The Nuts and Bolts of Small Business Management€¦ · Unadvertised Bonus #7 The Nuts and Bolts of Small Business Management by Stuart A. Lichtman

Unadvertised Bonus #7

The Nuts and Bolts ofSmall BusinessManagement

by

Stuart A. Lichtman

The Nuts and Bolts of Small Business Management

Copyright 2002 by Stuart A. LichtmanPage 1

Copyright © 2002 by Stuart Lichtman

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Also, the terms Cybernetic Transposition Basic Achievement Three-Step and CyberneticTransposition Super Achievement Three-Step are pending registration and are fully protected namesowned by Stuart Lichtman. They may not be used without his written permission.



Table of Contents

Chapter One: Orangutan Management 3

Chapter Two: Shared-Vision Leadership 12Shared-Vision Leadership Metastories Form 17Shared-Vision Leadership Receiving Form 22Shared-Vision Leadership Clearing Process Form 23

Chapter Three: Negotiated Job Agreements 34Negotiated Job Agreements Form 1 37Negotiated Job Agreements Form 2 38

Chapter Four: People Management Guidelines 39

Chapter Five: Preparing Task Lists 47

Chapter Six: Preparing Position Guides 50

Chapter Seven: Effective Delegation 58

Chapter Eight: Effective Evaluation 65

Chapter Nine: Holding Effective Meetings 72Meeting Planning Sheet 78Meeting Agenda and Action Plan 79

Chapter Ten: Who Do You Need to Hire? And How to HireThe Right Person 80

Chapter Eleven: A Primer on Marginal Contribution Analysis 82

Chapter Twelve: Applications of Marginal Contribution Analysis 93

Chapter Thirteen: Job Costing 101

Chapter Fourteen: Clustering Market Analysis 103

Chapter Fifteen: Constructing Value 110

Chapter Sixteen: Selling to Pain 116

Chapter Seventeen: Cold-Calling 121

Chapter Eighteen: Effective Negotiation 127



Chapter OneOrangutan Management

What Is Orangutan Management?

To answer that question, I have to tell you a true story.

I lived in Sweden for about eight years. I like Sweden and the Swedes very much. In thewinter, the snow is illuminated by the moon and stars reflecting over soft whiteness. It’sbeautiful.

The winter is, for me, magical. The houses are rather plain, usually stucco-finished inearth tones and dull mustard-yellow. But once the doors are opened, you enter a world oflight, color, sound, warmth, and friendship.

In the summer, wildflowers cover its fields and the many small islands in the Archipelagofilling the Baltic Sea over to Finland, are covered with Swedish families tending their“summer houses,” alternating between do-it-yourself projects and picnics, games, andother forms of family closeness.

Yes, there is much that I like about Sweden. But, not being a fan of TV anyway, I foundtheir television to be - well - awful.

Drab announcers, seemingly selected from the lowest 10 percent of the population withrespect to both appearance and delivery, presented equally dull material.

However, while I lived in Sweden, there was a weekly TV show I enjoyed. It was called“Nojs Machinen” which roughly translates to “The Entertainment Machine.”

One Saturday, while watching Nojs Machinen, I observed an act they had taped in LasVegas - a team of orgautans seemingly and with utter precision, making a fool of theirtrainer. It was hilarious, wonderful entertainment. The audience went wild and I wasliterally rolling on the floor with laughter.

In typical Swedish fashion, once the show was over, the MC interviewed the trainer(directly reporting from Las Vegas, of course, since Swedes will take any excuse to travelto warm places during the winter).

The interview was brief and went something like this:

Interviewer: “That was a wonderful show. I'm fascinated by how well-trainedyour animals are. How do you do this?”



Trainer: “It's actually rather easy. When I get a new animal, I just love them andwatch them for a few months. I observe what they like to do. Then I build the actaround that.”

What a blinding flash of the obvious!

That, I realized, was the way I ran companies.

Particularly in the startups that I ran for my venture capital clients, I'd intuitively watchfor what people in the team liked to do and then structure things so that they could dowhat they liked in a way that was aligned with my vision for the company.

I then tied the team together using the Shared-Vision Leadership process described laterin this book.... and let them go for it. In some cases, I taught them the CyberneticTransposition techniques.

The result was usually a remarkable increase in performance accompanied by a jump inthe stock price of 10 to 15 times during the first year of operation - which was a long as Iliked to stay around.

I also realized that this was the way I liked to run companies. It was easy, exciting,involving, and the results were very satisfying.

So I formalized the process and named it, Orangutan Management.

Orangutan Management Applied to Companies Rather Than Personnel

These thoughts led to reflections on the shoe manufacturing company that I'd recentlybought and turned around.

In its first 100 years, the company produced ladies' casual shoes, usually forother brand names. In its more recent years it had clicked off a very steady $1 to$1.5 million annual profit on $12 to $14 million in sales.

Then it was bought by a small conglomerate out of Boston run by an ex SeniorPartner of one of the big accounting firms. I'll call him Al. Under Al's tutelage,the firm had borrowed about $7.5 million at about 22 percent interest. Al hadthen siphoned the money out into his holding company through technically legalbut effectively disreputable means.



However, that wasn't the worst he did. Thinking he knew something about thebusiness, Al changed the direction of the company from what it did well and thatit “liked” to do to higher priced fashion shoes. Over the next seven years, thisstable and consistently profitable firm went downhill fast.

By the time its bank offered me a chance to acquire it for almost nothing, thecompany was 2 weeks from liquidation, final termination. It was a basket case: $7million sales down from $14, reported $2 million loss (actually $4 million) downfrom $1 to $1.5 million profit, no orders on hand, over 12 percent of its productwas returned due to defects, zero reported net working capital (meaningeffectively, the money on hand to pay bills), and it owed the bank $7.5 million at22 percent interest.

Nonetheless, I bought it, that being my “Quixotic” period.

The first sign of real trouble came the next day when I walked into the company'soffices. The VP of Finance said, “Good, now that you're on board, I can tell youwhat's really going on!” My stomach dropped. The worst part was that he reallydidn't know how bad things were. They had been playing accounting games for solong that nobody knew.

In fact, it took our new auditors 6 months to give us the first real financialstatement. But along the way, we got many clues that things were much worsethan had been portrayed. The first was a month or so after I arrived, we were, ofcourse, cash-strapped. So we tried to collect our bills as fast as possible. (Thislater grew into a true artform.)

One bill for $500,000 wasn't paid on time so our people called to inquire.“Weren't you happy with the shoes?” Oh, they were so happy they wanted toreorder twice as many. (We had started making the type of product that thecompany “liked” and its market expected.) “Have you misplaced the bill?” No. Ithad been processed over two weeks previously. “Well, why haven’t we receivedour money?”

Oh, they said, “it had been offset against ‘the credit.’”

Credit? What credit? We had no credit on our records. So we asked the customerto send us a copy. Sure enough it was authentic - but it wasn't in our records.

The next clue arose when we wrote a check on an account listed as having$238,000. It bounced. Seems like the balance was $1.16. That wasn't in therecords either. And this went on and on. We did have legal recourse but the sellerwas in such bad shape that we had no chance of getting any money.



When we finally got a financial statement, it showed a negative $2.5 million in networking capital. Simply put, that meant that every single day we were at least$2.5 million short of what was required to pay our bills.

That left only one option that I was willing to accept: work our way out. So weaccelerated our plan to return the company to the kinds of products and marketsthat “it liked,” those that had been historically successful. The long and short isthat in nine months, we tripled sales from $7 to $21 million, we generated a salesbacklog (as yet unfilled orders) of $12 million, gross profit was up from anegative 4 percent to a positive 22 percent, twice industry average, and we wereearning an annualized profit of $2 million (after nearly $2 million in interestexpense) as opposed to the initial real loss of $4 million.

The trick - other than manufacturing $2.5 million out of “thin air” to finance dailyoperations? We simply let the company do what it “liked” to do. We returned it to theproducts and types of customers that were embedded in the company’s “unconscious.”

In a very real sense, companies, societies and countries have personalities and their own“unconscious minds.” They also have many self-defeating unconscious habit patterns.The key to straightening them out is to apply the Cybernetic Transposition Three-Step tothem in an appropriate way and to align them with what they “like” to do in a way that isconsistent with being successful.

As far as manufacturing $2.5 million out of thin air, that’s another story entirely. (Funnyhow that figure keeps coming up in my history, isn’t it?)

Sophisticated Orangutan Management

I wondered where I'd learned to manage this way.

Having pondered the question for a while, Ed Brower popped into my mind. Ed is a tall,lanky, roughly handsome “cowboy” from Oklahoma who’d run a company that I'd startedand who'd taught me a good deal. He was “folksy,” running his big hand through his thin,sandy hair as he said, with a twinkle in his eye, things like, “I've gotten a lot of cowsgoing north by starting them south.”

Ed had been brought into our artificial intelligence venture by our Texas investors, agroup of industrial finaglers who, in retrospect, remind me a lot of the crew on the“Dallas” TV show. Ed had a “magnetic” personality that was quite remarkable. Watchinghim meet someone new looked like long-lost brothers coming together after a longabsence. He could tune into people's unconscious natures and reflect them back in a waythat usually generated immediate familiarity and trust.



One of the reasons that I and my team liked Ed was the work he had done in turningaround the Newport Beach, California plant of a large electronics firm, Collins Radio(which is now part of Rockwell International). The investors had proposed Ed and we’deagerly accepted him when we learned about how he’d achieved success in that project.

The plant produced electrical components on a “job-shop” basis, with aconstantly shifting product line in response to the demand of other plants withinthe company. When Ed took over, it was running at 52 percent of capacity,producing significant losses, and had a remarkable 115 percent annual employeeturnover. This meant that, on the average, the total workforce was replaced 1.15times per year.

Ed looked at the situation, wondering why the workforce was so transitory.

Clearly it wasn't the working conditions. They were modern and clean. Theanswer seemed to be a combination of factors.

Primarily, the plant was in the wrong place (Newport Beach, California). Theavailable workforce in Newport Beach consisted of unionized part-time middle-class housewives who really didn't need the money.

Ed wondered why they even came to work in the first place. So he startedwatching what they liked to do, observing before work started, on breaks, and atday-end. After a week or so of this, a theory rose in his mind. Maybe they came towork to get benefits other than wages and health insurance - psychological andlifestyle benefits.

So, along with his immediate staff, he brainstormed a series of possible categoriesof such benefits - aloneness vs. being surrounded by kids and its opposite,companionship of workmates vs. spending the day alone at home; the newness ofthings vs. a boring home routine and its opposite, routine when their home lifewas chaotic, etc. They finally identified 8 of these needs that could be met in thecompany’s workplace.

Then Ed enlisted some of his young bright people and within the month they hadcategorized all of the workers according to these 8 needs, needs that were beingmet in seemingly incidental ways.

Now came the next brilliant step. Ed had his industrial engineering staffreorganize the work flow of the plant into “work centers,” each incorporatingcertain human skills, technical resources, and a specific job to do - such aspainting a part. They also categorized each work center in terms of which of the 8personal needs it could fulfill.



Next came a period of selling to the union and a brilliantly successful trial run.

Finally, the whole things was put to the union in final form. The plant would beentirely reorganized into a work-center concept as would each product to beproduced. Each worker had already been preliminarily classified as to whichwork-centers they could fulfill with their existing skills - and according to thework-centers that would meet their psychological and lifestyle needs (of the 8categories).

After some negotiations, the union went along with the plan and it was fullyimplemented.

