Business Enhancement Associates Aha! Moments

Your Family Matters: The Importance of Succession Planning in Family Held Businesses

noreply@blogger.com (David Williams) — Tue, 29 May 2012 19:30:00 +0000

Corporate Finance Associates Newsletter 2Q 2012

By David Sinyard, Managing Partner
Atlanta Office, Corporate Finance Associates

Developing a succession plan may be the most important business plan a company owner will ever make - it secures their family's future long after they are gone. Yet, the vast majority of family owned businesses do not have a succession plan in place and statistics show that nearly three quarters of family owned businesses do not survive the transition from founder to second generation. Given the importance of such a plan, understanding the obstacles that stand in the way of a successful business succession is the first step to putting a plan in place.

Most family business owners fully intend to keep the business within the family's control, but choices made by the founder can derail such a plan from coming together. One common reason for inactivity is that the founder fears losing control of the business. … Research demonstrates that founders tend to remain at the helm on average between 25 and 30 years. This length of tenure has an effect on how second generation family members view their opportunities.

Choosing a successor from the next generation when there are multiple children presents another challenge. How do make everyone feel as if they have been fairly treated, fairly considered? The natural inclination is to avoid conflict, yet this step often pits one child against another, at least in the mind of the founder.
Equally important, how do you insure that the successor has the skill, experience and leadership qualities needed to carry the company through to the next generation?

…The financial security of the founder is a fundamental concern. …[How] is long term security insured? Often, the founder finances the sale to the successor via a promissory note. Does this really give him any freedom? Are there other choices?

English: Belongs to The Organic Business Guide. (Photo credit: Wikipedia)

…[With] no plan in place, the death or disability of the founder can be disastrous. Unplanned estate taxes or unexpected health care costs can place an inordinate financial burden on a company, severely retarding its short term and long term prospects.

The purpose of a succession plan is to clearly identify a successor, define key leadership and management roles for both family and non-family personnel and formally outline the goals of the business. In addition, it will provide a financial blueprint for transferring ownership. Ideally, a succession plan is simply part of a company's overall strategic business plan.

Components of an effective succession plan include:

Defining Goals & Objectives - provides the basis for the entire succession plan
Family Involvement in Decision Making Process - defines a process for open communication and dispute resolution
Identify the Successor - specifies who will take over ownership of the company and how they will be groomed
Estate Planning - in the event of illness or death, provides a process for handling inheritance and income streams for both active and non-active family members with specific attention paid to taxation
Contingency Planning - lists a series of "what ifs" and anticipated actions
Comprehensive Organization Chart - updates the organizational structure of the company with line of succession and includes potential roles for the retiring founder, shareholders and key advisors like accountants, lawyers and lending partners
Business Valuation - required as a baseline for determining
Exit Strategy - explores ownership transfer options including timing and the potential sale or partial sale to a non-family third party

Once a formal succession plan has been created, it must also be reviewed on a regular basis to make sure the plan is amended to account for any changes of circumstance. An annual review may be sufficient.
Given their entrepreneurial traits, founders give much of their energy, time, and emotional well-being to the startup and growing phases of their businesses. Founders hold an influential role over the succession planning process and the decisions of the succession plan lay primarily with them. Without their willingness to embrace a formally constructed succession plan, it will likely not exist and a business without a succession plan is somewhat like an individual without a will. In the unlikely event that disaster strikes, there is no emergency plan, no predetermined leader. Effective succession plans provide a guiding light in times of transition or trouble.

Get Paid More with a Seller Note

noreply@blogger.com (David Williams) — Tue, 29 May 2012 18:09:00 +0000

Corporate Finance Associates Newsletter Q2 2012

By John Hammett, Managing Director
Minneapolis Office, Corporate Finance Associates

Private company owners are always interested in maximizing the value of their company when they sell. … Sellers naturally focus on the nominal valuation of the company. But the value to the seller isn’t just in the price that is negotiated, but also in the terms of the deal. Experienced dealmakers know that the terms of the deal can drive the total valuation from the buyer’s perspective.

The natural inclination of sellers is to favor an "all-cash" deal: …However, this perspective overlooks an alternative that can increase the total value of the deal by 10% to 20%.

This alternative is a "seller note". The seller note means that the seller finances part of the buyers purchase with a promissory note or a loan back to the company. The seller agrees that a portion of the purchase price will be paid three to five years down the road, and he will receive interest payments on the face value of the note. Private Equity firms (financial buyers) have a strong preference for including seller notes as part of their deal terms.

Example
The example of this is shown in the attached chart (FIG 1). The example assumes that the company has EBITDA (Earnings Before Interest, Taxes, Depreciation, Amortization) of $2 million and that it would be valued in an all-cash deal at 5 times EBITDA for an Enterprise Value of $10 million (left column). It shows an alternative where the seller finances 20% of the Enterprise Value with a seller note at 9% interest (center column) and the difference in cash to the seller (right column).

Buyer’s Perspective
The immediate difference is that the value multiple for the deal with the seller note is 0.5 times … higher than the Typical deal. … There are two reasons why the buyer will pay a higher multiple for a deal with a seller note.

English: Diagram of DuPont analysis of return on equity. ‪Norsk (bokmål)â¬: Diagram over DuPont-analyse av kapitalrentabilitet. (Photo credit: Wikipedia)

The first reason is simple math. The buyer’s balance sheet (FIG 2) is composed of bank debt, the buyer’s equity, and sometime, a seller note. Each tranche of capital has a different cost related to it. Bank debt is relatively cheap, with Prime Rate at 3¼% and commercial loans at 6%. At the other end of the spectrum, financial buyers target a rate of return of greater than 25% on their equity investment. The seller note lets the buyer put in less equity … so the deal is more leveraged but still delivers the target rate of return on the equity. This works because seller note carries a relatively high 9% interest rate, but that is still lower than the equity that it replaces. The math works out so that the equity investor gets an even higher rate of return, even though the price paid is higher.

There is a subjective reason why buyers pay more for a deal with a seller note: comfort. … The seller who is willing to leave a seller note invested in the company gives the buyer great comfort that there are no hidden issues that might show up after the deal is closed. This is reflected in a higher price to the seller.

Seller’s Perspective
In this example, the seller gets a 10% higher enterprise value on the company with the seller note. Just as important, the seller gets an opportunity to invest 20% of the proceeds in a high-yield fixed income investment. … The seller note becomes the fixed income allocation of the portfolio. Its performance should certainly beat the returns from most publicly-traded debt securities.

Bottom Line
The seller is making a wise move by selling a private company that is a concentrated , risky, and illiquid asset, and re-investing the proceeds in a portfolio of other investments to provide for future living expenses and to preserve wealth. The seller note should be managed as a core part of that portfolio.

Healthy Employees Can Boost Your Bottom Line

noreply@blogger.com (David Williams) — Thu, 24 May 2012 15:14:00 +0000

Baseline.com
By Dennis McCafferty on 2012-05-17

Health (Photo credit: 401K)

A healthy workforce is often a happier and more productive one, and companies are getting the message that investing in employee health can lead to the well-being of the entire organization. Many companies are seeing tangible benefits from implementing health and wellness programs, and many more plan to do so, according to a new survey from the International Foundation of Employee Benefit Plans. … These initiatives are helping cut corporate health care costs. But employers beware: These programs don't create instant payoffs. However, organizations that stick with them will see benefits in the long run. "Determining ROI can be of great benefit for employers, leading to increased buy-in from organization leaders and workers," says Julie Stich, a senior information/research specialist at the foundation. "However, ROI can be difficult to measure. Health improvements may be influenced by a combination of factors, and it takes an average of three years to see cost-saving results." More than 640 benefits/HR professionals, financial managers and other executives took part in the research.

Managing Conflict in a Family-Owned Business (Part 2 of 2)

noreply@blogger.com (David Williams) — Wed, 16 May 2012 21:28:00 +0000

CEG Worldwide, LLC

By Tom Hubler (Part 2 of 2)

The structure of the matter (second in a series)

Key Takeaways

The B.O.S.S. concept formalizes how we generate what’s right for the Business, for Others, for our Self and for Stakeholders.
The approach helps develop collaboration, team skills and common success.
Regular family meetings keep issues from growing into problems.
A family code of conduct helps prepare and formalize key ground rules to keep everyone on track as individuals, as a family and as a business.

Part 1 of Managing Conflict in a Family-Owned Business discusses how important it is to raise issues, prepare succession plans and create a common family vision. This form and structure help unite family members in a superordinate goal.

Here I introduce other specific methods to bring structure to family-business issues and to prevent conflict.

Who’s the B.O.S.S.?
The B.O.S.S. concept is a way to remember what the family wants to generate for the...
Business
Others (and what they want)
Self (what you want for yourself)
Stakeholder (including others who share in the business)

…To manage issues and prevent problems, the family carefully considers what must be done to take care of the “B” (Business). Most family businesses recognize this intuitively. It’s just common sense.

What may be less intuitive is recognizing that in order to prevent issues from becoming problems, you must identify what the “O” (Others) wants. … Every family member must understand that they have a commitment to each other’s success. … In this way, kything prayers and the “O” in B.O.S.S. mean the same thing.

Cover via Amazon

Being aware of others unleashes energy because there is psychological engagement within the family. It is strikingly portrayed by author Mihaly Csikszentmihalyi. I summarized his concept with a few quotes taken from his book Finding Flow:

“An optimal family system is complex in that it encourages the unique individual development of its members while uniting them in a web of effective ties.”
“A group of people is kept together by two kinds of energy—material energy provided by food, warmth, physical care and money, and the psychic energy of people investing attention in each other’s goals.”
“When people pay attention to each other or to the same activity together, the chances of finding flow, binding the family, increase.”
“Only when there is harmony between the goals of the participants, when everyone is investing psychic energy into a joint goal, does being together become enjoyable.”

The Good Work Team: William Damon, Mihaly Csikszentmihalyi and Howard Gardner (Photo credit: Wikipedia)

Csikszentmihalyi emphasizes the importance of putting psychic energy into families. …The point is that good things happen when people are committed to each other’s success.

The first “S” (Self) in B.O.S.S. represents what you want for yourself. With the family as a team, individuals think about what they want for themselves in concert with what others want for themselves and aligned with what they all want for each other. This puts power into the common family vision because family members reinforce the common good. Each trusts that by contributing during their turn, they are appreciated and the trust is returned when others respond as their turns come.

The second “S” stands for the stakeholders. These stakeholders may be nonfamily employees, other family members not engaged in the business, vendors, suppliers and customers. B.O.S.S. thinking helps create win-win rather than win-lose decisions. It helps promote the common good to help the family and their business become vision driven rather than problem focused.

Develop collaborative team skills
An excellent way to prevent conflict is to strengthen family communications using Collaborative Team Skills. This highly successful program created by Sherod Miller helps families successfully manage their differences.
The program helps people learn how to express feelings and wants. When these deep needs go unexpressed, communication breaks down…. I consider listening skills to be the most important way to promote understanding within the family.

Proper listening requires knowing how to respond to different communication styles, map an issue and actively problem solve. Conflict often arises because people don’t listen carefully, or they respond poorly. ...

Hold regular family meetings
In his book Family Business (3rd Edition), Ernesto Poza promotes family meetings. He states that when family businesses have regular family meetings, they become more successful. …

Successful family-owned businesses typically hold three types of meetings:

Shareholder and owner meetings that include only those members
Meetings designed for employees and family-member stakeholders
Family-only meetings that bring together the entire family, including spouses and those not active in the business

Each type of meeting has its own dynamic, purpose and value. Family meetings, in particular, help manage the boundary between family and business. This is where so many potential conflicts can be discussed and resolved. Family meetings build the emotional equity of the family (the psychic energy of Finding Flow) while simultaneously building the equity of the business.

Here are a few of the many ways to build emotional equity in the family:

Establish and celebrate family rituals and traditions
Regularly spend informal time with each other outside of the business
Involve adult children and grandchildren in family-oriented services and philanthropic projects

Prepare a family code of conduct

Code of Conduct (Photo credit: jronaldlee)

Issues raised and resolved in family meetings can be restated as part of a family participation plan or code of conduct. …

Too many family-owned businesses regularly play the game of business without having or regularly reviewing their own sets of ground rules. Or they assume the rules are unchanged and fail to keep them current.

