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Last week, I had the pleasure of attending a talk by Penina Taylor at the Jerusalem Business Networking Forum (JBNF). A gifted speaker, Penina’s catch phrase is: “ A person can do the impossible if she has enough reason to make it happen”.
Penina revealed her ”5 laws of success in business”, which apply to much of life in general. To briefly summarise:
In many ways, this is a circular set of reasoning. Nevertheless, each attribute deserves much consideration by the individual. They can open each and every one of us up to much inner commercial introspection.
I felt compelled to ask a question about the laboured business model, “success fee only”. This is when the provider of a service is remunerated only when they have fully completed all the tasks required. Thus, if somebody is trying to secure an investment for a company, they may spend months creating the contacts, massaging the negotiations and talking for hours on the telephone. However, if the money is not transferred between the sides, then all their effort will convert to a round zero in the bank account.
However, according to Penina’s laws, this is a healthy process because it represents a large element of giving. You are creating value, at least in theory. So. how could this apparent ‘misfit’ be explained? Interestingly, I found two responses from the audience to be insightful.
One person argued that such a process can be treated as a learning experience. A second comment, perhaps more helpful, argued that the service provider is obliged to know from the outset what are the parameters, and these should be clearly identifiable by the client.
Therefore, I propose adding on new golden rule to Penina’s list. Know your boundaries. Define them well and they will be an equal benefit to all sides of the business table.
Small and medium-sized enterprises (SMEs) make up over 95% of all businesses in just about all economies around the world; America, China, Mongolia et al.
A quick google search shows just how many positive central government schemes to promote this sector have been released in the past few months alone. Singapore is providing more cash and defraying costs. Italy has initiated a series of tax reliefs, which will replace bank loans that have dried up. In the UK, there are numerous private and public initiatives to help fund SMEs. Even Skype has launched a new networking platform.
As a business mentor, based near Jerusalem and who works with many SMEs, these initiatives can be readily logged in the “good news” folder. And yet, imagine my concern and frustration when I read about a recent survey. “Israel’s small and medium enterprises (SMEs) employ a lower number of workers, are hindered by more constraints and have lower productivity rates than their OECD counterparts…..”
Apparently, SMEs in the Holy Land are responsible for 99% of all businesses, but are handed barely two-thirds of all bank credit facilities. According to a senior government official:
Figures show that small and mid-sized businesses in Israel are a particularly weak sector, stemming from three main reasons: Extreme regulation, hard to obtain bank credit and loans, and the absence of knowledge due to the lack of a professional managerial rank in small businesses.
However, here’s the real sting. Two months ago, the Israeli government slashed without warning its mentoring budget. For years, the public sector had subsidised an extremely unusual and successful programme that allowed hundreds of new and established SMEs owners to receive the support of professional consultants at minimal rates. In other words, that same ‘lack of knowledge’ mentioned above was deliberately targeted. Today, that hole has been savagely exposed anew.
What is just as shocking is the manner of the decision. Consultants, who had created work plans, were instructed to abandon clients without notice. Sales, production and employment strategies were left struggling without the helping hand of outside support.
The Israeli Ministry of Industry is reportedly planning new schemes, although one must be sceptical if anything can inaugurated before April 2013. (The country faces a general election). In the interim, maybe the local planners will learn from other countries, who are clearly setting the pace for helping SMEs. Of course, I could offer my services as a mentor……..
Elections are looming in Israel and yet major employers are cutting jobs; Orbotech, Partner Mobile and others are all saying goodbye to hundreds of workers, effectively dismissing thousands of years of accumulated experience and knowledge.
Throughout the OECD block, unemployment is on the rise. It has been predicted for sometime. Sadly, for all of Keyensian economic theory, central governments appear powerless to stop the trend for now.
While in London, I learned of two practical local initiatives, designed to make a difference. They are so simple yet effective. It does not take the proverbial rocket science to understand why they deserve a wider audience.
In the first instance, a finance company in central London is sponsoring an intensive training course for students in their final year at school. Those selected for the course will then be asked to complete a project. The best performers will be offered a year’s placement.
Now you may be shouting that two or three temporary positions is not going to make too much of a dent in a stat of millions of jobless. There again, if more people would follow this lead, just think what the overall national benefits could be.