The result was an almost immediate tremendous success, so great that within sixmonths the union leaders were treating management to a beer blast monthly as atoken of their appreciation.

Everyone had benefited. Output of the plant had increased by 1.4 times and it wasquite profitable. Staffing increased by about 20 percent. Employee turnover wasdown from 115 percent annually to 10 percent and the quality of the productsproduced by the plant was outstanding. The training program to qualify foradditional, higher paying, work centers was full - with the company paying for thetraining and the employees contributing their time.

The secret? The new scheme let the employees do what they liked doing! This wasTrue Organutan Management.

The Easy Way versus the Hard Way.

As managers, leaders, or entrepreneurs, we oppose what comes naturally only at our ownrisk. The case books are full of examples.

When we flow with what is natural and enjoyable and that also fits an appropriate visionfor our business, our businesses are productive, involved, and filled with energy. Whenwe do the opposite, we get procrastination, a lot of illness, late deliveries, high turnoverand other forms of avoidance.

Which works better?

The answer seems obvious. And, using the Cybernetic Transposition techniques, you cancreate businesses that involve their employees doing what they like to do.



Whether within an organization or within ourselves, these techniques marshal theinventiveness to bridge between what makes us happy and what's required.

We all have that ability. Entrepreneurs are experts at it.

For example, both Silicon Valley and the Route 128 complex around Boston arepopulated with companies started by people who were blocked from doing whatthey wanted in the way they wanted.

A research study by Arnold Cooper of Purdue University showed that thefounders of these firms consistently were either fired for trying to force theirformer managements to do what seemed obviously right or they quit because theyweren't allowed to do what they wanted.

Along with them went tremendous resources of their former firms and greatopportunities. The new companies simply put into practice what they'd wanted todo at their former one.

That study started me pondering how to bridge the gap between an appropriate vision forthe company and what its employees enjoyed doing. Why hadn't their former employersbeen able to see what was obvious?

And within the ventures themselves, why so much bickering and resistance?

As Ed had done, I began observing both the venture companies I ran as a “hired gun” forventure capitalists and my Fortune 500 clients. Clearly, they were all populated withconflict, often subtle and unseen. I realized that essentially all the conflict arose fromdiffering points of view - or what I refer to as “wild horses management.”

I developed a solution that I call Shared-Vision Leadership. (See Chapter Two.)

Applied Motherhood

Among the most effective practitioners of Orangutan Management are mothers. That'swhy I find it a lot easier to turn an experienced mother into a successful organizationturnaround consultant or entrepreneur than an MIT graduate with a Harvard MBA - mucheasier, about 6 months versus several years.

Mothers have to learn to deal with pre-literate “full grown souls” in little bodies, theirchildren. As any of us parents know, our kids have very definite ideas of what’s right forthem. Our job is to bridge between our experience of what will serve our children as they



grow up and their needs as expressed in their preferences, something I have discussed atlength in my forthcoming book, “Parenting Computer-Age Kids.”

What a good parent has learned is how to invent bridges to bring two seeminglyconflicting points of view into alignment. For example, I think that my two sons, whowere 10 and 12 when I initially wrote this, are the greatest in the world - a completelyunbiased assessment, of course.

Sometimes, however, we had the “I want to go vs. I don't want to go” syndrome come up.After some years of working on an easy solution, I now just suggest that they go intotheir room and resolve this conflict into something that works for all of us. Sometimesthat requires that I move from my position but it always seems to work.

Perhaps 15 years ago, I realized that I was treating the members of one of “my”technology ventures as kids in the same ways. But usually, our prima donnas didn't haveany training in resolving things themselves. So what did I do? The easy and obviousthing. I hired a “mother hen” for the company, someone with administrative skills whohad raised her own kids and really knew how to mother our whiz kids. It was an informalyet very effective process - and one that I now insist on when running any venture.

I did the same thing in my company-turnaround consulting firm. It started out in anaccidental way. Having invented an artificial intelligence research method thatcategorized respondents into “homogeneous” clusters, I had formed a survey researchfirm. Our data collection involved telephone interviews lasting 1-2 hours and we weresuccessful in achieving a 90 percent response rate because we hired people with highinterpersonal intelligence (meaning they could easily and very effectively connect withthe people they were interviewing).

These were often college-educated divorced women with kids. They needed the jobs andwere therefore motivated. We trained them in appropriate interviewing skills, gave themwork on projects that interested them, and got great results.

One of my “weaknesses” is that I can't stand to see people working at less than theirpotential. That's why I gave up on having secretaries many years ago. As soon as theywere up to speed in the secretarial job, I'd move them to a higher paying, more fulfillingone. And that’s how I developed an entire workforce of these “untrained” mothers doingvery highly sophisticated turnarounds.

They could enter a company and gain a level of cooperation from management that ourtraditional consultants couldn't approach. At that time, management teams were typicallyentirely male and they thrived on some mothering since - if you watch - you'll see thatcompanies are usually comprised of little kid and teenage personalities that want andneed that mothering, particularly if they are highly entrepreneurial and creative.



In this case, what the managers and employees liked doing was being creative in a“mothered” environment.

Once our “mother hen” consultants entered the companies and began to apply what I’dtaught them, performance of the companies and employee satisfaction shot up. And ourbills always were paid on or before the due date! (A key indicator of client satisfaction.)

The Point

Orangutan Management is an extremely powerful tool for creating productive andsuccessful companies once you have a vision for the company that is correct andappropriately permeable.

By violating the rule of big companies and structuring the work processes around whatyour employees individually like to do that is consistent with your vision for thecompany, you will create a highly motivated, very productive, go for it team. If youappropriately manage the vision, effectively turn it into a Shared-Vision, get at least yourkey employees using the Cybernetic Transposition Three-Step and apply the other Nutsand Bolts aspects of effectively managing your small business described in this ebook,your business has a very good chance of being among the 1%-2% of small businessesthat are effective, successful, very profitable and long-lived.



Chapter TwoShared-Vision Leadership

Wild-Horses Management

Most teams act something like four people, each standing with his or her back against onewall of a four-sided room.

Facing straight ahead, each one accurately describes what he or she sees, producing fourquite different and quite true descriptions of the room from four different perspectives.

And each will argue for and pursue the truth of his or her perception, quite ignorant of thevalidity of the others' points of view.

The result? Conflict. Hurt feelings. Withholding. Or supposed agreement followed byeach person heading in the direction that accords with their personalized version of theagreement. Familiar? Definitely!

If you are leading such a team, chances are you often feel like you're being pulled apartby wild horses.

If instead of four walls, we substitute you, your sales person, your accounting person andyour manufacturing or service delivery person, you’ll see how most of the conflicts inyour small business arise.

Leadership via Shared-Visions

Leadership is the process of empowering all members of a team to achieve the team'sgoals. Some leadership is charismatic, a function of the leader's personality. In contrast,Shared-Vision Leadership involves leadership by the whole team. It revolves around ashared- vision that actively incorporates the views, suggestions, and concerns of all teammembers.

Working with a Shared-Vision is analogous to seeing all sides of the room at once.Awareness of the whole picture gives each team-member the freedom to pursue his or herown objectives in a way that supports and is supported by the efforts of all his team-mates.



Creating a Shared-Vision

A comprehensive Shared-Vision integrates several component Shared-Visions, each ofwhich triggers complete intuitive and intellectual agreement among the team.

To create a Shared-Vision, each team member starts by describing his or herpoint of view in the Wish List format, in a series of Metastories, creating adescription of the way they’d ideally like things to be in the area under discussion.The various team members' sets of descriptions are then integrated using theShared-Vision Leadership process.

In this process, the entire team is divided into groups of three. Each group sits in atriangular arrangement with one person designated “A”, one “B”, and one “C”.

Person A starts the process by reading and concretely describing his or her “perfect”Metastories while B and C silently record their reactions.

The Shared-Vision Leadership Clearing Process

Usually, B and C have some rather negative reactions to what they hear and wouldnormally communicate their agitation to A, getting him upset too! But that’s not allowedin this process. So they have to resolve their upset themselves. This is accomplishedthrough the Shared-Vision Leadership Clearing Process.

This Shared-Vision Leadership Clearing Process is a paper and pencil exercise thateasily and quickly generates remarkably creative resolutions of conflicting perceptions.

It combines a process of homing-in on exactly what is troublesome with the skill ofediting to generate new alternatives that are “perfect” from the points of view of theperson doing the process and the other two members of his or her team.

For example, imagine that B is quite upset about something that A has proposed. She isnot allowed to talk about her upset. So she writes a detailed description of what shethinks A has said and her reaction to it in the Shared-Vision Leadership ClearingProcess format, a variation on the Basic Achievement Clearing Process. This consists of:

• writing the key points of what she thinks she heard. (Usually people don’t really hearwhat is said, they listen very selectively. Often, therefore, they react to what wasn’tsaid.)

• Then she carefully reads what she has written and circles any word or group of wordsthat cause a negative reaction.



• Next she “edits” her original description until she is entirely comfortable with hernew version of what A has proposed.

• Now she role-plays A, figuratively moving to “his side of the room.” As A, sherepeats the process of homing-in on troublesome points and editing.

This involves reading through her own “perfect” version of what A has said andcircling anything that would upset A, followed by editing until her new revisedversion seems perfect for both her and A.

• Lastly, she repeats the process while role-playing person C. (She circles the wordsand phrases that would seemingly upset C and edits what she has written until itseems perfect for A, C, and herself.)

A and C also perform the Shared-Vision Leadership Clearing Process to resolve anyupset that they may have experienced. This leaves all three members of the group in astate of inner harmony and intellectual clarity.

Completing The Three Person Shared-Vision Leadership

The group has now completed the first of four steps in the Shared-Vision LeadershipProcess.

In step two, B acts as “sender,” reading and describing her list of perfect Metastorieswhile A and C record their reactions.

When she is finished, all three members of the group perform Shared-Vision LeadershipClearing Processes.

Step three involves sending, receiving, and clearing a third time with person C as the“sender” and A and B as the “receivers.”

Integrating Three Points Of View Into One

Now we come to the fourth and final step in the three-person Shared-Vision LeadershipProcess. A, B, and C have now shared their opinions with each other and haveexperienced each other's points of view. This makes it rather easy for them to creativelyintegrate their separate perspectives into a single shared vision.



This is done in “round-robin” fashion. A first picks a Metastory that he agrees with fromhis or from B’s or C’s list that he thinks B and C will easily accept and proposes it. If Band C agree, it is recorded on a Shared-Vision List. If not, they try to quickly resolvetheir disagreement. If not, it is quickly (within 3 minutes) set aside for later consideration.

B then suggests a Metastory that is either accepted by A and C and added to the Shared-Vision List or set aside. And then C repeats the process. This round-robin continues untilall Metastories have been considered.

Since many of the Metastories partly or wholly overlap, ones that do are integratedduring this step.

Next, A, B, and C briefly discuss the Metastories that have been set aside, the ones theycouldn’t rapidly agree on. They may now agree on Metastories that previously generatedconflict. If so, the newly agreed Metastories are added to the Shared-Vision List.Remaining disagreements are resolved through Shared-Vision Leadership ClearingProcesses. This quickly leads to completion of the Shared-Vision List.

Finally, the group's agreement is tested by asking everyone on the team to answer threequestions: 1) “Is there anything on your group’s Shared-Vision List that you intuitivelyor intellectually feel or think should not be there?” 2) “Is there anything missing from thelist that you intellectually or intuitively think or feel should be there?” 3) “Do youexperience anything other than agreement with and enthusiasm for this Shared-Vision?”