I use this outline with my clients to guide them to their own family participation plans or codes of conduct:

Eligibility
Entry
Summer employment
Intern programs
Nonfamily executives
Full-time employees
Career planning
Application process
Coaching
Poor performance and termination
Conduct and protocol
Compensation

Discomfort around touchy issues is natural in every family and family business. Holding regular family meetings and producing a family participation plan or code of conduct can prevent many of these issues from becoming problems. My mantra for clients is: “It’s always easier to prevent a problem than to try to fix one.” Conflicts become painful only if ignored.

About the Author
Tom Hubler (tomh@thehublergroup.com) is president of Hubler for Business Families (hublerfamilybusiness.com) and an adjunct professor at the University of St. Thomas.

Managing Conflict in a Family-Owned Business (Part 1 of 2) - CEG Worldwide, LLC

noreply@blogger.com (David Williams) — Wed, 16 May 2012 21:01:00 +0000

CEG Worldwide, LLC

By Tom Hubler (Part 1 of 2)

What advisors frequently overlook can land their clients—and themselves—in hot water (first in a series)

Key Takeaways

Most families avoid talking about death and money, yet that's exactly what is needed for good business succession and personal estate planning.
Families avoid discussions because they fear it will create family disharmony, when just the opposite is true.
Families should develop together a common vision and prayers for each other that reinforce the needs of individual members reflecting their common good.
Optimize your global tax portfolio/position by understanding where the income gets taxed, and then analyze the after-tax income.

Death, money and sex. In our culture these are the three most difficult things for families to talk about. … Virtually everyone avoids talking about death, money and sex in their families. Do you?

nothıng takes placε but thε placε . . (Photo credit: jef safi)

Unfortunately, when a family-owned business is having a conflict, it is likely that two of these topics must be talked about—death and money. That's because conflict in a successful family business commonly occurs when it's time for succession planning—when the family must decide who will continue the business and how. Many families make the mistake of just assuming who it is that will take over the company and that succession will happen when the time is right. That's where the problems begin.

Estate planners tell us succession is a highly unpleasant subject for families. It requires them to think about death in the family, life without a loved one, taking or transferring assets, and changing responsibilities. For a family business, the discussion seems especially filled with potential landmines.

Family businesses avoid succession planning
Succession planning is not only an issue for the owner-entrepreneur, it's also an issue for the entire family. Many families unconsciously conspire to avoid talking about ownership and management-succession planning. …

Pugh's Garden Centre A family-owned business at Morganstown, near Radyr. The wooded edge of Garth Hill can be seen beyond. (Photo credit: Wikipedia)

My clients will say, “It's too early; we have years to think about this.” Or “I don't have time right now.” Or my favorite, “We don't need all that structure and formality because we love each other.”

Actually, it is because you love each other that you need all that structure and formality. It helps you avoid the emotional tripwires and makes the rational path more visible. However, that path must include more than just plans for ownership and the estate.

As I stated in a previous article, it is futile to produce a succession plan by focusing on just the ownership (and estate) plan. A smart succession plan must also consider the owner-entrepreneur's overall intention. It must reflect a core purpose that includes legacy and family intentions as well as the business purpose.

Legacy is more than an entrepreneur's wish for “how I want to be remembered.” A sense of legacy drives the entrepreneur to develop a succession plan. Concern for a legacy creates the motivation.

Start by discussing legacy

Motorhomes lined up for sale This family owned business developed from a haulage firm. They now sell new and used motorhomes. (Photo credit: Wikipedia)

… There are two aspects to legacy: your gift to the future and how you want to be remembered. The first aspect, discussed by Laura Nash in the Harvard Business Review article “Just Enough,” defines “your gift to the future” as a means by which “you help others find future success.”

The second aspect—how you want to be remembered—is my definition. It focuses more personally on how an individual wants to be remembered and is highly emotional because virtually everyone in their 60s and 70s wonders at some point whether their lives have meant something. …

A technical planner can ask:

“How do you want to be remembered?”
“What is your gift to the future?”
“How can I help you achieve those goals?”

Ask legacy questions like these so that owner-entrepreneurs will engage in succession planning. This helps avoid a lot of unnecessary conflict that could surface later.

Conflict accumulates when differences are not discussed

Conflict in family-owned businesses can also increase because family members simply try to avoid it. When I taught the Family Business Management class at the University of St. Thomas, I regularly brought up the famous Hubler Speck of Dust Theory to explain what I often saw happening in family-owned businesses.

Nursery Center has been a family owned and operated business since 1990. Website: nursery-center.com (Photo credit: Wikipedia)

In my Speck of Dust Theory, an issue or irritation triggers differences in the family-owned business. Family members say to themselves, “If I bring that issue up, it will upset the entire family and ruin our 4th of July picnic at the lake.” That speck of dust—that issue—is not discussed.

Sometime later, another issue surfaces. The conflict isn't mentioned because it could spoil Thanksgiving or Christmas, or an upcoming wedding, birthday or graduation. Irritation accumulates into ever-greater annoyance because no one is willing to bring up an issue. The family creates the very disharmony they are trying to avoid by failing to talk about their differences.

Speck-of-dust issues can grow into a ton of discord. Yet these issues are normal and should be aired. (See my partial list of potential issues.) Every family and family-owned business has issues. They become problems only when they are avoided and not discussed.

How to prevent and manage problems in family-owned businesses

The best way to avoid conflict is to keep issues from becoming problems in the first place. To do this the family should create a common vision that unites everyone at a superordinate level. …

Typically, one would urge compromise … Yet when individuals are asked to compromise, they generally feel like they are conceding or giving in. Instead, the family should be encouraged to understand that this is a negotiation that involves cooperation. Everyone is working together for the common good of the family and the business…

individual -v- group (Photo credit: Sean MacEntee)

Individuals recognize that it is unrealistic for each person to get 100 percent of what he or she wants. Instead, each family member is contributing to reflect what's best for the family vision. … Each understands that “just as I contribute, other members of the family will do the same when their turn comes.” And the others' turns always come.

Develop a family vision
To begin, the family creates a list of values that everyone can embrace. These high-level principles are discussed and developed into a brief paragraph that truly reflects what the family believes about themselves and their values. …

I also encourage families to adopt or develop their own family prayers. Here is a typical example:

Family prayer for loving kindness
May our family be filled with loving kindness.
May we be well.
May our family be peaceful and at ease.
May our family be happy.

NEOSHO, MO- JUNE 17: A Twister Safe sign for a small family business that specializes in constructing safe rooms stands June 17, 2011 in Neosho, Missouri. A surge of interest in safe rooms has been seen since an F5 tornado tore through Joplin, Missouri in May. (Image credit: Getty Images via @daylife)

As family members cooperate to develop their family vision statements and prayers, I encourage individuals to prepare their own personal value statements. …

The prayer and vision statements should be clear and brief enough to be recited daily. Because they are developed through family cooperation, these statements resonate across the family and truly reflect the interests of everyone.

Finally, I encourage family members to think about each other daily through brief kything prayers. Kythes are the vision statements of family members. They are put in the third person and reflect what that person wants, needs or values….

Conclusion
By encouraging your family business clients to talk openly and strategically about death and succession, you can help them preserve substantial wealth and family harmony—and solidify your role as a trusted advisor and confidant.

About the Author
Tom Hubler (tomh@thehublergroup.com) is president of Hubler for Business Families (hublerfamilybusiness.com) and an adjunct professor at the University of St. Thomas.

JOBS Act Risk Disclosures IPOs

noreply@blogger.com (David Williams) — Wed, 16 May 2012 20:26:00 +0000

The new law, which loosens reporting requirements for smaller businesses, has prompted some companies to actually add information to their regulatory filings.

CFO Magazine
Sarah Johnson

In the run-up to Facebook’s initial public offering, which is expected to happen within days, smaller, lesser-known companies are preparing for their own foray onto U.S. stock exchanges as well. Naturally, they are alerting investors in public filings that their small stature and lack of public-company experience can make investing in their stock a risky endeavor. Some are going even further and emphasizing that the Jumpstart Our Business Startups (JOBS) Act is itself a risk factor.

Seal of the U.S. Securities and Exchange Commission. (Photo credit: Wikipedia)

Over the past week, at least 13 companies … have warned investors in their prospectuses filed with the Securities and Exchange Commission that the JOBS Act’s breaks on SEC rules could actually be a turnoff. “We cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors,” reads a statement in boldface type by Cimarron Software in an S-1 form submitted to the SEC yesterday.

The trend may reflect an unintended consequence of the JOBS Act, which lawmakers hope will lead to a more active IPO market, according to Michael Stocker, a partner at law firm Labaton Sucharow, who represents institutional investors. The filings are saying “that because the companies are willing to take advantage of the related standards for disclosures under the JOBS Act, one real risk is that they will be punished by investors, since investors won’t be getting as much information and they may have less confidence in how the companies are doing,” says Stocker.

What investors want (Photo credit: tjohansmeyer)

Indeed, so-called emerging-growth companies — those that take in less than $1 billion a year in revenue — can wait up to five years after their IPO before following all of the rules that larger listed businesses have to follow. They can submit two audited financial statements with the SEC instead of three, they can avoid holding say-on-pay votes, and, most significantly, they are not required to get their auditors’ signoffs on internal controls over financial reporting.

… Not all companies preparing for an IPO that qualify as emerging-growth companies have included the law as a risk factor.

Logo og McDermott Will & Emery (Photo credit: Wikipedia)

However, they may want to consider doing so, according to Thomas J. Murphy, a partner at law firm McDermott Will & Emery who helps companies with their public offerings. “It’s cheap insurance and good disclosure to call out for people places where you differ from other public companies,” he says.
The additional disclosure implies the company using it is trying to be comprehensive. Moreover, the lines of text may help it later on if it runs into trouble. “If an emerging-growth company has a failure of its controls and has to restate its financial statements, the disclosure is going to be a plus when that company defends itself against a lawsuit,” Murphy says. The business can respond by saying, “We warned you that there weren’t auditors looking independently at this.”

The plaintiffs’ bar could have a retort, however, Stocker suggests. “All the disclosure says is that because of the JOBS Act, the company’s stock may not trade as high a volume or [for as] good a price as you may hope,” he says. “It’s not saying because of the JOBS Act you may get a nasty surprise at the end of five years.”

Ten Laws Of The Modern World

noreply@blogger.com (David Williams) — Wed, 16 May 2012 17:46:00 +0000

Forbes.com
Rich Karlgaard, 04.19.05, 10:00 AM ET

Gordon Moore on a fishing trip (Photo credit: Wikipedia)

• Moore's Law. … This April marked the 40th anniversary of Gordon Moore's famous dictum. In 1965 Moore (he co-founded Intel three years later) noted that components on silicon chips were doubling every year. In 1975 he amended that to every two years. Today Moore's Law has transcended silicon chips. It has become a way of saying that all digital stuff, from PCs to cell phones to music players, get twice as good every 18 to 24 months--at the same price point. …

• The Back Side of Moore's Law. This one says that digital stuff gets 30% to 40% cheaper every year--at the same performance point. The back side of Moore's Law is why your $299 Treo 650 is as powerful as a $3,500 Compaq PC was in 1988. …

Moore's Law as applied to Intel processors, from the 4004 to the Pentium. (Photo credit: Wikipedia)

• Andy and Bill's Law. The origin of this was a funny one-liner told at computer conferences in the 1990s. It went like this: "What Andy giveth, Bill taketh away." It meant that every time Andy Grove--then chief executive of Intel (nasdaq: INTC - news - people )--brought a new chip to market, Bill Gates--then CEO of Microsoft (nasdaq: MSFT - news - people )--would upgrade his software and soak up the new chip's power. … Moore's Law constantly enables new software. Often the new software is just an incremental improvement. But every few years the world gets a wild breakthrough--graphic computing in the 1980s, Web browsers in the 1990s, fast search engines today. …

• Metcalfe's Law. This one's named after Robert Metcalfe, the inventor of the computer networking protocol Ethernet. Metcalfe said the usefulness of a network improves by the square of the number of nodes on the network. Translation: The Internet, like telephones, grows more valuable as more join in. …

Image via CrunchBase

• Gilder's Law: Winner's Waste. The futurist George Gilder wrote about this a few years ago in a Forbes publication. The best business models, he said, waste the era's cheapest resources in order to conserve the era's most expensive resources. When steam became cheaper than horses, the smartest businesses used steam and spared horses. Today the cheapest resources are computer power and bandwidth. Both are getting cheaper by the year (at the pace of Moore's Law). Google (nasdaq: GOOG - news - people ) is a successful business because it wastes computer power--it has some 120,000 servers powering its search engine--while it conserves its dearest resource, people. Google has fewer than 3,500 employees, yet it generates $5 billion in (current run rate) sales.