A second and wider initiative has been sponsored by the London newspaper “The Evening Standard”. Launched just over a month ago, “Ladder For London” has secured over 320 new positions for apprenticeships. One of the campaigns main highlights to date has been the role taken by Metro Bank, the first new High Street Bank for over 100 years. Its chief exec, Craig Donaldson, who grew up in the poverty of a mining village, has pledged to recruit around 150 unemployed youngsters.
Bottom line? The global economic downturn may be having a negative effect on recruitment and wage levels. However, decision makers are far from powerless if would but consider policies that are “out of the box’….assuming that is possible for civil servants and politicians.
The average voter around the world is often caught up with the seemingly large government budgets of a million dollars or euros for a local community project. Will there be enough? And yet, globally, the real big sums are often found in international cooperation schemes.
One of the largest “gravy chains” is the budget of the European Union, which spends billions every year simply trying to encourage the pooling of knowledge in technology, industry and education to name just a few areas of interest. For example, Horizon 2020, which commences in 2013 and is geared to ramping up r&d, is valued at €80 billion ($105 billion).
Horizon will replace the EU’s Seventh Research Framework Programme. This has specifically sought to bring in and exploit the brain power of non EU members such as Israel.
According to Marcel Shaton, general manager of ISERD – the Israel-Europe R&D Directorate, since 2007 some 1,530 Israeli scientists and companies have been given the option to participate in projects valued at €2 billion ($2.6 billion), and the research grants given to Israeli recipients amounted to €570 million ($743 million).
Cool, no? Now to join Horizon 2020 and reap new wealth - fund research, create jobs, and develop exports – the Israeli government has to commit around the equivalent of US$185. To put it crudely: invest 185 million and create billions down stream.
However, according to reports, it seems that Israel, a country that loves to be called the ‘start up nation’, is having a problem taking on this decision, which many would see as a no-brainer. I suppose that Israeli politicians and civil servants are too caught up with the pressing issues of a general election campaign to make the leap.
Unfortunately, this is not the first time in recent months that financial planners in Jerusalem have frozen the hopes of small businesses. Just recently, the funding for mentoring SMEs was simply withdrawn overnight. Advisors were faced with no choice but to abandon their clients. It was stunning and demeaning, but none of that could be felt or understood in the long corridors of the unknown officials.
To show the importance of the abandoned scheme, one mentor wrote to me saying how he had received the following quote from a recent client. “I have to thank you a lot for your help. I have now my 2′nd container from China…..” Real revenues, less people depending on government support, custom duties and taxes for the Finance Ministry, employment. Not bad for sponsoring a mentor a few hundred dollars…………………which are no longer available.
What makes for a good manager in business?
As a teenager, I vividly remember a discussion between my father and a visitor from America. The guest was finishing an MBA at a top school, claiming that this would set him on a high career path. My father argued that the American first needed some experience in order to truly understand management and then he would be successful.
It was and remains impossible to judge which position is correct. I suspect that as ever the two protagonists also confused the phrase “good management” with those of “leadership” and “strategist”. In a nutshell, while all three have common factors, they are stand alone items.
I mention all this, because I have come across two interesting articles from Israel about the subject of management – learning to be a manager and then how to use good managers.
In today’s Hebrew press, Yediot Ahronot, there is a commentary over a recent survey from the Bureau of Central Statistics, detailing customer satisfaction with local institutes of higher learning. As an owner of a food company and former student was quoted: “They taught me about stats and formulas. However, the important things – how to run a board, what commercial language to use or how to construct an effective presentation – that I had to learn by myself.”
I have a sneaky feeling that a criticism like that can be found in many places around the world. After all, almost by definition, lecturers tend to be academics, who have relatively little practical experience. You leave the safe comfort of your library lacking hands-on knowledge.
As an exception, I recently heard a senior administrator from the Hebrew University of Jerusalem, explain how the Biology Department is putting together a new course. The aim is to link the scientific modules with practical studies, such as how to create a company.
A second feature questioned why Israel has yet to generate more ‘large homegrown enterprises’. For its success as a start up nation and for all the wonderful exits, there are those that argue that the country would be better off with less buy-outs. However, something intrinsic is preventing that shift.