If the answer to any of these questions is “yes,” new Metastories are submitted orexisting ones revised, occasionally with the help of the Shared-Vision LeadershipClearing Process. Soon the answers to all three of the questions are “no” indicatingcomplete intuitive and intellectual agreement within each three person group.

Integrating The Three-Person Shared-Visions Into A Whole

At this point, the team is divided into a number of three-person groups, each of which hasa Shared-Vision. Now the task is to integrate the three-person Shared-Visions into asingle one for the entire team.

This is accomplished by repeating the Shared-Vision Leadership Process with one three-person group at each corner of the triangle. If the team numbers about 9 persons, thisprocess ends with the creation of a team-wise Shared-Vision.



Summary

The preceding description briefly and in simplified fashion outlines the Shared-VisionLeadership process of moving a team from confusion and conflict into agreement andproductive cooperation. During the past 10 years, this approach has consistently led torapid improvements in the effectiveness of the participant teams, especially whencombined with the Cybernetic Transposition Super Achievement Three-Step process.

Forms

The three forms used in the Shared-Vision Leadership process are appended to thisdescription. They are the Metastories, Receiving and Clearing Process forms, the use ofwhich is described above.



Please print this form and fill it out by hand with pencil or pen.

Name __________________________________________

Subject __________________________________________

Shared-VisionLeadershipMetastories



Number 1, Title ________________________________________________

As Is Now:

Rating of Perfection:

Perfect Alternative


Number 2, Title ________________________________________________

As Is Now:


Perfect Alternative


Number 3, Title ________________________________________________

As Is Now:


Perfect Alternative




Number 4,_ Title ________________________________________________

As Is Now:


Perfect Alternative


Number 5, Title ________________________________________________

As Is Now:


Perfect Alternative


Number 6, Title ________________________________________________

As Is Now:


Perfect Alternative




Number 7, Title ________________________________________________

As Is Now:


Perfect Alternative


Number 8, Title ________________________________________________

As Is Now:


Perfect Alternative


Number 9, Title ________________________________________________

As Is Now:


Perfect Alternative




Number 10, Title ________________________________________________

As Is Now:


Perfect Alternative





Name __________________________________________

Subject __________________________________________

Sender’s Name __________________________________________

Shared-VisionLeadershipReceiving



Sender’s Number 1 Sender’s Title ______________________________

Key Areas of Agreement:

Key Areas of Disagreement:


Receiver’s Alternatives:

Perception of Sender’s Hidden Agenda (if any):


































































Name __________________________________________

Sender’s Name __________________________________________

Sender’s Metastory Number ________

Sender’s Metastory Title ___________________________________

Shared-VisionLeadership

Clearing Process



1. Write an extensive and detailed description of what you think the sendermeant by this Metastory.

2. Rate how COMFORTABLE you are with the Sender’s point of view as youjust described it. Use a 1-10 scale where 1 = very uncomfortable and 10 =very comfortable. Record your rating in the box below.If your rating is an HONEST 10, go to 7. If not, continue with 3.



3. If your rating is LESS THAN 10, carefully read the description that youwrote under 1. While doing so, CIRCLE EACH WORD OR PHRASE THATTRIGGERS INTUITIVE DISCOMFORT IN YOU.

4. Modify and/or rewrite your description that you wrote under 1. Changeanything that you have circled or underlined. Continue this process untilyou have a modified description that is completely comfortable for you.

5. Rate how COMFORTABLE you are with YOUR MODIFIED DESCRIPTION.Use a 1-10 scale where 1 = very uncomfortable and 10 = very comfortable.Record your rating in the box below.If your rating is an HONEST 10, go to 7. Otherwise, continue with 6.



6. If your rating is LESS THAN A 10, carefully re-read the modified descriptionthat you created under 4. While doing so, circle each word or phrase thattriggers intuitive discomfort. Then modify your description until it becomesan HONEST 10. Record your rating in the box below.

7. ROLE PLAY THE SENDER. Read your HONEST 10 DESCRIPTION FROMHIS OR HER PERSPECTIVE. Then INTUITIVELY RATE HIS OR HERLEVEL OF COMFORT with your version. Record your rating below.

8. If your rating is an HONEST 10, go to 11.If your rating is LESS THAN 10, carefully read your most recentdescription while ROLE PLAYING THE SENDER. While doing so,CIRCLE EACH WORD OR PHRASE THAT YOU INTUITIVELY THINK ORFEEL WOULD CREATE DISCOMFORT IN THE SENDER.



9. Modify and/or rewrite your description that you just rated. Changeanything that you have circled or underlined. Continue this processuntil you have a modified description that is COMPLETELYCOMFORTABLE FOR BOTH YOU AND THE SENDER as you intuitivelyperceive his or her reaction, an HONEST 10.

10. ROLE PLAY THE THIRD MEMBER OF YOUR GROUP. Read thedescription that you and the sender gave a TRUE 10 RATING. ThenINTUITIVELY RATE THE THIRD MEMBER OF YOUR GROUP’S LEVELOF COMFORT with your version. Record your rating below.

11. If your rating is an HONEST 10, you have completed this process.If your rating is LESS THAN 10, carefully read your latest descriptionand, while doing so, CIRCLE EACH WORD OR PHRASE THAT YOUINTUITIVELY THINK OR FEEL WOULD CREATE DISCOMFORT IN THETHIRD MEMBER OF YOUR GROUP.



14. Modify and/or rewrite your description that you just rated. Changeanything that you have circled or underlined. Continue this processuntil you have a modified description that is COMPLETELYCOMFORTABLE FOR YOU, THE SENDER AND THE THIRD MEMBER OFYOUR GROUP as you intuitively perceive their reaction, an HONEST 10.

12. WHILE ROLE PLAYING THE SENDER AND THE THIRD MEMBER OF YOURGROUP, read the latest description. Then INTUITIVELY RATE THE LEVELOF COMFORT OF YOU, THE SENDER AND THE THIRD MEMBER OF YOURGROUP with this version. Record your rating below.

13. If your rating is an HONEST 10, you have completed this process.If your rating is LESS THAN 10, carefully read your latest descriptionand, while doing so, CIRCLE EACH WORD OR PHRASE THAT YOUINTUITIVELY THINK OR FEEL WOULD CREATE DISCOMFORT IN THESENDER OR THE THIRD MEMBER OF YOUR GROUP – OR THAT DOESIN YOU. THEN MODIFY THE DESCRIPTION UNTIL IT IS A TRUE 10 FORYOU, THE SENDER AND THE THIRD MEMBER OF YOUR GROUP.

When it is a TRUE 10, you have completed this process.



Chapter ThreeNegotiated Job Agreements

1.0 Introduction

1.1 The Negotiated Job Agreement Process (NJA) quickly brings a supervisorand subordinate into intuitive and intellectual alignment with respect to thesupervisor's expectations and the subordinate's ability to meet thoseexpectations. As such, it quickly brings the subordinate up to speed.

This is a simple and common sense but very powerful process that very fewmanagers know about. I have used it to cut the time managers and seniormanagers take to get up to speed from as much as six months to a few days.

Since the manager of small business has very little if any time to spare, thisprocess can make the difference between gaining or losing when you hire anemployee.

It can make the difference between an effective and an ineffective employee,no matter how long they have been with you.

1.2 The NJA also forms a valid basis for constructing Position Descriptions,Task Lists, and performing Employee Evaluations.

2.0 Principles Of Negotiated Job Agreements

2.1 The ability to effectively delegate is absolutely critical to managerialeffectiveness. However, in order to feel comfortable delegating something toanother person, we have to intuitively and intellectually believe that they willproduce the results we would if we did it.

2.2 In order to reach that point, we have to communicate with the other person ina way that lets them know what we want and they have to communicate withus in a way that lets us know that they can and will achieve what we want.

2.3 Achieving this communication can be very difficult because words meandifferent things to different people. We know that but most of us still assumethat the words we use are automatically understood as having the meaningthat we intend. As a result, there is the risk of being unintentionallymisunderstood and creating confusion.



2.4 Therefore, we have to concretely define the meaning of what we say. By far,the most effective way of doing so is through examples (stories) andmetaphors. Historically, stories were the way that wisdom was passed on bythe elders of the tribe to the younger generation. To be effective managers,we have to learn to do that same thing.

2.5 The NJA Process builds upon this story-telling mode of communication toconcretely define what we want and to then embed that definition in ourlistener's intuitive and conscious minds. Once we have done so, oursubordinate knows, intuitively and intellectually, what we want done andhow. When we are confident that they can and will do what they know wewant, we are able to comfortably and effectively delegate the job that hasbeen described to them.

3.0 Process Of Negotiated Job Agreements

3.1 On Form 1 (attached, using multiple pages) list all of what you want from thesubordinate with respect to:

2.1.1 tasks,2.1.2 communications,2.1.3 behavior, and2.1.4 attitudes.

At the top of the page, record a title that indicates the job you are describing.

3.2 For each item on this list, create a simple title, such as, “Completing Things.”Then, for each item remember an example of something you haveexperienced that very concretely shows what you mean by the item. Forexample, an example might be, “Like Mary used to do it,” (which is nowvery meaningful to the you but not yet to the subordinate).

Be sure to create a title and identify an example for each item.

3.3 Utilizing the format of Form 2 (attached), copy all of the titles but NOT thestories.

3.4 Communicate the information on your Form 1 in a one-to-one meeting withthe subordinate or job candidate. Give them a copy of Form 2 with the headerand titles filled in.

3.5 During this meeting, do the following:



3.5.1 Read and describe the first item by giving the title and telling theassociated story as concretely as possible.

3.5.2 Ask your subordinate whether he/she has ever personally had anexperience or has seen a situation that approximates the story. Almostalways, the answer is “yes.” If the answer is “no,” elaborate on yourstory or come up with another relevant example until the subordinategets the point and can come up with an example from his/her ownexperience.

3.5.3 Ask your subordinate to describe his/her related experience and listenvery carefully to what they say. If their experience adequatelymatches what you mean by your point, ask them to record a summaryof what they have described on Form 2 under the same title. If not,talk back and forth until you are sure that your subordinate has thepoint. Then have them record their experience.

3.5.4 Repeat the three preceding steps for each of the items on the yourForm 1. The whole process usually takes about 60-90 minutes.

3.5.5 At the end of the process, give your subordinate or job applicant theopportunity to go through each item on their list, indicating to youwhether they feel that yours is a reasonable expectation of them. Ifnot, negotiate until you reach concrete agreement.

3.5.6 Upon concluding this process, your subordinate or job applicant willhave a concrete idea of what you expect of them and you have aconcrete idea of what to expect from them. Therefore make a copy ofthe completed Forms 1 and 2 and each of you sign them for futurereference. Your copy should go into the employee’s personnel file.

4.0 Forms

Attached are NJA Forms 1 and 2.



FORM 1: NEGOTIATED JOB AGREEMENT MANAGER'S LIST (page ____ of ____)

COVERING: _________________________________________________ (job)

to be performed by (subordinate name) ______________________________________===================================================================

1. (title) ________________________________

(my experience that defines what I mean by this):

2. (title) ________________________________


3. (title) ________________________________


4. (title) ________________________________


5. (title) ________________________________




FORM 2: NEGOTIATED JOB AGREEMENT FORM (page ____ of _____)

COVERING: _________________________________________________ (job)

to be performed by (subordinate name): ______________________________________====================================================================

1. (title) ________________________________

(my experience that defines what my supervisor means by this point):

2. (title) ________________________________


3. (title) ________________________________


4. (title) ________________________________


5. (title) ________________________________




Chapter FourPeople Management Guidelines

1.0 Introduction

There are a series of basic guidelines for managing people that underlie the otherrecommendations that I’m giving you. Most, if not all of them are common sense butthey may be common sense ideas that you haven’t thought of and might nototherwise.