David Ricardo Français : David Ricardo Deutsch: David Ricardo (Photo credit: Wikipedia)

• Ricardo's Law. The more transparent an economy becomes, the more David Ricardo's 19th-century law of comparative advantage rules the day. … Which means if your firm's price-value proposition is lousy, too bad. The world knows.

• Wriston's Law. This is named after the late Walter Wriston, a giant of banking and finance. In his 1992 book, The Twilight of Sovereignty, Wriston predicted the rise of electronic networks and their chief effect. He said capital (meaning both money and ideas), when freed to travel at the speed of light, "will go where it is wanted, stay where it is well-treated...." By applying Wriston's Law of capital and talent flow, you can predict the fortunes of countries and companies.

Laffer Curve (Photo credit: Wikipedia)

• The Laffer Curve. In the 1970s the young economist Arthur Laffer proposed a wild idea. Cut taxes at the margin, on income and capital, and you'll get more tax revenue, not less. Laffer reasoned that lower taxes would beckon risk capital out of hiding. Businesses and people would become more productive. The pie would grow. Application of the Laffer Curve is why the United States boomed in the 1980s and 1990s, why India is rocking now and why eastern Europe will outperform western Europe.

• Drucker's Law. Odd as it seems, you will achieve the greatest results in business and career if you drop the word "achievement" from your vocabulary. Replace it with "contribution," says the great management guru Peter Drucker. Contribution puts the focus where it should be--on your customers, employees and shareholders.

Cover of Ogilvy on Advertising

• Ogilvy's Law. David Ogilvy gets my vote as the greatest advertising mind of the 20th century. The founder of Ogilvy & Mather--now part of WPP (nasdaq: WPPGY - news - people )--left a rich legacy of ideas in his books, my favorite being Ogilvy on Advertising. Ogilvy wrote that whenever someone was appointed to head an office of O&M, he would give the manager a Russian nesting doll. These dolls open in the middle to reveal a smaller doll, which opens in the middle to reveal a yet smaller doll...and so on. Inside the smallest doll would be a note from Ogilvy. It read: "If each of us hires people who are smaller than we are, we shall become a company of dwarfs. But if each of us hires people who are bigger than we are, we shall become a company of giants." Ogilvy knew in the 1950s that people make or break businesses. It was true then; it's truer today.

4 Ways to Unlock Yourself from Chronic Frustration

noreply@blogger.com (David Williams) — Tue, 15 May 2012 19:25:00 +0000

PickTheBrain Blog
Written by Lisa H. Wright

Photo credit: ‘Unlock‘ by Big Stock

… Frustration, at its core is wanting something to be other than it is: A different time; a different place; a different color; a different job; a different feeling; a different person. It doesn’t matter what it is, you just want it to be different ….

For many us, a lot of our frustration comes from our deepest desires being constantly unmet. If you’ve been chasing something for years, and don’t feel like you’re getting any closer, you’re going to feel frustrated. There may be times when you feel like screaming to no one in particular, “Just give me what I want already!” And for some of us, it’s other people who seem to be our primary source of aggravation. They’re simply not cooperative, courteous, appreciative, or thoughtful enough for our liking, or maybe they just refuse to see things our way.

frustration. (Photo credit: nicole.pierce.photography ♥)

So what is it that has you pulling your hair out, swearing under your breath, and banging your head against the wall? Who is it that has you completely mad? Is it your boss? …

All of these examples are common sources of frustration, and most of us learn to deal with and accept them. However, some problems can get you so down, that they can negatively affect the quality of your life. You could find yourself so overwhelmed and beat down by frustration that you start spending your days wallowing in despair. Also, chronic frustration will eventually rob you of your motivation, and have you ready to just give up.

Unlocking yourself from feeling chronic frustration is not as hard as it might seem at first glance. But it does require a drastic change in attitude. You must resolve to stop giving in to feelings of hopelessness, and start finding solutions. Here are four good tips for freeing yourself from the clutches of frustration:

Find A Way to Vent
A big part of frustration is the feeling that nobody’s listening, nobody understands, or nobody cares. Finding effective ways to vent and be heard can go a long way towards curbing the feeling of being totally flustered.

… Heck, sometimes all it takes is the willingness to open up to a trusted friend or relative, and confide in them some of your struggles. Although your problems won’t vanish instantly, the burden of carrying your angst in silence will be lifted considerably.

Set Goals
The most maddeningly frustrating thing about most bothersome situations is the feeling that you’re just treading water; in other words, you’re going nowhere. However, by setting goals you’re taking definite action towards a solution, or resolution of some sort. The knowledge that you’re actively working on the problem instead of just being frustrated about is very reassuring, and can help abate any feelings of defeatism trying to creep in… .

Change Your Perspective

Three Ising spins on a triangle for illustrating frustration (Photo credit: Wikipedia)

Rarely can you come up with an effective solution to a problem or challenge when you’ve given into frustration about it. One way to free yourself from this trap is to change your perspective, so that you can see the positive in your situation. Are you frustrated over work, or one of the lucky ones to have a job? Is your wife driving you crazy, or are you counting your blessings that you have someone? Is a client slow to pay, or are you fortunate to have clients? Surprisingly, when you shift your stance this way, uncanny solutions to your problems often show up right out of the blue.

Get Creative
It’s a good idea to start thinking outside the box for clever solutions, strategies, and other ways to tackle frustrating problems. Are the pounds coming off too slowly? Start walking or biking to work! I’m serious! I used to do it, and trust me; I was adjusting my belt notch every two weeks. As an added bonus, the additional exercise was an unexpected mood booster, and I felt much less frustrated in general.

Problem solving process (Photo credit: coach_robbo)

Are you frustrated that money is always tight? Then it’s time to take a hard look at your talents. … Everyone has a talent at something, or expert knowledge on some subject. Brainstorm long and hard, and find a way to use the Internet to get started. This can work full-time, or in your spare time.

… The list can go on forever, but the aim is to tackle your money problems head on, and alleviate your frustration by bringing in some extra bucks – and doing something you’re already good at.

Depiction of frustration (Photo credit: Wikipedia)

Let’s face it: frustration is a part of life. As long as we want anything, frustration is bound to follow at least some of the time. In addition, other people have their own quirks, habits, and idiosyncrasies so frustration with them is inevitable at some point. Regardless, we don’t have to stay down in the dumps, or get depressed when things don’t go right. Life will always present us with challenges, problems, and difficulties to deal with. Our job is to stand tall in the face of problems, and discover ways to solve them. Then you’ll find your chronic frustration has been replaced by a much more welcome guest: peace of mind!
—-
Lisa H. is a mother, blogger, runner and happiness seeker. Her blog, Getting to Zen inspires personal success through action. If you want to awaken your spirit, you can subscribe here.
In addition to blogging, Lisa is a co-author of Overcoming Fear: Sticking it to What’s Holding You Back, a unique program designed to help you get out of your own way and create the life that you want. To read more of Lisa’s articles, visit her blog.

Rory Sutherland: Perspective is everything

noreply@blogger.com (David Williams) — Fri, 11 May 2012 18:04:00 +0000

10 big mistakes successful leaders make

noreply@blogger.com (David Williams) — Thu, 10 May 2012 21:50:00 +0000

CBS News

By Steve Tobak

(Photo courtesy Flickr user Alex E. Proimos)

(MoneyWatch) COMMENTARY Executives and business leaders don't just peak and lose their potency over time, like wine. They change. … Success affects everyone differently and not necessarily in a good way.…

If you know a little about human psychology, that shouldn't surprise you. You've got to really know yourself, possess unusual self-confidence, and be pretty well grounded in reality to withstand the ego-inflating onslaught of winning big in business.

Since we're all human, we're all susceptible to the unusual pressures and pitfalls that come from achieving what we've always dreamed of. In my experience, these are the ten most common traps successful leaders fall into.

Image via CrunchBase

Becoming the status quo. Startups often break into the market by challenging the status quo. The problem is when success makes them the status quo, yet they don't realize it. That was evident when Apple and Google challenged the BlackBerry with the iPhone and Android platform. It's ironic that RIM's co-founders forgot that they were once the challengers. …

Image via CrunchBase

Tunnel vision. They lose perspective and become rigid, sticking to their myopic vision like glue. Since competitors are unpredictable and markets are always evolving, it can be deadly to a business. If their vision fails to gain traction, they often double down and become even more grandiose. …

Losing their fear. Fear is a key emotion that warns you when to be alert and when you need to act. When you start to think that success is inevitable and believe you can't fail, you act irrationally, become reckless and take risks you shouldn't or without due consideration. …

Image via CrunchBase

Fear of losing. The opposite of becoming fearless to the extreme is becoming too risk averse because you're afraid of losing what you've won. … Once that fear of taking chances sets in, you're business is doomed.

All knowing. They stop asking questions and don't really listen when key stakeholders -- customers, executives, directors, investors -- tell them something they need to hear. They think they have all the answers, that they're the smartest guys in the room. They miss critical warning signs.

Isolated. … They become insular in their thinking and cut themselves off from others with layers of bureaucracy and hierarchy. There are also usually physical manifestations like executive offices, suites, buildings, and assistants to keep the masses out.

Controlling. In the name of maintaining a culture of entrepreneurship, they become obsessed with keeping things the way they are. That often translates to micromanaging and controlling every little thing. They fail to let go by adding processes and infrastructure that growing businesses need to effectively scale. …

Surrounded by yes-men. There will always be weak-minded lackeys that tell leaders what they want to hear and sugarcoat negative news to gain favor. But their power only comes from weak leaders with low self-esteem that need their egos to be constantly pumped up.

Lost the magic. Business success is nearly always the result of a number of factors. Sure, there's a product or service that customers are excited about, but there's also pricing, timing, partners, even luck. Whatever the combination, it's tempting for successful entrepreneurs to think it's all about them, not the "magic formula" that got them there.

If I build it, they will come. Entrepreneurship works in America because anyone with an idea can get funding and, if the stars are aligned, develop a hit product or service. To get out of the "one hit wonder" phase and develop a second and third successful product, however, requires a willingness to embrace marketing, sales, operations, customer service and other business functions.

© 2012 CBS Interactive Inc.. All Rights Reserved.

Steve Tobak is a consultant and former high-tech senior executive. He's managing partner of Invisor Consulting, a management consulting and business strategy firm. Contact Steve, follow him on Facebook, or connect on LinkedIn.

The Role of the Board in Family Business Succession

noreply@blogger.com (David Williams) — Wed, 09 May 2012 18:51:00 +0000

How to help smooth leadership transitions

Trusts & Estates Magazine
By David Thayne Leibell, partner at Wiggin and Dana LLP in Greenwich, CT

Board of Directors (Photo credit: Wikipedia)

A relatively unexplored area of family business research is the role that an active, independent board of directors can play in perpetuating the family business from one generation to the next. A recently published book, Building A Successful Family Business Board[1], seeks to close that research gap. In fact, according to the book’s authors, an active, independent board can serve as an objective steward, overseeing the creation and execution of a leadership succession plan that works for both the business and the family.