If you read the article carefully, you can see how good managers are ‘punished’ by the system. For example, there is so much pressure by investors and venture capitalists to deliver results in the short term that there is little scope to build a large company for the future. Others point to the natural characteristic of Israelis to rush into decisions, going round obstacles and move ahead, but without considering implications. Again, no room for the cold and boring thought process of a middle level manager.
It would be interesting to compile a study to analyse the link between successful companies (over what period of time?) and those firms that have invested in training managers with the ability to make decisions.
Anyone who owns a company wants to know the formula as to ’what makes a successful business’. Whether you are a small shop on the edge of an Australian desert or a sophisticated multinational, the question has limped along, over decades and centuries.
Two submissions to the Harvard Business Review during 2012 appear to offer a serious solution, at least when they are considered together.
In February 2012, Heidi Grant Halvorson suggested that there are nine characteristics or approaches that ‘successful people do differently’. Her leading concept implores readers to “get specific”. Why? “…because it gives you a clear idea of what success looks like”, and thus what you need to do to achieve that target.
Significantly, the very same idea was attributed to the late Steve Jobs by his biographer, Walter Isaacson.
Jobs began taking his “top 100” people on a retreat each year. On the last day, he would stand in front of a whiteboard (he loved whiteboards, because they gave him complete control of a situation and they engendered focus) and ask, “What are the 10 things we should be doing next?” People would fight to get their suggestions on the list. Jobs would write them down—and then cross off the ones he decreed dumb. After much jockeying, the group would come up with a list of 10. Then Jobs would slash the bottom seven and announce, “We can only do three.”
Psychologists will also have a field day with Grant’s last point - focus on what you will do and not what you will not do. This is very similar to saying to people that they should work through their strengths, which in turn will compensate for weaknesses.
What links all of Grant’s analysis is that success comes through the individual performing better. In contrast, Michael Mauboussin’s approach looks at the performance of the company itself and how to analyse it. He questions if senior managers really understand a true measure of success. So many top managers are driven by sales or value per share that they ignore the micro issues, which can be equally crucial.
Mauboussin offers a four point plan: -
Above all, Mauboussin insists that any stats used by the CEO must be ‘persistent and predictive’. His example is incisive.
What statistics, then, should executives use to guide them in this value creation? As we’ve noted, EPS is the most popular………But will EPS growth actually create value for shareholders? Not necessarily. Earnings growth and value creation can coincide, but it is also possible to increase EPS while destroying value. EPS growth is good for a company that earns high returns on invested capital, neutral for a company with returns equal to the cost of capital, and bad for companies with returns below the cost of capital. Despite this, many companies slavishly seek to deliver EPS growth, even at the expense of value creation. The survey…..found that the majority of companies were willing to sacrifice long-term economic value in order to deliver short-term earnings.
So where does this leave our CEO, desperately wondering what they need to do inorder to generate the culture of success? The answer would seem to come in two layers, which need to be created in tandem. The CEO has to embrace a series of personal attributes. In parallel, the CEO must learn that to identify the components of success within the enterprise, a process that requires more than saying “how many sales did we make this month?”.
I have just written up three reports for clients in Israel, where cash flow issues have been paramount.
In two of the cases, there was a burning question for the CEOs as to why they had cash flow problems, when their accountants were filing profits (at least on paper). Evidently, there was a confusion over the difference between cash flow as opposed to profit and loss statements. Noticeably, in all three situations, there was very little attempt to plan cash flow trends up to two months in advance. In fact, there were frequent complaints that their businesses were too complicated for such detailed planning.
Before writing this blog, I visited Mr Google and entered the phrase “cash flow problems”. On the first page alone, I found entries from New Zealand, Canada, and Italy to name just a few. And again, the common theme appears to be lack of planning.
So you have to ask the question, why do we all do it? Why do we ignore the very obvious? Why do we try to spend money, which we effectively do not have the moral right to sign away? What’s the default bomb ticking inside our minds? Why did my clients ignore the fact that multinational conglomerates plan their cash flows, with enterprises multiple times more intricate?
I have just had the fun and pleasure of reading Dan Ariely’s third book “The (Honest) Truth about Dishonesty“. Page 245 summarises ‘the forces that shape dishonesty’. Maybe somewhat surprisingly, one of the most dominant factors is not financial but the ability of humans to rationalise a truth out of fiction.