These are good guidelines for both your day to day interaction with the people youmanage and those occasions where corrective action is required.

At the end of this procedure, you’ll find a brief list of these guidelines. I suggest thatyou keep it on your desk and review it daily.

The best way to implement these guidelines is to create a Metastory for each onebased on your own experiences and/or observations – and to then use the CyberneticTransposition Three-Step to set an unconscious objective of managing your peopleaccording to your interpretation of these guidelines.

2.0 The Guidelines

The 12 ground rules which follow will help managers face and deal with toughpeople decisions.

2.1 Recognize That People, Not Structural Changes, Are What Make AnCompany Work Or Fail.

Good talented people who are dedicated and motivated can make almost anycompany structure succeed. Conversely, lackluster people who are poor,unmotivated performers will be ineffective under any company concept.

Of course, company changes often are necessary to better utilize talents,achieve better planning and control, reduce costs, etc. But, the manager mustensure that he/she doesn’t fall into the trap of tinkering with the company asa means of escaping or putting off fundamental problems that are difficult oruncomfortable to deal with.

As a manager, it is your primary job to effectively utilize your resources toachieve the company’s goals. Your primary resources are your people. Howyou select, train and manage them will make the difference between



succeeding magnificently in your managerial job and utterly failing.Remember: If your people fail, it is your failure.

2.2 Provide For A Successor.

Every manager — except individual contributors or professionals where abackup can’t be economically justified — should have a backup person whois potentially qualified for his job. If there is no one in the company who hasthis potential, then the manager must give top priority to bringing someone inwho does.

Providing for a successor does not automatically mean adding to staff.Rather, it means that one to two people within the company who do not haveappropriate management qualifications or potential should be replaced bysomeone who can meet those requirements. This should be done whenattrition requires hiring replacements or when marginal performers are beingreplaced.

By creating a concrete specification utilizing the Negotiated Job Agreementsprocess, you can rapidly bring a successor up to speed.

2.3 Deal With Tenure Problems Fairly But Candidly.

Some individuals who have long and distinguished records of service in thecompany reach a point where their job responsibilities move beyond theirenergy level or capabilities. This is a natural development and should beexpected… it will probably happen to all of us.

Both the manager and the company have an obligation to those people whohave served it loyally. They should be compensated fairly and should begiven assignments where they have an opportunity to make a continuingcontribution.

But, if they can no longer pull their own weight, they have to be removedfrom the mainstream. It is not fair to the balance of the company to leavethem there. It is certainly not fair to them. The manager must promptlyinform those who cannot stand the pace so that they may make the necessaryadjustments without delay. He or she must also provide the necessarytraining and support to ensure that the knowledge of such an employee ismade available to the company in an effective manager.



2.4 Communicate Expectations

Measure performance and act on results. A successful manager ensures thateach person that he or she manages knows what is expected of him/her, howhis/her assignment fits into the whole operation and how his/her performancewill be measured.

Each individual should have a set of specified goals that he/she is expected toaccomplish within a certain time frame, so that there will be nomisunderstanding about what he/she is supposed to do. Actualaccomplishment against those expected results should serve as the basicmeasure of performance.

At the same time, the company’s system of rewards and penalties mustreinforce this concept. Rewards should be for achieving results, not for effort.In a competitive free enterprise environment, trying hard is not enough.Achieving results is what counts — the difference between winning andlosing.

If your people aren’t achieving the required results, it is your job to find outwhy and take action to resolve the problem.

2.5 Don’t put up with marginal performers.

The most frequent and worst mistake managers are apt to make is to live toolong with marginal or poor performers. Most managers kid themselves intothinking that by allowing these individuals to continue, they are being fair andthat somehow time will correct the situation. Nothing could be further fromthe truth — basic personality faults or skill deficiencies simply do not getcorrected with time.

It is totally unfair and a reflection of weak management to reach an agonizingconclusion that someone can’t do the job after he has been on it for severalyears. The truly capable manager must be tough-minded in his performanceevaluations, unemotional in his decisions on who can perform and whocannot and then eminently fair and decisive in the way he/she carries outthose decisions.

However, it is equally unfair and a reflection of weak management if youdon’t find out why marginal or poor performer isn’t meeting expectations. Itmay be through lack of training, confusing and inappropriate supervision, abad fit of the person’s skills with the requirement of the job, physical ormental deficiencies, or a lack of motivation, among other possible causes.



Your job is to home in on the source of the problem before making an actiondecision.

2.6 Criticize Only In Private.

No person should be criticized in the presence of his subordinates or peers.Any criticism should be saved for a private discussion so that the individualresponsible can later handle the problem or correct matters with hissubordinates on his own.

Managerial criticism must be constructive. Whether the outcome is pleasingto the employee or not, you can still actin a constructive fashion. Forexample, I have fired thousands of people in my time. When I did, I took thetime to sit down with each, explained why the job from which they werebeing fired was not right for them and suggested the types of jobs in whichthat person could excel. Many of them returned later to thank me for gettingthem on track with what was right with them.

It is totally inappropriate to vent emotions when criticizing. If you feelfrustration or anger about a situation, you must resolve that before dealingwith the person who created or allowed that situation. Otherwise, no matterwhat your words, all you will be communicating is frustration or anger. Andthat is never constructive. In fact, if it goes beyond a certain point, you can beaccused of abusive managerial behavior.

2.7 Weed Out Misfits.

No matter what you do, it is almost inevitable that some misfits are certain tocreep into any company. This happens, no matter how carefully people arescreened or evaluated. The primary causes is convincing misrepresentationby the prospective employee when they are hired and/or wishfulthink/projection on the part of the hirer.

You, as the manager, must be alert to move quickly and decisively toseparate them. Not acting quickly to rectify such situations detracts from amanager’s credibility. People in a company invariably know who the misfitsare and will quickly draw negative conclusions about the manager’s owncapability if he permits them to remain. They will also lose the motivation todo the best job possible if poor performers are seen as receiving equaltreatment.

In acting on this guideline, it is important that you understand that a misfit isjust that, someone who does not fit in the situation where you placed them.Usually, neither the manager nor the employee is wholly responsible. So it is



important that you act constructively when you do take action, that you helpthe employee learn from the experience and that you do the same.

The best ways that you can learn from the situation is by creating a series ofMetastories of your significant interactions with the employee, from the timeyou first met him or her to the termination situation. When you haveconverted the memories of these situations into Metastories, you should setan unconscious objective by converting the resulting Wish List into anunconscious Target using the Cybernetic Transposition Super AchievementThree-Step processes.

2.8 Cultivate Individual Ambition And Drive.

No individual should be damned simply because he or she is “too ambitious,”“too aggressive,” “too impatient,” or “too demanding” as long as he/she is agood learner, a clear thinker, aligned with the goals of the company and fairand straightforward in his dealings and actions with others.

The preceding phrases in quotes are frequently used in a critical vein bysome managers, but they actually represent the kind of qualities a companyshould develop because such people can and will make things happen for thebetter.

It is the people who are too easy going, too willing to compromise principlesto avoid conflict and more interested in being liked than in getting thingsdone who are the problem. They create a mushy working environment thatmakes it impossible to develop a strong team or achieve outstanding results.

As a manager, it is your job to assist your employees in setting clear andmeasurable objectives and to measure their performance accordingly. It isalso your job to measure their performance by measuring the degree to whichthey adhere to their Negotiated Job Agreement.

2.9 Focus Objectively On Personal Accomplishments, Not PersonalDifferences.

An effective manager must understand that race, age, sex, heritage and socio-cultural characteristics have nothing whatsoever to do with evaluating anindividual’s effectiveness in a company.

If you have a negative or inappropriately positive reaction to an employee forone of these reasons, you should immediately do a Base Reframing processto resolve your unconscious habit patterns that are at the root of yourreactions.



As a manager, you should focus on and evaluate the things that really count:

• Who faces problems squarely? Who has the guts to tell it like it is? Whodoes not?

• Who is an effective contributing team member? Who is not?

• Who has and can articulate good ideas? Who cannot?

• Who produces results? Who meets his or her commitments? Who doesnot?

2.10 Let People Know Their Status And Prospects.

An effective manager will ensure that people in the company know exactlywhere they stand and what their career outlook is at all times — even if ithurts.

This doesn’t mean that anyone should expect to have a special career pathmapped out or to be promised a future promotion – although that may be agood idea where people have exceptional abilities that line up closely withthe goals of the company.

But it does mean that each person is entitled to know whether he or she isperforming well or poorly in his current assignment and whether he or she isregarded as having future growth potential.

2.11 Provide Training, But Stress Self-Development.

There will be times when a company must reach outside to find the bestavailable people to meet its management needs and standards. However,promotion from within should be the company’s overall plan and goal.Toward that end, a company should support projects to prepare its people forincreased responsibilities.

But, in the final analysis, all of us ultimately shape and control our individualdestinies. A company can point the way and assist with company-sponsorededucational and training programs but self development is the key to success— and each of us must shoulder that management responsibility on his/herown.



Moreover, in the absence of an interest in developing themselves, even themost effective education and training will roll off an employee’s back like water off aduck – to coin an original simile.

2.12 Create And Maintain An Attractive, Motivating, Supportive andHealthy Company Environment.

This guideline incorporates all of the previous guidelines. It underscores theessential responsibility of a manager to provide people in the company with asituation and an opportunity to work effectively in a common effort that isaligned with the company’s goals, develop their capabilities, fulfill theirprofessional aspirations, and achieve appropriate recognition and rewards.

A manager must place major emphasis on creating this kind of environment.This doesn’t mean he or she should seek to make everyone happy or to maketasks easier. But, it does mean that he/she should endeavor to practiceOrangutan Management wherever appropriate and should develop a workenvironment that has these characteristics:

• There is honesty and integrity in what everyone says and does. Everyonefeels free to say what he or she really thinks.

• There is open communication up and down and across the company.

Everyone recognizes both the right and the responsibility to be open andconstructively critical of things that are wrong or that could be improved.They also recognize the admonitions that “Where you offer a criticism,do your very best to offer a better and feasible alternative.”

• Superiors are willing to really listen to the other person’s side and point

of view — and are willing to admit “I’m wrong” if facts and logic showthat is the case.

• There is a genuine interest in getting problems up on the table — and in

correcting them rather than worrying about pinpointing blame orscurrying to keep shirt tails clean.

• Everyone enthusiastically works hard and effectively as a team — and

has fun doing it. There is an air of excitement in the company that comeswith the realization that you are on a winning team and that what you aredoing is appropriate and fulfilling for you.

3.0 Conclusion



Where this kind of environment exists, performance will be good – assuming that thecompany’s vision and goals are appropriate, and people will achieve new heights ofachievement and contribution.

Unless this kind of environment exists, good people will leave and only mediocrepeople will remain. Any company staffed with mediocrity is certain to lose.

4.0 The Guidelines in List Form

1. Recognize that people, not structural changes, are what make an companywork or fail.

2. Provide for a successor.

3. Deal with tenure problems fairly but candidly.

4. Communicate expectations.

5. Don’t put up with marginal performers.

6. Criticize only in private.

7. Weed out misfits.

8. Cultivate individual ambition and drive.

9. Focus objectively on personal accomplishments, not personal differences.

10. Let people know their status and prospects.

11. Provide training, but stress self-development.

12. Create and maintain an attractive, motivating, supportive and healthycompany environment.



Chapter FivePreparing Task Lists

1.0 Introduction

Very few small business managers enjoy dealing with paperwork. But a certainminimum amount of paperwork is required to ensure that you and your employeesare clear about what’s expected, where authority is delegated and who they report to.