Definitions

The authors state that an “active board” refers to a board that meets three or more times a year. An “independent board” is one with three or more independent directors; which is the minimum number that the authors believe is necessary to have a meaningful impact on governance. An “independent director” is an individual who has no ties to the business, other than being a director. The definition of an independent director doesn’t include employees, shareholders or outside advisors to the business or the family.

The Problem

Mawarid Board of Directors (Photo credit: Wikipedia)

Even in the healthiest of families, the leadership succession process is often a difficult task that, for a variety of valid reasons, the family chooses to avoid. The authors cite a 2007-08 survey of family businesses by Price Waterhouse Coopers, which found that while one-quarter of the businesses surveyed were due to change leadership hands in the next five years, roughly half of the family business that participated in the study had no succession plan in place. According to the authors, an active board with independent directors should avoid this problem by requiring the development of a succession plan as a natural part of family business governance.

Family Business Boards

2011 Board of Directors Retreat (Photo credit: sfbike)

In connection with writing the book, the authors conducted a study of 360 family businesses regarding the state of their boards. Although every business must legally name a board of directors, the majority of family businesses surveyed had boards in name only. Only 48 percent of respondents had boards that met more than twice a year. According to the authors, boards that meet less than three times a year provide little effective support of management or the shareholders. Of the active boards, only 25 percent featured two or more independent directors, and only 21 percent had more than three independent directors, the number that the authors feel is necessary for independent directors to have sufficient voice to influence family board members in an effective manner. Surprisingly, even for businesses with sales greater than $100 million, only 58 percent had active boards, and only 33 percent had three or more independent directors.
It’s the authors’ view that independent directors are the richest resource available to family-owned companies. The survey results bear this out. Respondents with independent directors on their boards reported a much higher level of board effectiveness (83 percent) than respondents with no independent representation (54 percent). Not surprisingly, board effectiveness increases with the amount of independent representation. Respondents with a majority of independent directors on the board reported 93 percent board effectiveness.

General Benefits

The authors explain that active independent boards: (1) provide in-house experience, empathy and expertise; (2) encourage self-discipline and accountability; (3) act as a sounding board for family and management; (4) provide honest, objective opinions; (5) encourage strategic planning; (6) provide insight into key people; (7) ask challenging, proactive questions; (8) provide confidential and empathetic counsel; (9) engender creative thinking and decision making; and (10) encourage better corporate relations with constituents ranging from employees and suppliers to customers.

Succession Planning

Many, if not most, family business leaders have a difficult time handing over the leadership reigns. As such, many family business leaders delay or avoid succession planning, which can have devastating consequences, not only for the business, but also the family. According to the authors, active, independent boards can be invaluable to the succession process by: (1) ensuring that a succession plan is in place well in advance of the time it is needed; (2) helping the current leader examine various options; (3) ensuring the successor is being adequately prepared; and (4) helping plan for, and complete the process. No other resource provides as comprehensive a source of support to help the company and family achieve continuity as the business passes from one generation to the next.

Endnote

1. Jennifer M. Pendergast, John L. Ward and Stephanie Brun de Pontet, Building A Successful Family Business Board, Palgrave Macmillan (Jan. 2011).

M&A Madness: It's Not A Game

noreply@blogger.com (David Williams) — Wed, 09 May 2012 18:28:00 +0000

CRN Magazine
By St even Burke, CRN March 23, 2012

Solution providers staying pat during the current M&A frenzy could find themselves left standing in what is turning out to be the business equivalent of musical chairs.

This M&A madness is anything but a child’s game. It’s all about making an almost unimaginable business transformation to a world where businesses are buying IT as a service. …

Cover via Amazon

Nicholas Carr, the IT futurist, had it right in his book “The Big Switch,” which compared the current IT-as-a-Service phenomenon to the move by companies 100 years ago to stop building their own power sources and instead move to the electric grid. Today’s transformation, however, does not mean that every business will move outright to the IT-as-a-Service model. There will be plenty that maintain a hybrid model, building their own private clouds and relying on the public cloud for some services. But the economic forces that are reshaping the solution provider marketplace are moving at a breakneck pace.

Solution providers are looking closely at whether they have the right business model and technical talent to make it in this new world. …

Diagram showing three main types of cloud computing (public/external, hybrid, private/internal) (Photo credit: Wikipedia)

For my money, the more interesting deals are those aimed at cloud computing IT services superiority. GreenPages, for example, which began making big cloud computing investments long before it was fashionable, recently acquired cloud MSP LogicsOne. The deal comes as GreenPages is set to shake up the market with an enterprise hybrid cloud management offering.

Breakdown of Cloud Computing Services (Photo credit: Wikipedia)

“Everything we do is around infrastructure transformation, turning internal IT into a service platform, getting apps and data cloud-ready so customers can move to a new paradigm,” said GreenPages CEO Ron Dupler. “Everything we do is around the cloud.” Even without LogicsOne, GreenPages’ cloud services business is growing at a 30 percent clip. Add LogicsOne to the party and it takes the GreenPages cloud services story to another level. …

Cloud Computing visual diagram (Photo credit: Wikipedia)

These type of scale-up deals bringing together best-of-breed cloud computing service providers should worry companies that are staying pat. The IT services phenomenon means that solution providers need to, in one way or another, go big or go home.

BACKTALK: Are you going big? Reach out to Steven Burke via e-mail at steven.burke@ubm.com

To Increase Revenue Stop Selling

noreply@blogger.com (David Williams) — Tue, 08 May 2012 18:51:00 +0000

Forbes

Leadership | 5/01/2012 @ 11:47AM

Mike Myatt, Contributor, I write about leadership myths, and bust them one-by–one.

Creating or expanding business relationships is not about selling – it’s about establishing trust, rapport, and value creation without selling. Call me crazy, but I don’t want to talk to someone who wants to manage my account, develop my business, or engineer my sale. I want to communicate with someone who desires to fulfill my needs or solve my problems. Any organization that still has “sales” titles on their org charts and business cards is living in another time and place, while attempting to do business in a world that’s already passed them by.

Engage me, communicate with me, add value to my business, solve my problems, create opportunity for me, educate me, inform me, but don’t try and sell me – it won’t work. An attempt to sell me insults my intelligence and wastes my time. …The difference between the two positions while subtle, are very meaningful and powerful.

The traditional practice of sales as a business discipline has become at best ineffective, and in many cases flat out obsolete. …

The problem with many sales organizations is they still operate with the same principles and techniques they were using in the 60′s, 70’s and 80’s. While the technology supporting sales process have clearly evolved, the traditional sales strategies proffered by sales gurus 20 or 30 years ago have not kept pace with market needs. They are not nearly as effective as they once were, and as I’ve alluded to, in most cases they are obsolete.

Trust me when I tell you that your existing and potential clients have heard it all before. … If you want to create revenue, increase customer satisfaction, and drive brand equity, stop selling and start adding value.
Lest you think I’ve lost my mind, I want to be clear that I’m not advocating taking your eye off the revenue creation ball. Rather what I’m recommending will help you generate more revenue, with greater velocity by simply doing the right thing in putting your customer’s needs first.

I hear a lot of noise about the tough economy, and revenue being down for many companies…. If you’re experiencing this type of reaction from your customer, it’s not because they don’t have money to spend, it’s because you’re selling and not adding value. It’s because you’re talking and not listening. …

It’s not about you, your company, your products or your services. It’s about meeting customer needs and adding value. …

So, my first suggestion is you change nomenclature. Clients are people not fish. Don’t “lure” or “hook” them – engage them, listen to them and serve them. Eliminate the words “suspects” and “prospects” from your vocabulary and replace them with potential clients. Think about it – do you establish trust by profiling and targeting prospects, or by attempting to understand the needs of a potential client? This is much more than a semantical argument – it’s a philosophical shift in thinking, and a practical shift in acting. Stop selling and start serving.

TICSS Customer Service Measurement Model (Photo credit: Wikipedia)

… Frankly, most people I know would rather talk to a knowledgeable customer service person over a sales rep any day of the week. The reason for this should be obvious – the perception is a customer service professional is providing information and helping them meet their needs. A sales person is trying to sell them something.

It’s time for companies to realize that consumers have become very savvy and very demanding. Today’s consumer (B2B or B2C) does their homework, is well informed, and buys…they are not sold. …

Since the large majority of all buying decisions either begin or conclude on the Internet, you better be visible online. In addition to the basics of search engine optimization and traditional search engine marketing, I would strongly suggest getting involved in social networking. Just by having a presence on Twitter, Facebook, Google+, LinkedIn, YouTube and other social networking platforms, you not only open-up a new communications channel to your existing clients, but you also make yourself readily available to those looking to find what you have to offer.

Teach your sales force to become true professionals focused on helping their customers for all the right reasons vs. closing the big deal for personal benefit. …

The most important factor in creating revenue and building brand equity is the client/customer/end-user. If you don’t engineer everything around the client, your client relationships will vanish before your very eyes. Don’t be just another vendor, become a trusted advisor and advocate.

America Adjusts for Obesity

noreply@blogger.com (David Williams) — Tue, 08 May 2012 15:40:00 +0000

Obese man early 20th century (Photo credit: Wikipedia)

24/7 Wall St.

Posted: May 8, 2012 at 6:31 am

Douglas A. McIntyre

Authors of a new CDC study, … reported that the number of Americans considered obese will rise to 42% of the population by 2030. The medical costs of the shift will be $550 billion between now and then. And those medical costs are only part of it. America is preparing for a world of increased numbers of obese people the way it has for its aging population. Nothing about how business and the medical community treat these citizens, as people in the United States gain weight, will ever be the same.

Services must accommodate obese people with specialist equipment such as much wider chairs. Bakewell J (2007). "Bariatric furniture: Considerations for use.". Int J Ther Rehabil (7) : 329–33 . . (Photo credit: Wikipedia)

Businesses have begun to take on the price of obesity already. The New York Times reports that the average airline seat is made to bear a load of 170 pounds in a crash. The average America male weighs 194 pounds and the average woman 165 pounds. The FAA probably will need to issue new rules for the support strength of seats, and these new seats will cost money. And there are PR effects, too. There have been recent accounts of how airlines handle, or mishandle, wildly overweight passengers.

As scientists turn their focus to the future of the obese population, they have even started to determine the extent to which the obese can safely exercise. … The Journal of Epidemiology and Community Health published a report by Dr. Paul Jarle Mork of the Department of Human Movement Science at the Norwegian University of Science and Technology. It recommends that obese people should get more exercise without too much concern about the effects of risk of knee and hip osteoarthritis. Even exercise equipment may be adjusted to help overweight Americans use gyms.

Obesity rates in Canadian provinces in 2005. Percent of population obese Percent of population obese or overweight Derived from data at this Statistics Canada study by Margot Shields and Michael Tjepkema. (Photo credit: Wikipedia)

Science, it seems, has begun to turn its problem-solving methods as much to obesity as to heart disease, cancer or Alzheimer’s disease. …Obesity may be the largest problem among that group of illnesses, particularly because of the role it plays in heart diseases, cancer and Type 2 diabetes.

A number of proposals have been put forward about how to cover the costs of a weight-gaining America. The taxes or medical insurance amounts that obese people pay could be increased. … The airlines could increase ticket prices for people who weigh more than 200 pounds, or 250, to pay for new seats and fuel. Food companies and restaurants might get tax breaks for preparing meals with fewer calories and less fat.

Obesity Campaign Poster (Photo credit: Pressbound)

Of course, the American way is to take no prejudicial action against people because of age or infirmity. The obese are, as a group, treated like the aged, the sick and the infirm so far. And, in a world in which politicians and the courts create and enforce rules, the obese are not likely to face discrimination. As individuals, they represent too many votes. They may even want to start their own version of the AARP.

Demystifying social media

noreply@blogger.com (David Williams) — Mon, 07 May 2012 21:45:00 +0000

McKinsey Quarterly

As the marketing power of social media grows, it no longer makes sense to treat it as an experiment. Here’s how senior leaders can harness social media to shape consumer decision making in predictable ways.