What does this mean in the horrendously practical world of commerce? If the minutiae are too complex, then it is not our fault and the money will appear when we need it. We convince ourselves that if a cheque cannot be covered, then it is the problem of the supplier, and nobody likes suppliers. Anyway, the banks can deal with it, and nobody likes banks either. In effect, we weave a spider’s web of ‘sort-of truths’ – the ultimate spin!
Judaism (and maybe other religions) determine that the main difference between humans and animals is the higher level of ability to communicate with each other. Specifically, humans have stronger mental skills.
When it comes to cash flows, we are faced with a rational choice. We can take on the responsibility of understanding the financial flows of our company into the future – say 30 to 60 days ahead. In other words, we can use our inherent skills. Or we can just hope and pray that it will be all right on the night. Guess which approach successful businesses use?
With the possible exception of Mellanox, there have been very few consistent star performers. Couple that with worries over the expected growth rate for 2013, the outlook may appear to be dodgy for speculators.
That said, a number of positive factors are also smiling in the face of investors. Many people, especially from overseas, are beginning to take notice. In fact, as TASE closed trading ahead of a two-day break, it finished the day up 1.6%.
The market opened in the green and rose steadily all day long, despite the losses in European markets at the same time. Asian shares also closed lower. What stood out on Monday was the trading volume, which was over NIS 1.1 billion, some 75% higher than recent averages.
So what’s going on?
It would be trite at this stage to launch in to a discussion of economic indicators. Not all of them are positive, especially export stats for July and August 2012. Unemployment is still creeping up. On the other hand, there are signs that the government is finally beginning to take back control of the budget. The new tax law to help international firms in Israel is a step in the right direction.
However, I want to look at a poke at the geopolitical aspect. This week, the President of Iran has been addressing the UN in New York. As usual, his anti-semitism has led him to predict the end of the zionist state, sooner rather than later. For all that, the investors, as conservative as they are, are returning to the Holy Land. Just look at SingTel, one of the largest telecom companies in the world.
It is difficult to explain why or how to an outsider. For nearly 65 years, the Israeli economy has continued to progress despite genuine existential threats, and that success has been singularly marked since 2000. I do not trust Iran one iota, but I believe along with investors that Israel will come through the crisis – safer and sounder. That is my prayer, as Israel celebrates her New Year.
The past decade has seen Israel fight an Intifada, launch wars to end infiltration from Gaza, defend itself from Hizbollah in Lebanon, and sink resources into defending itself from Iran. All this at a time when the global economy has journeyed along a veritable roller-coaster of retrenchment to success and back again.
And if you check out Israel’s economic growth over that period, you will see that it has been very positive. The graph shows consistent and continuous improvement. 5% per annum has been recorded several times. In other words, the Israeli economy seems to have found a formula, which allows for betterment despite geopolitical troubles, when the opposite has been true for many in history.
That said, predictions for 2012 were far less positive, coming in at 3% or less. The initial signs were not good, as exports to Europe began to dry up. Tax revenues fell to less than anticipated. Political change in Egypt and Syria put extra demands on the army.
And yet, has Israel done it again and discovered another miracle? The growth for the first six months of 2012 was 3.2%. And this is no consumer led boom. The governor of the Bank of Israel has been reported as saying that he is “more optimistic than I was six months ago”.
Our situation is similar to what it has been for the past year. Our situation is good, but not excellent. It’s a lot better than in most countries of the West.
So what’s the truth behind the numbers? Merrill Lynch gives an interesting assessment. The report notes that the government in Jerusalem is beginning to tackle the fiscal deficit, even if this carries a price of higher inflation and that in turn impacts more on poorer sections. Further, exports have held firm, although primarily due to a quirk in the figures of one large company.
However, the trends for the second half of 2012 are not encouraging. On an annual basis, 3% is looking problematic.
Where to next? Europe should begin to pick up in 2013. Towards the end of the year, gas will start to be produced in commercial quantities. And if a general election is called for early 2013, there will be little opportunity “to buy voters”. This in turn will help to ensure that the level of government debt will not soar out of control.
So, Israel could still keep itself towards the head of the OECD pack in terms of economic achievements. Whether that can be interpreted as a miracle for such a small country to maintain, or whether it is a result of good planning or simply old fashioned luck, I will leave my readers to gauge for themselves.