Failure to make these things clear almost always results in things falling between thecracks, usually in an expensive way, and significantly reduced productivity whentwo people tell a third what to do.

Task Lists are the ground zero of documenting what is to be done.

1.1 This procedure describes how to develop and apply Task Lists. No matterhow small your business, everyone involved should have a detailed TaskList. Once your business has grown enough to require Position Guides, TaskLists should be prepared for each person below the level of supervisor whodoes not have a Position Guide prepared for his or her position.

1.3 Task Lists are a list of key functions arranged by priority and day, or specifictimes of a week, month, or quarter.

2.0 Who

2.1 Preparing Task Lists is the responsibility of the supervisor.

2.2 The supervisor and employee should work together in preparation of a TaskList for the employee’s position.

3.0 The Process Of Developing Task Lists

3.1 The supervisor should hold a meeting with all his/her staff to describe how tofill out a Task List. When everyone understands, give them the blank TaskLists and ask them to complete them by a specific date and time.

3.1.1 List by order of importance all the tasks you have responsibility for and the day you are required to do them. List the additional tasks that

you feel you should be performing but are not presently and markthem with an asterisk in the margin.



3.1.2 List everything you do or feel you should do, daily, weekly andmonthly.

3.1.3 List how long it will take for each task; if possible, define anestimated start and end time for each task.

3.2 The supervisor should review the complete set of Task Lists prepared byemployees reporting to him or her to ensure that they are correct and that theset comprehensively covers all required tasks.

3.2.1 If the same tasks are included on more than one employee’s Task Listand the supervisor wants that task done the same way by everyonewho will be doing it, they should create an Operating Procedure thatdetails how the task should be done, (i.e., how to open the facility,how to close the facility, etc.).

3.2.2 Each relevant employee is then trained in performing the relevantOperating Procedures.

3.2.3 The supervisor should modify each employee’s Tasks List as requiredto match tasks and skills, to assign task to whomever likes to do themand has the required skills, wherever possible, and to ensure that thetotal set of tasks assigned to the supervisor is adequately covered.

Where there is a conflict between two employees who feel theyshould each be doing the same task, the supervisor should hold aconflict resolution meeting with them and resolve the conflict. Thismay necessitate the use of the Shared-Vision Leadership ClearingProcess form.

3.3 After Operating Procedures have been developed and conflicts concerningtask allocation have been resolved:

3.3.1 The Task Sheet should be updated by the supervisor after review withthe employee.

3.3.2 All staffs should be trained in any new Operating Procedures andpolicies.

3.4 Specific measures of performance should be established for all items on theTask Sheet and agreed by the employee and the supervisor.

3.5 The supervisor and the employee should then meet to review the modifiedTask Sheet. After both agree to the specifics on the Task Sheet, it should be



signed by both parties, a copy given to the employee to guide him or her andthe sheet is filed in the employee’s personnel file and posted in the workarea, if applicable.

4.0 Conclusion

4.1 Task Lists change as the market, methods and personnel change.

4.2 Task Lists define the key functions that each person is responsible forperforming.

4.3 Task Lists are used in the "backup" training, to ensure that when someone isabsent the key functions of a position are still covered.

4.4 Task Lists are a means to minimize the risk that things fall through the cracksand to develop working relationships between supervisors and employees.

4.5 Task Lists are the written understanding between supervision and employeesof what will be done without supervisory decision making.



Chapter SixPreparing Position Guides

1.0 Introduction

As your small business grows beyond a few employees, significant confusion andconflict will occur unless you formalize who is supposed to be doing what and withwhat areas of authority, who employees report to and what their responsibilities are.Not doing this will almost ensure not only conflicts but that important things will fallthrough the cracks.

1.1 There should be a written Position Guide for every management andsupervisory position in the company. Other employees should be guided byTask Lists. Otherwise, your employees will operate based on theirobservations and assumptions. This will usually result in significant waste ofmoney and time and significant aggravation for you and them.

1.2 Position Guides are written to clarify and document the specific authorities,responsibilities, duties, and standards of performance for each key job at yourcompany. In the best case, they are based on the agreements generatedthrough the Negotiated Job Agreements process. They ensure that yourexpectations are clearly documented, as no one can perform to expectationsunless they clearly understand them.

1.3 Employees are evaluated by comparing actual performance to theresponsibilities, duties and standards of performance listed in the guide.

2.0 Drafting The Position Guides

2.1 It is helpful to get employee assistance in developing the position guides.They provide valuable insight into the positions and seeking the employee'sinput will increase his/her commitment to perform within the specifiedguidelines. The best way to do this is through the Negotiated Job Agreementsprocess.

2.2 You must have accurate and comprehensive information on the tasksperformed by the position before writing a Position Guide. Refer to theDeveloping Task Lists procedure for information and a form on Task Listdevelopment.

2.3 Position Guides should be written in this format:



2.3.1 Introduction: A brief paragraph stating the name of the position andthe company.

2.3.2 Functional Role: This shall include a sentence or short paragraph to describe the overall impact the position has on the company.

2.3.3 Physical Requirements: This is an overview of the specific physicaldemands of the position, as required by government regulations.

2.3.4 Reporting Relationship: Indicate to what position this job reports (usethe title of the position, not the individual's name). Also, indicate thetitles of any positions that report directly to this position.

2.3.5 Authority: This is the power to take action within prescribedlimitations without obtaining prior approval. List the authorities andlimitations of this position.

2.3.6 Principal Responsibilities: Responsibilities are not necessarily whatthe individual does, but rather that which (s)he must ensure isaccomplished. The responsibilities must be results-oriented, not taskoriented

2.3.7 Principal Duties: . Duties are the specific tasks that must beperformed to accomplish the responsibilities of the position.

.2.3.8 Measurements of Performance: These must be specific and, if

possible, quantifiable measurement criteria used to evaluate theperformance of the employee. This will focus the employee's effortson listed criteria. Make sure the standards cover all the key functionsof the position.

2.3.9 Acknowledgment: State that the position guide has been reviewedand is understood. It should signed by the manager and the employeereceiving the position guide, and then filed in the employee'spersonnel file, with a copy having been provided to the employee.

2.4 Position Guides must be regularly reviewed and revised. Reviews arerecommended twice yearly (every six months). Job duties, authorities, andresponsibilities will change over time and position guides need to bemodified accordingly. All revised position guides must be dated, signed andfiled in each employee's personnel record.

You will receive great benefit from these periodic reviews. They require youto decide whether all items included in the previous Position Guide are



relevant and important. As such, they provide a good basis for maintainingcontrol of what is to be done in your business and by whom.

3.0 Finalizing The Position Guides

3.1 The position guide will be drafted by the manager directly supervising theposition. Before the position guides are distributed, they must be approved bythe you. The approved description must be carefully reviewed with theemployee in that position.

3.2 It is essential that each employee clearly understand what is expected ofhim/her, what his/her goals are, and how to achieve them. The position guideis a tool for ensuring that happens.

4.0 Sample Position Guide

Position Description: Sales ManagerXYZ Corporation

1.0 INTRODUCTION:

1.1 This procedure establishes the essential functions, authority, responsibilities,reporting relationships and performance criteria for the Sales Manager ofXYZ Corporation.

2.0 FUNCTIONAL ROLE:

2.1 The basic function of the Sales Manager is to generate a steady flow ofprofitable business for the Company, to build an appropriate backlog of suchbusiness, and to provide necessary Customer Support functions as required toensure customer satisfaction. It is also to perform the necessary planning,organization and management with respect to the Company's Sales functions.In addition, he/she is to perform so as to achieve the Company's objectivesand as needed to support the business and obtain maximum growth andprofitability.

2.2 Plan and manage operations of the Company's Sales activities.

2.3 Establish qualifications for Sales and Customer Support personnel and,where appropriate, participate in interviews of candidates. With theconcurrence of the President, hire and train qualified candidates.



2.4 Evaluate work practices in the Company's Sales operations; design improvedpractices and, with the President’s approval, implement them.

2.5 Define and implement relevant training for Sales and Customer Supportemployees. Monitor their performance and recommend required changes.

2.7 Identify risk areas in Sales and Customer Support operations and identifyand, with the President’s approval, implement ways of minimizing suchrisks.

2.8 Manage the Company’s Continuous Quality Improvement program withrespect to the Sales and Customer Support functions, ensuring that thenecessary training and reporting take place.

2.10 Ensure that the Company’s Sales and Customer Support employees areproperly supported as required to do their jobs.

2.11 Ensure that the Company’s Sales functions are effectively integrated withDivisional operations, so as to support smooth and efficient work flow whileminimizing errors.

2.12 Provide effective leadership of the Sales functions in accord with theCompany’s Business Plan and Mission Statement.

3.0 REPORTING RELATIONSHIPS:

3.1 The Sales Manager reports directly to the President of XYZ Corporation.

3.2 The Sales and Customer Support personnel (if any) report directly to theSales Manager .

4.0 REQUIREMENTS:

4.1 Education:

4.1.1 Required: Extensive training in Sales and Customer Support practiceswithin the (relevant) industry and in Sales and Customer SupportManagement/Supervision.

4.2 Experience:

4.2.1 At least 10 years experience in (relevant) industry Sales andCustomer Support; and at least 5 years experience managing the typesof activities associated with this position.



4.3 Skills

4.4.1 Must possess the ability to basically perform and understand theactivities performed by the Company.

4.4.2 Must possess the ability to plan, evaluate, train, and manage the typesof Sales and Customer Support that the Company performs.

4.4.3 Must have the ability to effectively and efficiently build and maintainthe team of employees required to implement the Sales and CustomerSupport functions.

4.4.4 Must have the ability to manage a team of at least 5 persons.

4.4.5 Must possess the ability to effectively manage the Sales andCustomer Support operations of the Company.

4.4.6 Must possess the ability to gain the cooperation of and achieveeffective integration of the functions under him/her with interfacingfunctions within the Company.

4.4.7 Must ensure a high level of cooperation with the Divisional functionsof the Company.

4.4.7 Must provide effective leadership to the Sales and Customer Supportoperations of the Company.

4.4.9 Must possess the ability to "shift gears" quickly, while still staying ontrack with existing projects and responsibilities.

4.4.10 Must possess the ability to plan Sales and Customer Supportoperations and to satisfactorily implement them.

4.4.11 Must provide Continuous Quality Improvement of all activities underhis/her control.

4.4.12 Must have excellent verbal and good written communication skillssufficient to effectively communicate with management,subordinates, and customers.

4.4.13 Must be consistent in actions and provide overall leadership byexample.



4.5 Judgment and Decision Making:

4.5.1 Seek guidance, direction, and training for the performance of duties.

4.5.2 Train, motivate, coach, counsel, and evaluate the employees as theneed and opportunities arise.

4.5.3 Respect and safeguard the confidentiality of the Company.

4.6 Planning and Time Utilization:

4.6.1 Meet scheduled deadlines for achievement of Company goals andobjectives.

4.6.2 Show ability to consistently recognize and deal with priorities.

4.6.3 Demonstrate the capacity to anticipate the impact of changes in thebusiness environment and make appropriate plans to deal with them.

4.6.4 Always have a set of basic contingency plans dealing with the riskfactors associated with the Sales and Customer Support functions.