APRIL 2012 • Roxane Divol, David Edelman, and Hugo Sarrazin
Source: Marketing & Sales Practice

Executives certainly know what social media is. … Executives can even claim to know what makes social media so potent: its ability to amplify word-of-mouth effects. … [But] few have a deep understanding of exactly how social media interacts with consumers to expand product and brand recognition, drive sales and profitability, and engender loyalty.

We believe there are two interrelated reasons why social media remains an enigma wrapped in a riddle for many executives, particularly nonmarketers. The first is its seemingly nebulous nature. … Second, there’s no single measure of social media’s financial impact, and many companies find that it’s difficult to justify devoting significant resources—financial or human—to an activity whose precise effect remains unclear.
… We have identified its four primary functions—to monitor, respond, amplify, and lead consumer behavior—and linked them to the journey consumers undertake when making purchasing decisions. Being able to identify exactly how, when, and where social media influences consumers helps executives to craft marketing strategies that take advantage of social media’s unique ability to engage with customers. It should also help leaders develop, launch, and demonstrate the financial impact of social-media campaigns (for insight into the world’s biggest social-media market, see “Understanding social media in China”).

… It’s much more than simply another form of paid marketing, and it demands more too: a clear framework to help CEOs and other top executives evaluate investments in it, a plan for building support infrastructure, and performance-management systems to help leaders smartly scale their social presence. Companies that have these three elements in place can create critical new brand assets (such as content from customers or insights from their feedback), open up new channels for interactions (Twitter-based customer service, Facebook news feeds), and completely reposition a brand through the way its employees interact with customers or other parties.

The social consumer decision journey

… 39 percent of companies we’ve surveyed already use social-media services as their primary digital tool to reach customers, and that percentage is expected to rise to 47 percent within the next four years.¹ Fueling this growth is a growing list of success stories from mainstream companies:

Influencer roles throughout the decision process (Photo credit: Wikipedia)

Creating buzz: Eighteen months before Ford reentered the US subcompact-car market with its Fiesta model, it began a broad marketing campaign called the Fiesta Movement. A major element involved giving 100 social-media influencers a European model of the car, having them complete “missions,” and asking them to document their experiences on various social channels. Videos related to the Fiesta campaign generated 6.5 million views on YouTube, and Ford received 50,000 requests for information about the vehicle, primarily from non-Ford drivers. When it finally became available to the public, in late 2010, some 10,000 cars sold in the first six days.

Dewmocracy 2 (2010) flavor finalists: White Out, Distortion and Typhoon (Photo credit: Wikipedia)

Learning from customers: PepsiCo has used social networks to gather customer insights via its DEWmocracy promotions, which have led to the creation of new varieties of its Mountain Dew brand. Since 2008, the company has sold more than 36 million cases of them.

Targeting customers: Levi Strauss has used social media to offer location-specific deals. In one instance, direct interactions with just 400 consumers led 1,600 people to turn up at the company’s stores— an example of social media’s word-of-mouth effect.

Yet countless others have failed to match these successes: knowing that something works and understanding how it works are very different things. …

Marketing’s primary goal is to reach consumers at the moments, or touch points, that influence their purchasing behavior. Almost three years ago, our colleagues proposed a framework—the “consumer decision journey”—for understanding how consumers interact with companies during purchase decisions.² Expressing consumer behavior as a winding journey with multiple feedback loops, this new framework was different from the traditional description of consumer purchasing behavior as a linear march through a funnel. Social media is a unique component of the consumer decision journey: it’s the only form of marketing that can touch consumers at each and every stage, from when they’re pondering brands and products right through the period after a purchase, as their experience influences the brands they prefer and their potential advocacy influences others.

A social journey
For more on social media’s relationship to the consumer decision journey, explore this interactive exhibit narrated by coauthor David Edelman.

Stephen Monaco speaking about Social Media Marketing (Photo credit: Wikipedia)

The fact that social media can influence customers at every stage of the journey doesn’t mean that it should. Depending on the company and industry, some touch points are more important to competitive advantage than others.³ … The ten most important responses, range from providing customer service to fostering online communities (exhibit). One of those ten—monitoring what people say about your brand—is so important that we see it as a core function of social media, relevant across the entire consumer decision journey. The remaining nine responses, organized in three clusters in the exhibit, underpin efforts to use social media to respond to consumer comments, to amplify positive sentiment and activity, and to lead changes in the behavior and mind-sets of consumers.

Exhibit: Social media enables targeted marketing responses at individual touch points along the consumer decision journey.

1. Monitor

Gatorade, a sports drink manufactured by PepsiCo, has been diligently working toward its goal of becoming the “largest participatory brand in the world.”⁴ It has created a Chicago-based “war room” within its marketing department to monitor the brand in real time across social media. … Every day, all of this feedback is integrated into products and marketing—for example, by helping to optimize the landing page on the company’s Web site. Since the war room’s creation, the average traffic to Gatorade’s online properties, the length of visitor interactions, and viral sharing from campaigns have all more than doubled.

Such brand monitoring—simply knowing what’s said online about your products and services—should be a default social-media function, taking place constantly. … It’s also critical to communicate such feedback within the business quickly: whoever is charged with brand monitoring must ensure that information reaches relevant functions, such as communications, design, marketing, public relations, or risk.

2. Respond

Valuable though it is to learn how you are doing and what to improve, broad and passive monitoring is only a start. Pinpointing conversations for responding at a personal level is another form of social-media engagement. This kind of response can certainly be positive if it’s done to provide customer service or to uncover sales leads. Most often, though, responding is a part of crisis management.

Last year, for example, a hoax photograph posted online claimed that McDonald’s was charging African-Americans an additional service fee. … It turned out to be a working weekend for the McDonald’s social-media team. On Saturday, the company’s director of social media released a statement through Twitter declaring the photograph to be a hoax and asking key influencers to “please let your followers know.” The company continued to reinforce that message throughout the weekend, even responding personally to concerned Tweeters. By Sunday, the number of people who believed the image to be authentic had dwindled, and McDonald’s stock price rose 5 percent the following day.

Responding in order to counter negative comments and reinforce positive ones will only increase in importance. The responsibility for taking action may fall on functions outside marketing, and the message will differ depending on the situation. No response can be quick enough, and the ability to act rapidly requires the constant, proactive monitoring of social media—on weekends too. By responding rapidly, transparently, and honestly, companies can positively influence consumer sentiment and behavior.

3. Amplify

“Amplification” involves designing your marketing activities to have an inherently social motivator that spurs broader engagement and sharing. … It means that the core concepts for campaigns must invite customers into an experience that they can choose to extend by joining a conversation with the brand, product, fellow users, and other enthusiasts. It means having ongoing programs that share new content with customers and provide opportunities for sharing back. It means offering experiences that customers will feel great about sharing, because they gain a badge of honor by publicizing content that piques the interest of others.
In the initial phases of the consumer decision journey, when consumers sift through brands and products to determine their preferred options, referrals and recommendations are powerful social-media tools. … Our research shows that such direct recommendations from peers generate engagement rates some 30 times higher than traditional online advertising does.

,., decision making (Photo credit: nerovivo)

Once a consumer has decided which product to buy and makes a purchase, companies can use social media to amplify their engagement and foster loyalty. When Starbucks wanted to increase awareness of its brand, for example, it launched a competition challenging users to be the first to tweet a photograph of one of the new advertising posters that the company had placed in six major US cities, providing winners with a $20 gift card. This social-media brand advocacy effort delivered a marketing punch that significantly outweighed its budget. Starbucks said that the effort was “the difference between launching with millions of dollars versus millions of fans.”⁵

Marketers also can foster communities around their brands and products, both to reinforce the belief of consumers that they made a smart decision and to provide guidance for getting the most from a purchase. …

4. Lead

Social media can be used most proactively to lead consumers toward long-term behavioral changes. … When grooming-products group Old Spice introduced its Old Spice Man character to viewers, during the US National Football League’s 2010 Super Bowl, for example, the company’s ambition was to increase its reach and relevance to both men and women. The commercial became a phenomenon: starring former player Isaiah Mustafa, it got more than 19 million hits across all platforms, and year-on-year sales for the company’s products jumped by 27 percent within six months.

Marketers also can use social media to generate buzz through product launches, as Ford did in launching its Fiesta vehicle in the United States. … In addition, when consumers are ready to buy, companies can promote time-sensitive targeted deals and offers through social media to generate traffic and sales. Online menswear company Bonobos, for example, provided an incentive for its Twitter followers by unlocking a discount code … As a result of this effort, almost 100 consumers bought products from the site for the first time. The campaign delivered a 1,200 percent return on investment in just 24 hours.

Finally, social media can solicit consumer input after the purchase. This ability to gain product-development insights from customers in a relatively inexpensive way is emerging as one of social media’s most significant advantages. …

Converting knowledge to action

Despite offering numerous opportunities to influence consumers, social media still accounts for less than 1 percent of an average marketing budget, in our experience. Many chief marketing officers say that they want to increase that share to 5 percent. … But the main obstacle is the perception that the return on investment (ROI) from such initiatives is uncertain.

Without a clear sense of the value social media creates, it’s perhaps not surprising that so many CEOs and other senior executives don’t feel comfortable when their companies go beyond mere “experiments” with social-media strategy. Yet we can measure the impact of social media well beyond straight volume and consumer-sentiment metrics; in fact, we can precisely determine the buzz surrounding a product or brand and then calculate how social media drives purchasing behavior. … In many cases, senior business leaders must open up their agendas and recognize the importance of supporting and even undertaking initiatives that may traditionally have been left to the chief marketing officer. As our colleagues noted last year, “we’re all marketers now.”⁶

Consider the experience of a telecommunications company that proactively adopted social media but had no idea if its efforts were working. … In social-media terms, the investment was relatively large, and the company’s senior executives wanted more than anecdotal evidence that the strategy was paying off. As a starting point, to ensure that the company was doing a quality job designing and executing its social presence, it benchmarked its efforts against approaches used by other companies known to be successful in social media. It then advanced the following hypotheses:

If all of these social-media activities improve general service perceptions about the brand, that improvement should be reflected in a higher volume of positive online posts.⁷
If social sharing is effective, added clicks and traffic should result in higher search placements.
If both of these assumptions hold true, social-media activity should help drive sales—ideally, at a rate even higher than the company could achieve with its average gross rating point (GRP) of advertising expenditures.⁸

The company then tested its options. At various times, it spent less money on conventional advertising, especially as social-media activity ramped up, and it modeled the rising positive sentiment and higher search positions just as it would using traditional metrics. The company concluded that social-media activity not only boosted sales but also had higher ROIs than traditional marketing did. …

In other cases, social media may have a more specific role, such as helping to launch a new product or to mitigate negative word of mouth. Similar types of analyses can focus on mixing the impact of buzz, search, and traffic; correlating that with sales or renewals (or whatever the key metric may be); and then gauging the result against total costs. This approach can give executives the confidence and focus they need to invest more money, time, and resources in social media.

As these social-media activities gain scale, the challenges center less around justifying funding and more around organizational issues such as developing the right processes and governance structure, identifying clear roles—for all involved in social-media strategy, from marketing to customer service to product development—and bolstering the talent base, and improving performance standards. … We do know this: because social-media influences every element of the consumer decision journey, communication must take place between as well as within functions. That complicates lines of reporting and decision-making authority.
If insights from monitoring social media are relevant to nonmarketing functions such as product development, for instance, how will you identify and disseminate that information efficiently and effectively—and then ensure that it gets used? If you spot an opportunity to have a meaningful conversation with a key influencer, how will you quickly engage the right senior executive to follow through? If you recognize a fast-moving service concern, how will you respond rapidly and openly—and when should you do so outside the traditional service organization? Senior executives across the company must recognize and begin to answer such questions.

Social media is extending the disruptive impact of the digital era across a broad range of functions. Meanwhile, the perceived lack of metrics, the fear, and the limited sense of what’s possible are eroding. Executives can identify the functions, touch points, and goals of social-media activities, as well as craft approaches to measure their impact and manage their risks. The time is ripe for executive-suite discussions on how to lead and to learn from people within your company, marketers outside it, and, most of all, your customers.

