aren’t excellent at solving. This is a more difficult challenge! Once you identify what you’re doing that’s attracting these less desirable clients, you can stop doing it. Many times, what is attracting the less desirable clients may even repel the more ideal clients.

This doesn’t mean you a have to turn business away from these less ideal clients. But as you seek new ones, act in the way you believe will attract the more ideal client.

Lastly, align your processes to that ideal market. Having identified some unique customer needs, make an effort to consistently and regularly communicate that insight and how you are different to the marketplace. Don’t be afraid to say, “Where other firms like us do things this way, we do them this other way.” Be different.

If you are successful in honing in on path to your target market, it can pay big dividends for your business. As the percentage of your prospects that fit that ideal profile go up, you will be closing more business – more profitable business, that is. You will have more confidence going into meetings with prospects, knowing that your expertise can help them. Ultimately, your sales process will become more efficient so you are spending less time selling and more time leading your business. Now that’s a target worth aiming for!

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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

In yesterday’s post I started this series where I describe how narrowing your focus (as a company) can acclerate your growth. If you haven’t read Part 1, skip over there and read it.

Since we know that people are most interested in products and services that are customized just for them, how do we find out what changes we should make to our particular product or service offering to make it most appealing to our target audience?

Every purchase decision that any of us makes is a blend of a variety of factors. None of us is as rational as we want to be in this process. The truth is that we make emotional connections with products and services then we consider everything from price and quality, to the environment, what the buying process is like, even whether we like the salesperson to justify that choice.

However, when we are selling, the buyer doesn’t give us as much feedback about those qualitative measures (like how they like the buying process, or how the suit you are wearing makes them feel more at ease), as they will about the “hard” measures of price and quality. The buyer wants us to believe that those are the only factors. Yet, every day your clients choose to do business with people who didn’t bring them the lowest cost bid or the highest quality product.

So if they won’t tell us about those factors how do we figure them out?

First, asking someone to tell you a story about something they did do will give much better data than if you ask them about what they might do. So if you ask questions like, “How did you make the decision to… “ you will get much better data than if you ask, “How would you…”

Second, it’s very powerful to be able to observe your prospect. How are they acting, what makes them lean forward and engage? What makes them scowl? If you can build good rapport with a prospect or client ask them right then, “I just noticed you reacted to that question, what was going through your head?”

Lastly, don’t be afraid to try some stuff to see what works. I like to do this at a trade show or networking event, where I can get a lot of data quickly. Try changing your introduction to make it more provocative, or evocative and see what happens. If people’s eyes are lighting up, or they are asking, “How do you do that?” you have hit the jackpot.

If you want to find a market where you can sell premium price offerings without beating your head against a wall of competitors, then you need to narrow your focus. Find a market niche in which the quirks and differences that your company has are exactly what they want.

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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.

How is Hooters different from other restaurants that serve wings? Do Hooters’ wings taste better? Do they have low prices? No? Then why do people go there for wings? Hooters built a whole business around the one thing they know their target market – twenty-something men – likes. (And, it’s really not wings, is it?) The company has alienated a large swath of the population in the process but, judging from their jam-packed parking lot on a Friday night, it hasn’t hurt them a bit.

Walk into a Chuck E Cheese’s on a Friday night and you won’t see any sign of the twenty-something Hooters crowd. Everything about Chuck E. Cheese’s is designed to repel that group, but it attracts another group: children. Yet, neither the kids nor their parents will tell you they love the pizza or the prices.

Sport Clips is flourishing in this economy by creating a hair-cutting experience where, “It’s good to be a guy.” The “manly” environment created by this national franchise includes sports memorabilia and big screen TVs. Sports Clips was named top hair care franchise in 2009, and it got there without mentioning price or the experience of their stylists.

How can these businesses thrive when they don’t offer the best product or the lowest prices? They have identified a target market and customized their business to attract patrons that fit within that target – even if it means alienating or repelling other potential clients.

How have you customized your business to make it more desirable to your ideal clients? Is there a way that you have made it unattractive to the prospects that you get calls from who aren’t your ideal? Let me know in the comments, and I’ll be giving you my thoughts in part two and part three later this week.

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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.

I’ve never worked for a publicly held company. The biggest business I ever worked for had just over 300 people in it. I’ve never worked more than three layers down in an organization (e.g. my boss’ boss’ boss was the BIG boss). So I’ve always been able to see, pretty directly, how my work impacted the company. I’ve worked for companies that made aerospace parts, automotive components, awnings, intercoms, garage door openers … the list goes on, and they ranged from a venture-funded start-up to two brothers who ran their business “like a family.” I’ve worked for people who were billionaires and worked on $100 million deals, but I’ve also worked for founders who scraped together cash from their friends and families to start a business.

As different as these jobs were, there were similarities. The best jobs I ever had were the ones in which I worked with teams of excellent people. I worked with peers who were so good at what they did that I was fired up to go to work every day, not wanting to let them down and looking forward to what I might learn from them that day. At my favorite jobs I worked hard, not because anyone asked me to, but because it made a difference. These businesses were large enough to have structure and process, so that we all knew what to do each day and how our success would be judged; but they were small enough to allow us to make meaningful contributions, to see the fruits of our labor and how our efforts each day helped to make progress.

This type of opportunity is so much more prevalent in privately held, founder-led businesses. These types of businesses are in the building stage, creating opportunities for growth for the company and for those working inside of it. There are no layers of bureaucracy, or rules and red tape that hold smart, creative people back from innovating solutions to the problems and opportunities that arise every day. You don’t have to fight through turf wars and entrenched bureaucrats to bring a good idea to life. There are always new challenges, new customers and markets, invent a new service today, sell it tomorrow and it’s on the home page next week!

Yet I know there are also many founder-led businesses that don’t have this dynamic. Some of these businesses are micro-managed, with no freedom or innovation outside the founder’s. Others have so much freedom that no one knows which way is up. Maybe the founder has the control right, but hasn’t ever found the right niche, or doesn’t know how to communicate the value they provide effectively – so the business is starved for resources and is working hand-to-mouth. Others have all the work they need, but they haven’t priced it right, or they can’t manage the client’s expectations so they are always running 100 miles an hour and getting nowhere.

The business owner has to wear a lot of hats, and it’s natural that they will be stronger in some areas than they are in others. It’s rare to find a founder that gets it “right” off the bat. But most owners aren’t really that far off the mark. There are some hurdles and challenges that many of them face, and if they can just get over those hurdles it’s a whole new day.

There’s a way to build a business that you love, with a team of people whom you respect and whom earn you a fair return on your risk. It doesn’t require an MBA, or a PhD, or even fancy math. It requires that you get up every day, get out the door and get some business. That’s where the fun starts.

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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.