4.7 Initiative:

4.7.1 Institute problem-solving actions as soon as it becomes evident thatproblems exist.

4.7.2 Be willing to assume necessary responsibility and challenges.

4.7.3 Constantly scan the Sales and Customer Support environments fornew and new-to-the-Company opportunities and techniques thatwould improve the Sales and Customer Support operations.

4.8 Attendance and Commitment:

4.8.1 Complete all work schedules on time and assure quality.

4.8.2 Serve as a role model for other personnel through commitment andenthusiasm as a team member of XYZ Corporation.

5.0 AUTHORITY:

5.1 Develop and maintain Sales and Customer Support plans and reporting.



5.2 Hire, assign, transfer, evaluate, and terminate with respect to authorizedpositions within the Sales and Customer Support functions.

5.3 Approve all operating expenditures of the Sales and Customer Supportfunctions that are within their budgets.

5.4 In conjunction with the President, plan and manage training and evaluationprograms to ensure that all Sales and Customer Support functions operate atthe highest levels of quality and efficiency.

5.5 Delegate responsibility as required to execute the position's designatedfunctions.

6.0 DUTIES AND RESPONSIBILITIES:

6.1 Provide the leadership, direction, and implementation of the mission and thevision of the Company as it relates to the Sales and Customer Supportfunctions.

6.2 Prepare and update the Marketing Strategy. 6.3 Establish and maintain effective planning and budgeting processes for the

Sales and Customer Support functions. Maintain the focus and direction ofthe Sales and Customer Support team with respect to the targeted work.

6.4 Design and manage Market Analysis and Prospect Selection processes.

6.5 Develop and maintain an effective Credit Policy. 6.6 Provide a reporting system to the President that will track Sales and

Customer Support performance (including Sales Captures, Revenue, andcapture rates) and provide monthly status against the Sales and CustomerSupport plans.

6.7 Actively work with the Sales and Customer Support employees, training

them to effectively perform required functions. 6.8 Provide timely performance evaluations of directly reporting employees. 6.9 Develop and maintain an effective Incentive Plan for the Sales and Customer

Support Personnel.



6.10 Maintain a high level of communication with management personnel in orderto keep them informed of, and to solicit input from them concerning the Salesand Customer Support operations and plans.

6.11 Develop operating standards to measure planned performance against actual. 6.12 Coordinate schedules with all interfacing functions. 6.13 Develop and maintain a high level of teamwork and personal responsibility

among Sales and Customer Support employees.

6.14 Perform other duties as assigned by the President.

7.0 PERFORMANCE MEASUREMENT:

The Sales and Customer Support Manager shall be deemed to be performingsatisfactorily when the following measures of performance are met:

7.1 He/she is successfully meeting or exceeding the goals and objectives of theCompany as they relate to the Sales and Customer Support functions.

7.2 He/she is providing timely and adequately complete Sales and CustomerSupport reports to the President.

7.3 His/her achievements address the responsibilities and duties listed in Section6.0.

8.0 ACKNOWLEDGMENT:

I have reviewed and understand the above job description and believe it to beaccurate and complete. I also agree that the President retains the right to change thisjob description at any time after discussing it with the Sales Manager .

_________________________________ _________________Sales Manager Date

_________________________________ _________________President Date



Chapter SevenEffective Delegation

1.0 Introduction

1.1 Whether or not to delegate is often considered a manager's choice; however, inreality, there is not a choice. At some point in time, a person's area ofresponsibility will become greater in scope than they can physically and mentallyhandle.

At this point, one must delegate some authority to others in order to properlyfulfill all of the responsibilities of the position. Being an effective managerrequires delegation of authority.

1.2 One of the most basic principles of organization is the delegation ofresponsibility. With that must go along enough authority to ensure that theresponsibility can be carried out. Neglecting to do so is one of the mostfrequently violated principles of organization.

1.3 Employees must be given a direct explanation of who they are responsible to(report to) and who he/she takes orders from. Chaos results when more than onemanager or supervisor begins giving instructions or orders to the same individualas these orders frequently conflict.

2.0 Principles Of Delegation

2.1 Select a subordinate to whom you will delegate a task. Choose someone who isquite capable of doing this job, then give that person the authority to do it.

2.2 Clearly communicate the task. The manager and subordinate should agree on thefollowing:

2.2.1 The scope of the task.

2.2.2 Specific results to be achieved.

2.2.3 The relative importance of the task.

2.2.4 A time schedule which provides not only a deadline for the completion ofthe task, but specifies checkpoints along the way as well.

2.2.5 The necessary authority to carry out the job.



2.2.6 A pre-determined way to measure results.

2.3 Delegate the good and the bad. If you just give others the undesirable tasks, youwill retard their motivation, commitment and development. Delegate interesting,rewarding and challenging jobs as well as mundane tasks.

2.4 Delegate gradually. Do not transfer too many responsibilities at one time.

2.5 Delegate in advance. Do not wait until a crisis arises to delegate.

2.6 Inform all affected people and departments. This is to eliminate confusion and tohelp maintain cohesiveness in the operation of the department. When you assigna task, be sure that everyone knows that this individual has the responsibility andauthority to complete the job.

2.7 Let the subordinate manage. Delegate for specific results and let the individualdecide how to go about doing the job.

2.8 Follow-up. Make sure that you follow up and give the person constructivefeedback on the results attained.

2.9 Remain consistent. Keep your expectations consistent with the original agreed-upon results. If changes occur discuss them openly with the individual.

2.10 Review with them in private surroundings. Should the results be less thandesirable, review them with the individual and concretely show how he or shecould have improved their results. Do not just tell them. Show and give concreteexamples and stories so that they get a feel for what you are describing.

3.0 Delegation

3.1 Delegation of authority may be divided into three categories as follows:

3.1.1 Total Authority - The individual may take action without notifyinganyone for approval.

3.1.2 Partial Authority – You retain veto power and the individual may takeaction only after securing approval for the action.

3.1.3 Limited Authority - The individual can develop actions to be taken andmake recommendation but cannot take action.



3.2 What to delegate? Divide your responsibilities and duties into three categories asfollows:

3.2.1 Relatively unimportant routine duties and tasks. These are itemswhere a bad decision will not be costly and can be corrected withminimal consequences. Label these as “A” items

3.2.2 Fairly important tasks and duties. These are items where yourexperience and expertise may be required and although errors andmistakes may be most costly, they will not be disastrous. Label these as“B” items

3.2.3 Critically important. Those items where an error in judgment or a poordecision will be very costly. Label these as “C” items

3.3 Delegate all of your “A” items.

3.4 Delegate some of your “B”, especially those that you cannot complete within theallowed time.

3.5 Retain all of your “C” items. Those are responsibilities that require yourpersonal handling.

4.0 Authority

4.1 In order for a subordinate to accomplish a task, he/she has to be given a certainamount of authority. Remember, authority can be delegated, but it is stillyour responsibility to see that the task is accomplished.

4.2 You want the subordinate to develop a plan of action and then you want to trusthis/her ability to make the proper choice in conjunction with his/her ability andcourse of action to implement the decision.

If you have performed the Negotiated Job Agreement process with them, youwill have a good idea of what you can trust them to do.

4.3 Point out to subordinates any policies and procedures that they should be awareof. Put these or any other instructions in writing. Reference can always be madeto a written copy.

Remember, very few people can recall everything that is said, andparticularly, accurately recall the respective context.



5.0 Maintaining Control

5.1 When you manage through others, it is vital that you keep control. You dothis by holding a subordinate accountable to you for their actions and checkingtheir progress and/or results along the way.

Therefore, in delegating authority to subordinates, you must strike a balance incontrolling them. While you don't want to interfere, you must be kept informedof progress and results. This should be accomplished through reports and/ormeetings.

5.1.1 Reports must provide you with the right information at the right time tobe of value.

5.1.2 Periodic meetings held with your subordinates will allow for interactionwith them as well as comments on activities, accomplishments orproblems.

6.0 Coaching Your Staff

6.1 Effective delegation does not end with good control. It involves teaching andlearning management skills at all levels.

This is a never-ending process and must be approached as such. It is essentialwithin any organization that this process continue for the organization to prosper.

6.2 It is equally essential to keep your subordinates informed and give them the factsthey need in order to make intelligent and timely decisions.

Delegation of authority can only be effective when you have goodcommunications. Convey your thinking to your subordinates and ask questionsto make sure an adequate understanding has been reached.

Communicate in very concrete terms with lots of examples and stories.

6.3 Never leave your staff with instructions that are so specific that they have noroom to be creative.

You will be surprised at both how much more cooperation you will receive whenyou allow your staff to be creative and at the valid improvements they will oftensuggest.



7.0 Allow Your Staff To Function

7.1 Selecting competent people, defining their authority, maintaining control andcoaching set the stage for success. The Negotiated Job Agreement processprovides a good basis for doing this.

Now, let your staff do what you told them they could do. Allow them to makemistakes! That’s how people learn (and remember that the mistakes made willonly be on the non-critical items).

7.2 It is also vitally important to let competent subordinates perform in their ownstyle rather that insisting that they do things as you would have done them.That’s a basic aspect of Orangutan Management.

Evaluate your subordinates on their results, not only on their methods. But, ifappropriate, learn from their methods.

7.3 Having given an employee the authority to act, your next concern should be thattheir actions conform to established policies and procedures. In a small business,policies and procedures are usually few but very important. Adhering to them isa necessity.

If subordinates wish to proceed otherwise, they must demonstrate to you that achange in the policy or procedure is necessary.

Should you agree, the change must be instituted before the action is initiated bythe subordinate.

7.4 If a subordinate does well, tell him/her so.

Far too often we jump at the chance to criticize and take for granted tasks that aredone well. Criticism has its place, but so do compliments. Both are veryimportant in building and developing managers within your organization.Remember to keep adding value.

A good rule is that if you give a criticism be prepared to immediately suggest aneffective positive alternative. Let them leave the meeting with somethingpositive rather than guilt or resentment.

Learning is important; it takes time, and it must be adapted to the duties andskills within the company. The company can imitate other corporate philosophiesand practices, but execution of the policies and procedures is the most importantingredient.



Successful execution skills are acquired only through practice and constantnurturing.

8. Forms

Attached is a Delegation Planning Worksheet.

Using it, you will list the tasks you perform and assign them to A, B and C categories,identify to whom to delegate each and determine how many hours per week you willsave by delegating.



DELEGATION PLANNING WORKSHEET

Employee: ________________________________ Position : ___________________

Date: ____________

===============================================================

Make a list of all the tasks you perform. Note the hours per week you normally spend oneach. Then rate each one according to a scale where A = relatively unimportant routineduties and tasks, B = Fairly important tasks and duties where your knowledge andexpertise is somewhat required but the cost of errors will be modest, and C = Criticallyimportant tasks where an error in judgment or a poor decision will be very costly.

Task A,B,C? Hours/Week To Whom to Delegate?1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

11.

12.

13.

14.

15.

16.



17.

18.

19.

20.

21.

22.

23.

24.

25.

26.

27.

28.

29.

30.



Chapter EightEffective Employee Evaluation

1.0 Introduction

1.1 Employees generally want to be kept informed of how well they are performing.Job performance will generally improve if there is feedback to the employeeregarding his/her performance.

1.2 An effective evaluation starts a dialogue between the employee and theirmanager if there was none. The communication that develops in the evaluationwill reinforce to the employees that they are part of the organization.