About the Author

Roxane Divol is a principal in McKinsey’s San Francisco office, David Edelman is a principal in the Boston office, and Hugo Sarrazin is a director in the Silicon Valley office.
The authors would like to acknowledge the contributions of Sirish Chandrasekaran, Dianne Esber, Rebecca Millman, and Dan Singer to the development of this article.

Life's financial questions answered with crisp clarity

noreply@blogger.com (David Williams) — Thu, 03 May 2012 20:46:00 +0000

CBS News

By Allan Roth

(MoneyWatch) COMMENTARY Jack Otter, executive editor at CBS MoneyWatch.com, has written a new book that provides simple answers to the most common financial questions I get asked as a financial planner. His book, Worth It...Not Worth It (Hachette, May 2012), just became available this week. And in his book, Jack arrives at the same conclusion that I did - the vast majority of financial decisions you face in life are actually very simple to analyze if you just take a step back. Here is a sample of some pearls of wisdom from the book and why I repeatedly agree with Jack's answers.

Q. Should you use a credit or debit card?
A. A credit card gives you more flexibility in disputing a purchase as well as any unpleasant holds on your checking account. Use credit cards responsively and as a charge card, avoiding high non tax-deductible interest charges courtesy of your credit card company. ...

Q. Should you do business with a credit union or bank?
A. Credit unions often have better rates on both deposits and loans. They also tend to charge lower fees. That's because they are non-profits and view these actions as giving back to their owners. ...

Q. Should you buy or rent?
A. I agree with Jack that buying is likely to be better than renting. Though I wasn't nearly as sure a few years ago when the paradigm of "real estate can never go down" was in vogue, Jack is likely giving good advice here when he notes how much prices have gone down, and a house is the one piggy bank you can enjoy.

Q. Should you buy and hold investments or time the market?
A. Buy and hold. I've written extensively on this one as our human instincts make us buy high and sell low. I'm going to slightly disagree with Jack here as I consider rebalancing to be a market timing mechanism I actually believe in.

Q. Should you buy term life insurance or a permanent policy?
A. Buy term and invest the rest. The twist here is that if you don't have the discipline to invest the rest then it may not be for you. ...

Q. Should we take an annual vacation or buy the new car?
A. Go on vacation. The new car only brings short-term happiness while the vacation will bring a lifetime of memories. I tell people all the time that I'm not what I drive.

Never forget that money is stored energy that allows us freedom to do what we want with our lives. The pursuit of happiness is very emotional and those emotions cause us to make a host of money mistakes.

Worth It...Not Worth It is full of what I call "uncommon sense." Jack applies simple logic to demystify the complex logic that is often used by others to trick you into handing your hard-earned money over to them. And once you minimize the emotions in these decisions, they can become amazingly simple....

It's a delightful, quick read that is likely to give you some very profitable "ah hah's" you can implement now. You might even enjoy the couple of times Jack pokes fun at yours truly.

Author's note: As mentioned in the beginning of this piece, Jack Otter is the executive editor here at MoneyWatch.com, but had nothing to do with me writing this piece. He also did not edit this review.

© 2012 CBS Interactive Inc.. All Rights Reserved.

Allan Roth View all articles
Allan S. Roth is the founder of Wealth Logic, an hourly based financial planning and investment advisory firm that advises clients with portfolios ranging from $10,000 to over $50 million. The author of How a Second Grader Beats Wall Street, Roth teaches investments and behavioral finance at the University of Denver and is a frequent speaker. He is required by law to note that his columns are not meant as specific investment advice, since any advice of that sort would need to take into account such things as each reader's willingness and need to take risk. His columns will specifically avoid the foolishness of predicting the next hot stock or what the stock market will do next month. His goal is to never be confused with Mad Money's Jim Cramer.

Obesity Costs America $4 Billion Per Year At The Pump

noreply@blogger.com (David Williams) — Wed, 02 May 2012 19:47:00 +0000

The Car Connection:

By Richard Read

Now is the time when many Americans look up from their laptops and start thinking seriously about summer vacation.

What scientists call "Overweight" changes with our knowledge of human health (Photo credit: Wikipedia)

Now is also the time when many of us look down and realize that the laps on which those laptops sit aren't as flat as they used to be. We've picked up a few pounds over the winter -- pounds that become increasingly harder to shed as we get older.

But weight gain isn't just a problem for folks trying to squeeze into last year's swimsuits; it's also a problem for those of us trying to cope with today's high gas prices. According to an article at MSN, America's increasing obesity rate has led to a huge increase in fuel consumption. All told, those extra pounds lead up to $4 billion in extra gasoline costs.

How is that possible?

Some would say that the link between obesity and gasoline isn't rocket science, but in fact, it is.

It costs around $1,000 to put one kilogram of material into orbit. So, to put two kilograms into orbit, it costs $2,000. Double the weight means double the cost. Most of that expense is fuel.

The same holds true in our cars. All things being equal, it takes roughly twice as much energy to move 200 pounds as it does 100 pounds. More weight equals more fuel consumption.

(That said, even though our waistlines have expanded, our gasoline usage hasn't fully doubled. To do that, we'd have to double the weight of the passengers and the car, meaning that if an average car weighs around 4,000 pounds, we'd have to weigh 4,000 pounds ourselves. Thankfully, we're not there yet.)

How much is this costing us? According to Sheldon Jacobson at the University of Illinois, obesity forces America to use a whopping 938 million gallons of gas more than we would if we were a leaner, meaner nation. Which means that many of those super-sized gains in fuel efficiency we've seen in recent years are, to a degree, canceled out by all those delicious tuna melts we've been scarfing down.

Heck, it's so bad that the National Highway Traffic Safety Administration has had to beef up the child-size dummies used in crash tests to account for America's larger kids.

But wait, it gets worse.

We're not the only ones gaining weight. Our cars are doing it, too.

Obviously, American cars have to be bigger to accommodate our bigger bodies. But even when we were slimmer, Americans liked larger rides. Unlike our counterparts in Europe, we've got plenty of elbow room in the U.S., and we like to use it. Bigger cars typically mean weightier cars, and weightier cars eat up fuel efficiency.

And lets not forget all the things we prefer in our rides nowadays, like infotainment systems, heads-up displays, and powerful engines. Plus, we travel with a raft of safety gizmos like airbags, rearview cameras, and their ilk. All of that stuff weighs us down. In fact our colleagues at Green Car Reports recently looked at two Hondas made 30 years apart and found that the model from the 1980s was actually more fuel efficient than its present-day counterpart.

The (big) bottom line

Just to be clear, we're not pointing fingers at the American public. Several of your dedicated writers -- this one included -- could stand to lose a pound or 20. (Okay, make it 30.)

Nor are we implying that it's only a problem in America. True, we're at the vanguard of the obesity problem because we have loads of land for growing crops and livestock, a vast network for fast- and processed-food distribution, and a relatively affluent population to enjoy that food.

But other parts of the world are catching up. In Europe, Asia, and elsewhere, obesity is a growing problem. It's going to be something that we all have to account for in healthcare, industrial design, and, of course, in transportation.

Avoid jet lag with these 5 tips

noreply@blogger.com (David Williams) — Wed, 02 May 2012 15:11:00 +0000

CBS News:

By: Dave Johnson

(iStockphoto)

(MoneyWatch) COMMENTARY Frequent travelers know the bane of jet lag. They probably also know a bunch of tips for avoiding it. But for everyone else -- folks who end up taking just one or two business trips a year, for example -- might benefit from knowing great ways to beat The Lag. Recently, Secrets from the Yumiverse rounded up nine useful tips and packed them into an infographic. Here are the best of the best -- read the original article for all nine.

Adjust your sleep cycle. For at least a few days before your trip, adjust your sleep hours. If you're headed west, wake up and go to bed one hour later. If you're going east, make it one hour earlier.

Eat right. On the day of the flight, eat a light and healthy meal. Most importantly, be well hydrated by drinking a lot of water.

Live the new time zone. On the day of the flight, set your watch to the destination's time zone and try to start acting accordingly right away -- don't wait for the plane to land at the final destination.

Equip yourself for sleep. If you need to sleep on the plane to adjust to the new cycle, bring a sleep mask, ear plugs, and pillow. Alternately, if you need to stay awake, get up and walk around the cabin as much as you can. You can also eat a lot of protein (like nuts).

Stay outdoors to stay awake. If you arrive at your destination in daylight but your body craves sleep, stay outdoors and get as much sunlight as you can. This will help you stay awake until evening when you can go to sleep and get on the right cycle.

No word on whether taking off your shoes and "making fists with your toes" -- Bruce Willis's advice from "Die Hard" -- actually works.

Dave Johnson
View all articlesDave Johnson has written three dozen books, including the best-selling How to Do Everything with Your Digital Camera, and covered technology for a long list of magazines that include PC World and Wired.

Michael Norton: How to buy happiness

noreply@blogger.com (David Williams) — Tue, 01 May 2012 17:17:00 +0000

Ready to Sell Your Business and Retire?

noreply@blogger.com (David Williams) — Mon, 30 Apr 2012 20:44:00 +0000

WSJ.com:

By VERONICA DAGHER

The wealth of many boomers is tied up in businesses they own. And that can be a problem when it comes time to retire.

Advance planning for the sale of a business is more important than ever, ... Even when families transfer ownership to the next generation without a sale, the tax consequences can be huge without proper planning.

Too many owners aren't prepared for the day when they'll need to cash out. Some haven't done their homework to figure out what the business is really worth. Others undermine their company's value with their inability to let go.

Below, financial advisers and exit-planning specialists weigh in on some of the most common mistakes business owners make when they're ready to retire, and how those mistakes can be avoided:

Gary Hovland

The Mistake: Creating a Business That's Too Dependent on the Owner

One of Paul Pagnato's boomer clients spent decades building his company. When he decided to retire, he was not only chief executive, he was handling all key decisions in marketing, sales and client service, despite having hired executives to handle those functions.

WASHINGTON, DC - FEBRUARY 21: Chairman, President, and CEO of the Boeing Company W. James McNerney, Jr . (Image credit: Getty Images via @daylife)

"He was the business," says Mr. Pagnato, a Washington, D.C.-based adviser who works exclusively with entrepreneurs. But Mr. Pagnato says having a business too dependent on the owner or a handful of major customers can dramatically hinder the company's sale price, as buyers are likely to perceive more risk. Indeed, Mr. Pagnato's client ended up selling his business for less than he originally planned and was required to stay on longer to insure a smooth transition.

The Fix: Mr. Pagnato says it's important to delegate responsibility well before the sale to help insure a smoother transition and diversify the company's customer base.

The Mistake: Ignoring the Tax Benefits of Planning Ahead

Enlarge Image

Adam von Poblitz had a client whose 10-year-old business was valued at $20 million two years ago. The owner had always planned to transfer an interest to her son, says the New York City-based estate-planning attorney. But the client procrastinated. Today, the client is ready to transfer a 50% interest in the company to her son, but the company is now valued at $40 million. As a result, she will pay gift tax on a much larger taxable gift.

The Fix: Had the client transferred the half interest two years ago, she would have paid gift tax on only $10 million rather than on $20 million, thus avoiding the tax on the post-gift appreciation attributable to her son's half interest.

Mr. von Poblitz says that if an owner anticipates transferring ownership in the next five years, it may make sense doing it sooner at a lower valuation.

The Mistake: Incorrectly Valuing the Business

Unfinished Business Is it a folly? or has someone run out of money or fallen foul of the planning people? (Photo credit: Wikipedia)

Richard Jackim worked with a client who was the founder of a small but successful consulting firm. The client calculated he'd need to sell his business for $6.25 million to maintain his lifestyle in retirement, says the Chicago-based exit-planning adviser, and figured his business would be worth that much. He was wildly optimistic, however. All too often, owners base retirement plans on faulty valuations, causing drastic overhauls in retirement plans, not to mention blows to self-esteem, says Mr. Jackim.

The Fix: Well in advance of retiring, business owners should get a realistic appraisal of their business, to see if it will fetch what they'll need to retire. If it won't, the owner needs to adjust his or her retirement plans, or come up with a financial strategy to boost their income.