1.3 An effective evaluation program will provide a means for management torecognize good performers and improve weak ones. When poor performance isallowed, it acts as a negative influence on good performers.

1.4 Evaluations must focus on job performance and improvement. While wage andsalary issues are related to job performance, they are not to be addressed duringthe evaluation process.

1.5 The limited resources available for salary and wage increases should beallocated among employees based on the evaluations of all of them. Until thatprocess is complete, it is inappropriate to address wage and salary issues.

2.0 Objectives Of Employee Performance Evaluation

2.1 The evaluation program has the following objectives:

2.1.1 To evaluate how the job is being done, where praise and confirmation isdue and what areas, if any, are in need of improvement.

2.1.2 To evaluate the employee’s short and long term potential with thecompany.

2.1.3 To provide an opportunity to review the employee’s training anddevelopment program within the business and to update it asappropriate.

2.1.4 To create a consistent method of communication between the employeesand management.



2.2 Performance evaluations must be a continuing process, not restricted to awritten document prepared as part of a semi-annual process. Management musthave regular reviews with their employees regarding performance.

2.2 Informal discussions with employees between formal reviews will lead to moreobjective formal evaluations. This will also aid in eliminating surprises to theemployees at the time of the formal review.

2.3 Since the point of the whole process to ensure that each employee is workingeffectively and growing in effectiveness and efficiency, informal discussionsprovide a forum for coaching and training.

2.4 A “Personal Incident Log” should be used by the manager to documentemployee actions outside the standards of acceptable performance, eitherpositive or negative:

2.4.1 Each item in the log must be dated, the employee’s action explained andinitialed by the supervisor. It may also include the employee’scomments regarding the incident.

2.4.2 Employees must be aware of all entries in their personal incident log. Ifviolations are noted and not discussed with the employee, they will notchange their behavior and the process has not accomplished the desiredresult. If the action is positive, the employee deserves immediaterecognition.

2.4.3 If the action listed on the incident log has resulted in a written warning,so note.

2.4.4 The personal action log will provide a chronological record of eventswhich will be helpful in formulating an objective formal review.

2.5 The formal review is designed to accomplish the following:

2.5.1 Update the employee on how management rates their performance, howthey can more effectively apply their strengths, any relevant weaknessesand how to deal with them and what improvements, if any, are expected.It is also an opportunity to reinforce positive aspects of the employee’swork.

2.5.2 Allow the employee an opportunity to comment on their evaluation andtheir planned future with the company.



2.5.3 Allow the employee to identify their needs related to improving their jobperformance.

2.5.3 Provide a permanent record of performance for career development, payincreases (when appropriate) and participation in a possible employeeincentive plan.

3.0 Control System

3.1 Very often, evaluations are abandoned due to the administrative burden ofmaintaining them. In order to prevent that from happening, a control systemshould be established and maintained by the person primarily responsible foradministration, as follows:

3.1.1 Set up a reminder system with the employee’s name, job title,supervisor’s name, anniversary dates, etc. For a small business, this willprobably be an index card file with monthly dividers. However, it couldas well be a computer calendar program that provides programmedreminders.

3.1.2 For all new, full time employees, set the initial evaluation date at 30days after the date of hire, again at 6 months and on a semi-annual basisthereafter.

3.1.3 For all new, seasonal employees, set the initial evaluation date at 30days after the date of hire and again at the conclusion of the season.

3.1.4 The date of the next scheduled evaluation is placed on the card and thecard is filed in the proper month.

3.1.5 On the 25th of each month, administration pulls the cards for theemployees with reviews coming up next month, and provides theappropriate manager with names and blank review forms.

3.1.6 The cards that have been removed from the master file are placed in asuspense file until the evaluation is completed, signed and returned tothe office. The evaluation rating and the date of the next scheduledreview are then added to the card and it is placed in the proper month forthe next evaluation.

3.1.7 If any cards are remaining in the suspense file on the 20th of the month,inform the appropriate managers that the reviews are past due. Thesuspense file should always be empty by the 25th when the next group is



due to be pulled. If any evaluations from the previous month has notbeen completed by this date, the matter should be referred to a seniormanager for action.

All managers should understand the gravity of procrastinating in doing aperformance appraisal and their personnel files should be noted if theydon’t get their reviews in on time.

It is easy for procrastination to corrupt the whole evaluation process. Ifyou allow it, the result will be a sharp drop in employee morale andmissed opportunities for performance improvement.

3.1.8 Signed evaluation forms should then be reviewed by Senior managementand placed in the employee’s personnel file.

3.1.9 A copy of the signed review form should be delivered to the employee.

4.0 The Evaluation Form

4.1 It is very important that each manager treat completed evaluation forms ashighly confidential documents.

4.2 Prior to completing the evaluation form, the manager must read and understandthe employee’s Position Guide and/or Task List to ensure that the evaluation isboth specific accurately reflects the expectations of the job. If a Negotiated JobAgreement has been developed, it should also be carefully reviewed.

4.3 The employee should receive a blank copy of the evaluation form and fill it inprior to the evaluation meeting with the manager. It is very important for theemployee to be given the opportunity to identify issues that need to be discussedin the review.

4.3 The rating criteria on the evaluation relate to quality of work and job specificcriteria. The job specific criteria will come directly from the employee’sNegotiated Job Agreement, Position Guide and/or Task List.

4.4 Each item on the form will be rated on a 5 point system, with 5 being the bestpossible score.

4.5 The scores of each of the items are added and the total score entered in theappropriate space unless particular items carry significantly greater weight thanthe others. If that is the case, each such item should be multiplied by a factor



reflecting its importance before adding the scores.

4.6 The total possible score is derived by multiplying the number of criteria itemsby five. If, however, items have been weighted for greater importance, the totalpossible score is derived by adding the weights of all of the items reviewed (usea weight of 1 if no importance weighting multiplier has been established for anitem) and the total multiplied by 5.

4.7 The overall performance rating is then attained by dividing the total score by thepossible score and is then stated as a percentage. Typical evaluations of thisscore are:

Overall Score Rating Action Required01 - 30 Poor Immediate improvement or face dismissal31 - 50 Fair Room for improvement, needs guidance and

support.51 - 70 Average Performs well, capable of more responsibility.71 - 85 Good Needs little or no supervision, should have new

opportunities.

86 + Excellent One of the top performers.

Note that these ratings and actions are not cast in stone. You should adjust themto match your intuitive evaluation of the person. However, if you intuitiveevaluation and the quantitative score don’t agree, it is very important for you tofind out why they differ. Perhaps the employee is being required to do thingsthat he or she shouldn’t while they are also performing critically importantthings that aren’t among their stated activities..

4.8 It is important to point out examples of the employee’s good performance andstrengths, if possible. Employees need positive reinforcement. These examplesmust be genuine and job related; empty praise will not accomplish the desiredresult.

4.9 Areas needing improvement must be addressed on all evaluations. This willestablish the objectives and expectations for the employee’s performance duringthe upcoming review period. A good rule is that for every criticism you plan tomake, you have a positive alternative that you are ready to help the employeeadopt.

4.10 The evaluation form contains space for the employee’s remarks regarding theevaluation, as well as those of the manager.



4.11 The employee and the manager must both sign and date the evaluation form.

5.0 Objective Completion Of The Evaluation

5.1 In order to provide an objective evaluation, it is important to avoid thefollowing distorting influences:

5.1.1 Longevity: Rating an employee on the length of service rather than thequality of performance.

5.1.2 Halo Effect: Rating an employee’s performance in all areas higher thandeserved because of outstanding performance in one or two areas – orlower.

5.1.3 Bias: Allowing personal feelings toward the individual by the managereffect the evaluation. You should determine whether those feelings arerelated to job performance and, if so, the best way to act on them byusing the Super Achievement Clearing Process. If you still haveinappropriate personal feelings, use the Base Reframing process toresolve them.

5.2 Objectivity will be enhanced if the manager has kept a good chronologicalaccounts of the employee’s performance throughout the review period. Memory is atreacherous friend and, if you rely on it in evaluations, a potentially destructive one. Sokeep accurate and timely records.

5.3 Once the evaluation form is complete, set it aside for a day or two for reflection,before reviewing it with the employee - especially if there has been an incidentinvolving the employee’s performance in the recent past that may effect theobjectiveness of the review. Review the original evaluation comments andmake any necessary changes or additions.

5.4 Presentation of the evaluation is the most important step in the process,therefore, it is important to follow these guidelines:

5.4.1 Be prepared: Have supporting documentation or examples to supportratings or comments.

5.4.2 Focus: Avoid discussion not related to the evaluation.

5.4.3 Ensure understanding: The employee must leave the evaluation with anunderstanding of what is expected for the next review period and how



you will assist him or her to meet those expectations.

5.4.4 Keep the presentation positive.

6.0 Conclusion

6.1 The company’s most valuable resources are its personnel. A key element inmotivating an employee is the periodic formal performance evaluation. To beeffective, it must assess the employee’s value to the company in an objectivemanner.

6.2 An effective evaluation program will indicate the organization’s appreciation ofgood employees and serve as a key element in any decision to eliminatemarginal employees.



Chapter NineHolding Effective Meetings

1.0 Introduction

1.1 Any group of people who have to coordinate their activities hold meetings.These can be ad hoc meetings in a corridor, the parking lot of other informalplaces and situations but if more than two people are involved, this is notusually an effective way of dealing with things.

1.2 Formal, effective meetings can and should be used as a tool of management forcommunicating important information, information gathering for analysis ofproblems and opportunities, brainstorming solutions and tactics, planning, stafftraining, and task assignments.

1.3 Properly organized, these meetings can be efficient, effective, motivating andproduce meaningful results. Improperly organized, they are usually a waste oftime and a demotivator. The purpose of this procedure is to point out how tohold properly organized meetings.

2.0 Concept

2.1 Management expresses itself through a series of decisions made by those whohave been vested with authority to make those decisions. These decisions willenable the best utilization of all available resources (people, equipment, time,etc.) to achieve the desired result. Meetings are the coordinating factors in theapplication of sound management.

2.2 Meetings provide each individual with the means to take advantage of theunique problem-solving ability of each member and provide the vehicle for theorderly and structured dissemination of information and directives.

2.3 To be successful and meaningful, meetings must be:

2.3.1 Scheduled as a standing meeting (same time and place) wheneverpossible.

2.3.2 Scheduled as an ad-hoc meeting as required with appropriatecommunication of the time, place and purpose of the meeting and timelyreminders provided.



2.3.3 Controlled by a written agenda, which must be distributed to all meetingparticipants prior to the meeting.

2.4 Meeting minutes must be kept and distributed as a recap to all attendees. Thesame form (recap of the minutes) can and should also contain the follow-upmeeting schedule and, if possible, at that time, the agenda for the follow-upmeeting.

3.0 Function

3.1 Meetings are designed to assist managers and employees in addressing issuesand solving problems. They are structured and planned so as to keep non-productive discussions to a minimum. THIS IS A KEY POINT!

3.2 The manager in charge is the facilitator for the meeting and is responsible forkeeping the meeting on track (focus), within its set time frame, and foraccomplishing the items on the agenda. All participants should understand thattheir job is to participate in keeping the meeting on track.

3.3 Meetings that fail to achieve their objectives or that exceed the planning timeare not effective. It is the facilitator’s job to ensure that neither of theseeventualities occurs. This means that the facilitator must actively control andguide the meeting, asking him/herself whether each topic that arises contributesto what is to be achieved.