Mr. Jackim says a mergers-and-acquisition adviser can help determine what a business actually might sell for.

Also essential: understanding if there is a market for the company, how liquid the market is for lending and equity, what buyers are paying for similar companies and how they are structuring the deals.

The Mistake: Rushing to Accept a Rich Number

Understanding Financial Leverage (Photo credit: Wikipedia)

Sellers often jump at what appears to be the highest bidder, ignoring other bids, says Fentress Seagroves, an Atlanta-based transaction-services principal. ... The seller doesn't take into account the due diligence that the buyer is undertaking, and how that could change the final number. The seller also ignores other crucial elements of the bid, such as how employees will be treated, or how the buyer will finance the deal. In the end, the seller may have ignored what would have been truly the best deal.

The Fix: Don't fixate on what is superficially the richest offer, Mr. Seagroves says. ...Try to anticipate how the due diligence the buyer is undertaking could change his or her offer at the close. Consider all aspects of the transaction, not just the nominal price.

The Mistake: Hiring Your Brother-in-Law to Do the Deal

Thomas Bonney had a client whose legal counsel's expertise was in general legal matters for small businesses. The lawyer also happened to be the husband of the company's controller, says the Philadelphia-based exit-planning adviser. The lawyer's lack of expertise with merger-and-acquisition transactions and lack of understanding about the time-sensitive nature of the deal resulted in the family's missing the opportunity to sell the business in a strong deal market.

The Fix: Too many family businesses keep everything in the family—including legal services. That can be ... foolhardy when looking to sell. Mr. Bonney advises clients who are considering selling their business to interview three to five separate firms early in the process. He says they should ask the lawyers how they would structure the deal, how they can help with negotiations and ultimately, make a quick close. This process will not only allow the owner to see how an attorney works with them, but they will also have an opportunity to get some good ideas on both legal and personal issues—such as what should a compensation package look like for a family member who wants to continue to work in the business.

The Mistake: Underestimating the Emotional Impact of Selling a Business

John Leonetti, a certified business-exit consultant based in Canton, Mass., has seen all manner of crises erupt when a business owner prepares to sell, causing disastrous moves that wound up hurting the sale and the seller's personal life. ...

Because owners' sense of self and purpose is often wrapped up in their business, letting go is often more difficult then they realize and sometimes causes them to act irrationally, he says.

The Fix: Mr. Leonetti says owners can make their exit easier by mapping out their post-exit lifestyle before the sale. He advises clients to get a calendar and fill in how they are going to spend each day for the six to 12 months after the deal goes through. He's also seen clients do consulting work or start a scaled-down version of their former business, allowing them to stay in the business they love and adjust to a new schedule.

Ms. Dagher is a reporter for Dow Jones Newswires in New York.
She can be reached at veronica.dagher@dowjones.com.

A version of this article appeared April 30, 2012, on page R3 in some U.S. editions of The Wall Street Journal, with the headline: Preparing to Leave.

New proposed regulations could mean changes for employee retirement plans

noreply@blogger.com (David Williams) — Mon, 30 Apr 2012 18:18:00 +0000

Employee Benefit News:

By Sally Doubet King & Carolyn M. Trenda

April 23, 2012

Seal of the United States Department of the Treasury (Photo credit: Wikipedia)

... For several months, the Department of the Treasury, the Internal Revenue Service and the Department of Labor have been exploring ways to provide “income-stream” options for more retirement plan participants. The agencies have focused on finding a balance between lump-sum cash distributions (which provide liquidity) and lifetime-income options.

This past February, the Treasury and the IRS released two proposed regulations, and the IRS issued two revenue rulings, that provide different strategies for achieving such a balance. Here, we go over two:

Logo of the Internal Revenue Service (Photo credit: Wikipedia)

- A longevity annuity option, providing an annuity that begins at an advanced age under a defined contribution plan.

- A deferred annuity option from a defined contribution plan.

Longevity annuity option under defined contribution plan

To address the concern that retirees may outlive their savings, especially where the only retirement plan distribution received by the retiree is a lump sum from a defined contribution plan, the guidance package includes a proposed regulation that introduces a new concept, the “qualified longevity annuity contract." Such a contract would provide a stream of income commencing at an advanced age, such as 80 or 85, and would continue as long as the individual lives. ...

Under the proposed regulation, if a plan offered a QLAC, the QLAC would be disregarded in determining RMDs. Therefore, a participant would not need to commence distributions from the QLAC before the age selected under the QLAC contract.

Also under the proposed regulation, a QLAC would be an annuity contract purchased from an insurance company for a plan participant that satisfies each of the following requirements:

- Premiums for the contract satisfy a specific dollar limitation and percentage of assets limitation, i.e., the lesser of $100,000... or 25% of the account balance.

The contract provides that distributions must commence not later than a specified annuity starting date, and that annuity starting date cannot be later than the first day of the month coincident with or next following the participant’s attainment of age 85. ...

The contract does not make available any commutation benefit, cash surrender right or other similar feature.

There are no benefits provided under the contract after the death of the employee, other than a life annuity payable to a designated beneficiary.

The contract, when issued, states that it is intended to be a QLAC.

Additionally, issuers of QLACs are subject to certain reporting and disclosure requirements.

QLACs could also be provided under 403(b) plans and traditional IRAs, but not under 457(b) plans, defined benefit plans or Roth IRAs.

Note: Similar to the proposed regulation on partial annuity distributions, the new guidance on QLACs would be effective for contracts purchased after the publication date of a final regulation; in the interim, plans cannot rely on the proposed regulation.

Deferred annuities from defined contribution plans

The final piece of guidance is Revenue Ruling 2012-3. This ruling describes how the qualified joint-and-survivor annuity (QJSA) and qualified pre-retirement survivor annuity (QPSA) requirements in Code Sections 401(a)(11) and 417 apply when a deferred annuity contract is purchased under a defined contribution plan.

The ruling provides three examples that illustrate different deferred annuity design alternatives, each with different conditions: a revocable annuity, a fixed annuity and a fixed annuity with an election not to pay amounts attributable to matching contributions under the annuity contract in the event the participant dies prior to the annuity starting date. The ruling then provides an analysis of how each alternative would necessitate certain plan terms, including compliance with QJSA and QPSA notice, waiver and consent requirements.

The ruling clarifies that where the plan separately accounts for the deferred annuity contract, the remainder of the plan is not subject to the QJSA and QPSA requirements.

Future considerations

Employers may wish to provide comments to the Treasury on either or both of the proposed regulations; these comments must be provided by May 3, 2012. In addition, plan sponsors interested in the new options should evaluate how the options could be integrated into current plan design and communicated to participants.

For more information, contact Partner Sally Doubet King at (312) 849-3684 begin_of_the_skype_highlighting (312) 849-3684 end_of_the_skype_highlighting or sking@mcguirewoods.com and Associate Carolyn M. Trenda at (312) 849-8130 begin_of_the_skype_highlighting (312) 849-8130 end_of_the_skype_highlighting or ctrenda@mcguirewoods.com at the law offices of McGuireWoodds LLP.

A Look at Obama's JOBS Act

noreply@blogger.com (David Williams) — Fri, 27 Apr 2012 16:51:00 +0000

The Network Journal:

By: ANN BROWN

Wednesday, April 25, 2012

Business

On the surface, President's Obama's recently signed the JOBS Act, for Jump-Start Our Business Start-Ups, which will roll back restrictions on the way start-up companies can raise money from individual investors, seems like a win-win for small businesses. But says management, strategy and branding consultant Steven Mason, president of the Brand Mason, there is more to it.

"The JOBS Act is a boon to private companies, which drive job creation and the GDP. The most significant impact of the recently passed JOBS Act is that private companies will be able to raise money from individuals who are not "accredited". This means that investors who have not been considered wealthy enough by the SEC to be designated an accredited investor will now be able to make direct equity investments in private companies,” says Brian Hamilton, CEO of financial information company Sageworks and a noted expert on privately-held companies. “It would be hard to overstate the implications of this legislation as it allows small investors access to a market that previously didn't exist to them. Additionally, it gives private companies access to millions of dollars they couldn't previously tap into. It introduces some risk for a new class of investors, but it is very positive for private companies."

BEA logo (Photo credit: willida)

Small businesses can throw a wider net for investors, says Mason. "If you are good at getting hundreds of people to invest small amounts of money, you can potentially raise a large amount of money," he says. Potentially, the bill gives more freedom to startups—and investors. “Small investors can direct investments to their community,” explains David M. Williams, founding director of professional consultant firm Business Enhancement Associates. “It allows small businesses to go public without SEC filing. It also exempts small businesses from Sarbanes-Oxley audit requirements for five years.”

Among other things, it would allow them to raise small sums from investors via the Internet. According to Obama, websites will be closely monitored by the Securities and Exchange Commission. Some critics say this component of the bill may leave people vulnerable to fraudulent online schemes. “The abundance of online options for connecting unaccredited investors with private companies presents an inherent potential for fraud and misrepresentation and may draw in undiscerning investors,” notes Hamilton.

There are other cons, he points out. “Comparatively riskier investment opportunities will become available to unaccredited investors since new companies are always the least well known and many young companies fail,” he says. “As far as IPO investing is concerned, private conversations with the SEC about disclosures are not released immediately, and while the company may benefit, it's hard on investors seeking transparent information.”

Also, “crowd-funding platforms and this type of investing are so new that there is likely to be additional fraud. The risk factors of these investments should be made clear. Maximum amounts that individuals can invest based on their income is at a minimum now,” says Hamilton.

David M. Williams, founding director of professional consultant firm Business Enhancement Associates, agrees. “Crowdfunding investors would have no control in management decisions, and no guarantee that their interests would be represented. Small investors add liability, investors who would normally not be qualified or accredited. And the lack of SEC oversight or Sarbanes-Oxley guidelines make fraud or mismanagement more likely,” he says. There are other drawbacks to the bill he says. “It adds the burden of up to 200 shareholders to management used to closely-held ownership. It also complicates future equity raises, debt financing or recapitalization,” says Williams.

Among the other negatives, says Mason, are "you can raise a maximum of $1,000,000 in any 12-month period and individuals can't invest whatever they want. They are limited to investing percentages of their income and net worth and there's only so much they can invest in one year, across all crowdfunded companies." There are restrictions that may also hinder small businesses seeking funding under the new bill. "Funding Portals have to be registered with the SEC and the SEC hasn't even written all the regulations for them yet, so if the regulations are onerous enough, the entire point of this crowdfunding could be a chimera. Basically, the SEC and the government have the power to make this a complete boondoggle, because these Funding Portals are subject to so many restrictions that it's going to cost issuing companies real money just to comply," Mason points out. "There are significant accounting fees companies will have to incur, and if they are raising more than $500K, they'll need audited financial statements, which are very expensive."

Occupy the Jobs Act (Photo credit: DonkeyHotey)

Adds Mason, “What's happening is that a new surge of available capital will enter the market, making possible a far greater diversity of startups otherwise unable to get funding through other sources, at least in their early stage. At the same time, those funding these businesses will not be professional investors, and there are intriguing issues associated with their different expectations as well as with the ultimate success or failure of their endeavors. Last, while President Obama signed the bill, I would not characterize the bill as an "Obama policy" as the impetus for the main features of the bill did not come from the President. Further, the JOBS bill imposes a number of SEC reporting requirements on those seeking crowdsourced funding: it's not as easy as it sounds, but it certainly sounds great politically.”

The bill was supported by bipartisan lawmakers and entrepreneurs.

3 Tips on Investing Wisely in Your Business

noreply@blogger.com (David Williams) — Fri, 27 Apr 2012 16:42:00 +0000

Gist blog:

by T. A. McCann | April 24th, 2012

In an ideal world, we’d all have access to unlimited capital, along with a team of mentors that recognized our true genius and supported our every decision.

But let’s face it – we’re startup entrepreneurs! Getting things done on a budget isn’t just smart financial planning; it’s the only way to operate in an environment that forces you to be a lean, mean, business-doing machine.

Really, investing wisely in your business can make the difference between a company that survives its early growth periods and one that burns itself out before reaching its true potential. So read on for more tips on how to make the smart financial decisions needed to lead your business to success:

Tip #1 – Spend Money Strategically

This tip might sound obvious, but the problem is that most of us are pretty good at talking ourselves into justifying any purchases we really want to make as “strategic.” Of course, when you’re running on limited funding, you’ve got to be pretty strict with yourself about what constitutes a valuable business expense and which costs can be pushed aside until you’re better capitalized later on.

The following are a few “must have” expenses you can probably do without until your company has extra cash on hand:

Office space and office equipment – Yes, you need somewhere to conduct business, but in many cases, this space doesn’t need to exist in a separate office. There are plenty of options out there that provide business space on a startup budget, so be sure to investigate these opportunities before committing to a commercial real estate lease.
Industry conferences and travel – While conferences can be a great way to make vital connections within your industry and network with your peers, there’s no arguing with the fact that they’re expensive. If you feel you must go to a conference to build brand recognition, identify key contacts you’d like to connect with and determine which single conference they’ll all be at in order to maximize your investment.
Expensive training courses – Online sales pitches can be incredibly persuasive, but unless you’ve identified a specific education need that only a certain coach can fulfill, it’s best to hold off on expensive training products until you have the cash on hand to reinvest in your education.

Tip #2 – Recognize the “Time versus Money” Tradeoff

Time is what life is made of - spend it wisely^ - NARA - 534959 (Photo credit: Wikipedia)

Now, although my first tip revolved around cutting costs, this isn’t an article on saving money or setting a business budget. Instead, we’re talking about investing wisely in your business – and sometimes, that requires spending money.

For example, suppose you’re a skilled graphic designer who has a great idea for a web app. Unfortunately, you don’t know how to code well – which means you’ve got to either learn web development yourself or hire the task out to someone with more experience in that area. However you decide to proceed, there will be a cost associated with your choice – but it’s up to you to determine whether that cost will be assessed in term of time or money.

Of course, your specific situation will dictate how “time versus money” tradeoffs will be made. If there’s absolutely no way you can spend money on your web app, you’re going to have to learn how to code. On the other hand, if you have even a small amount of capital (whether your own savings or personal credit, or an investor’s monetary injection), you may decide to spend this money on hiring a web developer or on some even larger task that’s looming large over your head.

Be sure to investigate all factors involved before making these decisions. Following our example, if the time it will take you to learn how to write web code risks erasing the competitive advantage your app would hold by being the first to market, it may be in your best interest to come up with the necessary cash. Keep in mind the popular saying, “Don’t be penny-wise and pound-foolish,” and apply this bit of wisdom to the difficult financial choices that will need to be made within your startup.

Tip #3 – Seek Out Free Options

Finally, keep in mind that too many people automatically assume they’ll need to shell out their limited funds for the products and services needed to grow their businesses. In fact, there is a wealth of free resources out there, if you simply take a minute to open your eyes and look for them!

For example, instead of hiring a web developer and burning through your cash as a result, you could seek out a coder who’s open to bartering web services in exchange for graphic design work.

Instead of investing in paid business management tools like Basecamp or Salesforce, you could seek out free alternatives, including Trello or Gist.

And instead of spending money on that expensive training program you know you want to buy, you could simply run a Google search for advice on your specific questions. You’ll be amazed by how many free resources exist in the business world today that will give you all the information you need to succeed without requiring a dime in return.

Coping with Email Overload

noreply@blogger.com (David Williams) — Fri, 27 Apr 2012 16:16:00 +0000

Harvard Business Review:

4:05 PM Thursday April 26, 2012

PETER BREGMAN

A few weeks ago, I returned from a week-long technology-free vacation with my family. No computer, no phone, no email.

email envelope (Photo credit: Wikipedia)

When I got to the office and checked my computer, I had hundreds of email messages waiting for me. ... Three hours later, my inbox — a week's worth of messages — was empty.

Contrast that with my experience the next day, and each day after that, when I've spent well more than three hours each day on email. Some of that time involved back-and-forth emailing, but still, the difference is dramatic.

screenshot of an email inbox filled with spam (Photo credit: Wikipedia)

I've come to the conclusion that I use email to distract myself. ... It's an ever-present, easy-access way to avoid my feelings of discomfort.

What makes it so compelling is that it's so compelling. I wonder what's waiting for me in my inbox? It's scintillating.

It also feels legitimate, even responsible. I'm working. I need to make sure I don't miss an important message or fail to respond in a timely fashion.

But it's become a serious problem. When we don't control our email habit, we are controlled by it. ...

Email pours in, with no break to its flow. And like addicts, we check it incessantly, drawing ourselves away from meetings, conversations, personal time, or whatever is right in front of us.

The 'new' email client (Photo credit: RafeB)

But it's not just the abundance of email that's our problem — it's the inefficiency in how we deal with it. Each time we check our email on the fly, we lose time pulling out our phones, loading the email, reading new emails without taking action on them, and re-reading those to which we haven't yet responded. Then, back at our computers, we re-read them again.

... According to USA Today the number of lawsuits filed by employees claiming unfair overtime is up 32% since 2008. The major reason for the increase? Email on devices like smartphones is intruding on our personal time.

The solution, I believe, is hidden in my post-vacation email experience.

Instead of checking email continuously and from multiple devices, schedule specific email time during the day while you are at your computer. All other time is email vacation time.

We are most efficient when we answer email in bulk at our computers. We move faster, can access files when we need them, and link more quickly and easily to other programs like our calendars. Also, when we sit down for the express purpose of doing emails, we have our email heads on. We are more focused, more driven, wasting no time in transition from one activity to another.

I bulk process my email three times a day in 30-minute increments, once in the morning, once mid-day, and once before shutting down my computer for the day. I use a timer and when it beeps, I close my email program.

Outside my designated email times I don't access my email — from any device — until my next scheduled email session. I no longer use my phone for email unless I'm away from my computer all day.

When the urge to check arises — and it arises often — I take a deep breath and feel whatever feelings come up. And then I focus on whatever I'm doing, even if what I'm doing is waiting. I let my mind relax.

Here's what I've found: I don't miss a thing.

In fact, it's the opposite. I gain presence throughout my day. I am focused on what's around me in the moment, without distraction. I listen more attentively, notice people's subtle reactions I would otherwise overlook, and come up with more ideas as my mind wanders. I'm more productive, more sensitive, more creative, and happier.

I
'm also going through my email faster and with more attention than before. I don't make those I'm-moving-too-fast mistakes like copying the wrong person or sending an email before finishing it or saying something hurtful. So I'm also more efficient.

telephone (Photo credit: Sean MacEntee)

But what if someone needs an immediate response? Worrying about that is precisely the kind of misguided rationalization that reinforces our addiction. ... I don't think anyone has noticed my mini email vacations because responding to an email within a few hours is perfectly reasonable. And, in the off chance that they need a response within minutes, they'll find another way to reach me, either by texting or calling.

Email is no longer an overwhelming burden to me. I'm spending an hour and a half a day on it, which for me is the right amount. You may need more or less time per day. Experiment and then schedule the appropriate time slots.

The hardest part is resisting the temptation to check during your off-email hours. My advice? When you have the urge to check your email, check yourself instead. What's going on for you? What are you feeling? Take a deep breath and relax into an undistracted moment.

For a brief moment in the middle of a hectic workday, it just might feel like you're on vacation.

PETER BREGMAN

Peter Bregman is a strategic advisor to CEOs and their leadership teams. His latest book is 18 Minutes: Find Your Focus, Master Distraction, and Get the Right Things Done. To receive an email when he posts, click here.

Intelligence Is Overrated: What You Really Need To Succeed

noreply@blogger.com (David Williams) — Fri, 27 Apr 2012 15:25:00 +0000

Forbes:
4/12/2012 @ 2:03PM

Albert Einstein’s was estimated at 160, Madonna’s is 140, and John F. Kennedy’s was only 119, but as it turns out, your IQ score pales in comparison with your EQ, MQ, and BQ scores when it comes to predicting your success and professional achievement.

IQ tests are used as an indicator of logical reasoning ability and technical intelligence. A high IQ is often a prerequisite for rising to the top ranks of business today. It is necessary, but it is not adequate to predict executive competence and corporate success. By itself, a high IQ does not guarantee that you will stand out and rise above everyone else.

Daniel Kahneman (Photo credit: Wikipedia)

Research carried out by the Carnegie Institute of Technology shows that 85 percent of your financial success is due to skills in “human engineering,” your personality and ability to communicate, negotiate, and lead. Shockingly, only 15 percent is due to technical knowledge. Additionally, Nobel Prize winning Israeli-American psychologist, Daniel Kahneman, found that people would rather do business with a person they like and trust rather than someone they don’t, even if the likeable person is offering a lower quality product or service at a higher price.

With this in mind, instead of exclusively focusing on your conventional intelligence quotient, you should make an investment in strengthening your EQ (Emotional Intelligence), MQ (Moral Intelligence), and BQ (Body Intelligence). These concepts may be elusive and difficult to measure, but their significance is far greater than IQ.

Emotional Intelligence

Logo Connecting Emotional Intelligence (Photo credit: Wikipedia)

EQ is the most well known of the three, and in brief it is about: being aware of your own feelings and those of others, regulating these feelings in yourself and others, using emotions that are appropriate to the situation, self-motivation, and building relationships.

Top Tip for Improvement: First, become aware of your inner dialogue. It helps to keep a journal of what thoughts fill your mind during the day. Stress can be a huge killer of emotional intelligence, so you also need to develop healthy coping techniques that can effectively and quickly reduce stress in a volatile situation.

Moral Intelligence

Lawrence Kohlberg's stages of moral development (Photo credit: Wikipedia)

MQ directly follows EQ as it deals with your integrity, responsibility, sympathy, and forgiveness. The way you treat yourself is the way other people will treat you. Keeping commitments, maintaining your integrity, and being honest are crucial to moral intelligence.

Top Tip for Improvement: Make fewer excuses and take responsibility for your actions. Avoid little white lies. Show sympathy and communicate respect to others. Practice acceptance and show tolerance of other people’s shortcomings. Forgiveness is not just about how we relate to others; it’s also how you relate to and feel about yourself.

Body Intelligence

SYDNEY, AUSTRALIA - JUNE 30: A man smokes amongst tar figures placed in the CBD to raise awareness about the damage smoking causes to the body at Martin Place on June 30, 2011 in Sydney, Australia. Each of the tar figures represent the profile of smokers, from the casual weekend smoker to the one with a lifelong addiction. (Image credit: Getty Images via @daylife)

Lastly, there is your BQ, or body intelligence, which reflects what you know about your body, how you feel about it, and take care of it. Your body is constantly telling you things; are you listening to the signals or ignoring them? Are you eating energy-giving or energy-draining foods on a daily basis? Are you getting enough rest? Do you exercise and take care of your body? It may seem like these matters are unrelated to business performance, but your body intelligence absolutely affects your work because it largely determines your feelings, thoughts, self-confidence, state of mind, and energy level.

Top Tip For Improvement: At least once a day, listen to the messages your body is sending you about your health. Actively monitor these signals instead of going on autopilot. Good nutrition, regular exercise, and adequate rest are all key aspects of having a high BQ. Monitoring your weight, practicing moderation with alcohol, and making sure you have down time can dramatically benefit the functioning of your brain and the way you perform at work.

What You Really Need To Succeed

It doesn’t matter if you did not receive the best academic training from a top university. A person with less education who has fully developed their EQ, MQ, and BQ can be far more successful than a person with an impressive education who falls short in these other categories.

Yes, it is certainly good to be an intelligent, rational thinker and have a high IQ; this is an important asset. But you must realize that it is not enough. Your IQ will help you personally, but EQ, MQ, and BQ will benefit everyone around you as well. If you can master the complexities of these unique and often under-rated forms of intelligence, research tells us you will achieve greater success and be regarded as more professionally competent and capable.

Keld Jensen is an expert on trust, negotiation, leadership, and communication. To learn more, visit www.KeldJensen.com and sign up for his “Power Bargaining” newsletter.

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