3.4 If it is clear that the meeting’s objectives cannot be achieved within the statedtime, the meeting should pause and, with the guidance of the facilitator,intermediate objectives should be established and achieved. If this occurs, priorto the end of the meeting, a tentative plan for an additional meeting to meet theoriginally stated objectives should be established.

4.0 Objectives

4.1 Objectives of meetings vary but meetings are usually held to identify and solveproblems, with emphasis on operational procedure or the communication ofplans and results.

4.2 There are three general types of meetings. A meeting may involve more thanone category.

4.2.1 Planning: Held with key personnel to develop, identify or advise on :

• activities, goals and objectives (projections)



• tactics of changing something within the business• tactics of effectively responding to opportunities and threats.4.2.2 Review: Held to discuss results and to plan for appropriate corrective

action if needed.

4.2.3 Problem Solving: Held as necessary to deal with specific problems ofthe business. This meeting allows for the free-flow exchange of ideasand solutions and should be limited to one hour in duration.

4.3 Meetings also provide managers and supervisors with a unique opportunity fortraining and developing their people. Issues and situations that come up duringday-to-day operations can be discussed and resolved so that all employees canlearn from every one else’s experience.

5.0 Structure

5.1 Standing meetings, such as monthly review and planning meetings, should beheld at the same time, place and day of week, whenever possible. This ensuresthat participants can plan and develop a routine for attendance and preparation.

5.2 Meetings extending beyond one hour in length usually go past the point ofdiminishing returns. However, longer meetings can be necessary, in which caseten to fifteen minute breaks should be scheduled and held after each hour.

5.3 Activities, assignments, and decisions discussed during any meeting should berecorded and disseminated to the participants. The meeting agenda formprovides a good vehicle for documenting the meeting.

5.4 Care should be taken to not overload the agenda for any meeting. A good rule ofthumb is to cover up to five new topics and three carry-over topics from priormeetings, at a max.

6.0 Format

6.1 Whenever possible, the meeting agenda should be prepared by the facilitator(manager) and distributed to all participants 72 hours prior to any meeting. Thiswill allow attendees to prepare for a productive session.

6.2 Any meeting participant wishing to have an item placed on the agenda shouldsubmit it in writing to the facilitator at least 24 hours prior to the scheduledmeeting time.



• For department meetings, an issue log can be kept that all departmentpersonnel can access. Any time an issue comes up that someone would likediscussed, they can note the topic in the log for inclusion in the agenda.

6.3 Adherence to the agenda, time frame, and achievement of meeting objectivesare the responsibilities of the facilitator.

At the start of the meeting, the facilitator should clearly state the objectives forthe meeting and ask the participants to avoid bringing up any issues that doesn’tcontribute to achieving those objectives.

Non-contributory issues should be the subject of another meeting, with clearlydefined objectives and appropriate personnel attending.

7.0 Meeting Policy

7.1 Every Manager will hold a departmental meeting on at least a monthly basis.Some departments may need more frequent meetings. Every Supervisor willhold a formal meeting with their staff on a weekly basis.

Managers and Supervisors will be held accountable in their performanceevaluations for their compliance with this policy and the effectiveness of theirindividual meeting processes.

7.1.1 These meetings should be used to communicate and verifyunderstanding of company performance, objectives, goals, and policiesto all members of the department.

7.1.2 These meetings should be used to ensure that all members of adepartment are aware of the progress and performance of theirdepartment and of the company as a whole.

7.1.3 These meetings should be used to identify opportunities and threatswithin the department’s area of responsibility that are not otherwisebeing attended to. However, acting on what is identified is not within thescope of these meetings.

7.2 The Management Team should meet once per week. The meeting will includeall Department Managers and be led by the President. The purpose of themeeting is to ensure that the managers are in accord with the direction andactivities of the business. This meeting is the responsibility of the President.



7.3 Monthly planning meetings should be held to discuss all departments’performance, issues, plans and follow through. The meeting will establish theplans and expectations for the following month. The President is responsible forthe meeting. Department heads will attend the meeting.

7.4 A series of strategic planning and budgeting meetings should be held annually.The number of meetings in the series will depend on the needs of the annualplanning cycle. The President is responsible for the strategic planning meetingsand all department heads should attend.

7.5 The President is responsible for holding semi-annual review meetings with allemployees. The purpose of the meetings is to share with all employees thestrategy and vision of the organization and its progress in accomplishing itsgoals. The meeting provides an excellent forum for recognizing exceptionalcontributions and for acknowledging those employees or departments that havequalified for performance awards.

7.6 Other meetings should be arranged and conducted on an as-needed basis bythose involved. Good meeting practice and organization should be used for allmeetings.

8.0 Summary

8.1 Meetings can be of great value in the areas of planning, problem solving,decision making, performance improvement, and increasing communicationthroughout an organization.

8.2 Meetings are the prime communication tools of all businesses.

8.3 To be effective, meetings must be conducted in a disciplined, focused, timeeffective, and consistent manner.

8.4 To establish the meeting policy, all managers should complete out a MeetingPlan Sheet for their standing monthly or weekly meeting.

8.4.1 The meetings will need to be coordinated in a top-down fashion so thatmanagers can communicate to their staff and their staff to theirsubordinates, and so on down the functional structure.

8.4.2 The schedule of the standing meetings will be established and the firstone planned around the Meeting Agenda.



8.5 For subsequent standing meetings, a new Meeting Plan Sheet need not becompleted unless the purpose or content of the meeting will be significantlydifferent. A separate Agenda should be used for each meeting.

8.6 A Meeting Plan Sheet and a Meeting Agenda should be used for every non-standing meeting.

9.0 Forms

Two forms are appended. The first, the Meeting Planning Sheet, provides the formatfor organizing an effective meeting. The second, the Meeting Agenda And ActionPlan provides the format for effectively communicating to and coordinating theparticipants in the meeting. It is to be delivered to all participants, preferably 72 hoursprior to the meeting.



MEETING PLANNING SHEET

___Daily ___Weekly ___Monthly

Purpose of Meeting: _______________________________________________________

________________________________________________________________________

What needs to be accomplished: _____________________________________________

________________________________________________________________________

________________________________________________________________________

Who should attend: _______________________________________________________

________________________________________________________________________

Who will take the Minutes: _________________________________________________

________________________________________________________________________

What material needs to be reviewed in advance: _________________________________

________________________________________________________________________

What material needs to be brought to the meeting: _______________________________

________________________________________________________________________

Where will the meeting be held: _____________________________________________

________________________________________________________________________

When will the meeting be held: ______________________________________________

How long will the meeting last: ______________________________________________



MEETING AGENDA AND ACTION PLAN

today's date_____________

to:_______________________________ from_____________________________

meeting date_______________ time_________ place___________________===============================================================Old Business: Person Responsible:

1)________________________________ ________________________________

2)________________________________ ________________________________

comments/notes:________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

new business: person responsible:

1)______________________________ _______________________________

2)______________________________ _______________________________

3)______________________________ _______________________________

comments/notes:________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________



Chapter TenWho Do You Need to Hire? And How to Hire the Right Person.

1.0 Introduction

1.1 Ideally, your business employs only the number of people required to provideall of the skills and time required to perform all of the activities needed to makeyour business successful.

1.2 In order to ensure this, you need to first identify all of the functions that need tobe performed. Then you need to determine which of them are currently beingdone satisfactorily. What remains that isn’t being done satisfactorily is what youhave to meet through training, task allocation or hiring.

1.3 What’s left after you train and reassign tasks is what has to be met by hiring.

1.4 By using the Negotiated Job Agreement process to effectively identify andcommunicate your requirements, you can precisely define the person that youwant to fill each position. Then, by using the Perfect Partner process, you willrapidly draw to you candidates who very closely fit your detailed specifications.

1.5 When applicants show up, you can quickly identify the ones that probably aregood fits with your requirements by using the Negotiated Job Agreementspecifications in the interviewing process.

1.6 Of course, some applicants fool themselves about their abilities and, in theprocess, they can tend to fool you. So the best course is that when you have oneor more apparently great applicants, hire each as a consultant on an hourly basisto perform one or more tasks similar to what they will be expected to do in thejob. Both the quality of the work product and the time they bill you will tell youa lot.

2.0 Defining What You Need

2.1 This is a straightforward process. The first step involves listing all of thefunctions that must be performed within your area of functional responsibility toachieve its objectives.

2.2 These should be grouped into major categories on one or more sheets of paper.

2.3 If you key them into a computer spreadsheet, you will have a permanent recordand a legible working tool.



2.4 Note which of these functions is currently performed at least satisfactorily andby whom (including yourself). Again, the use of a computer spread sheet makesthis easier.

2.5 Group the functions that you are personally performing into two categories:

2.5.1 Functions that you feel you should continue doing.2.5.2 Those that you feel you should have others performing – in other words,

what you should be delegating.

2.6 You need to either add people or train existing people to perform the functionsthat are not currently being performed satisfactorily or that you are performingbut feel you should not be. Therefore, mark the functions that require additionalpeople with an “A.” Mark with a “T” those functions that you feel your presentpeople can be trained to perform satisfactorily. This may require that some ofthe functions those people are currently performing be added to the “A” (or add)category. The key is to have all of your people doing what they will do best and,to the extent possible, like to do.

2.7 The functions in the “A” category are those that will be performed by new hires,to the extent possible.

3.0 Finding And Preliminarily Qualifying Applicants

3.1 I have found that running an effective ad is usually a more efficient way ofrecruiting people than using an employment agency and that doing your own“head-hunting” tends to work better than paying a headhunter a great deal ofmoney to try to sell you on hiring people who may not fit your needs.

3.2 The most effective ads are those that clearly state the functional requirements ofthe job and provide a brief “selling” description of the company. I favor havingthe applicant write a brief letter stating why they consider themself the idealcandidate for the job.

3.3 Written submissions should be evaluated using a spreadsheet containing lineitems for the job’s functional requirements. Both the resume (unfortunately,often containing lies) and the letter should be considered in doing so.

3.4 When you have isolated a number of “possibles,” call them on the phone.(Delegate this task only at your peril.) Before doing so, prepare Form 1 of theNegotiated Job Agreement process. Prepare an phone interview form (Form 3,attached) with 5-10 questions dealing with the most important functional and



personality characteristics and record each “possible’s” replies on a separatecopy of the form. Be sure to include a space for your intuitive reaction to eachcandidate and questions that need to be pursued with them in a face-to-faceinterview.

Use open-ended questions wherever possible. (See Chapter Fifteen.)

3.5 The result will be a “short-list” of “strong possibles.”

4.0 Face-To-Face Qualifying

4.1 Begin the interview with a brief introduction to the company and a brief outlineof your own position and functions.

4.2 Your phone interview form for this person provides a good starting point for the“meat” of the interview.

4.3 If you feel it is worthwhile to continue the interview after covering thepreceding, shift to the Negotiated Job Agreement process. Give the applicantseveral copies of blank Form 2’s with your item titles filled in.

4.4 When the prospective employee has a clear understanding of your requirements,ask them to indicate whether they can meet you needs, one by one. Ask forproof (examples) of their ability to do what you want.

4.5 If they seem like good prospects, ask them for references and call thosereferences while the prospective employee is still on site. This reduces theprobability that they will coach their references to say what they think you wantto hear.

A good way of doing this is have another senior person give them a tour of thecompany while you are on the phone. If questions arise, you'll have anopportunity to discuss them with the prospective employee.

5.0 Where The Rubber Meets The Road

5.1 If, at this point, you think they are “very strong possibles,” introduce the idea ofgiving them a consulting assignment so they can demonstrate their skills inmeeting your needs.

5.2 Be sure that the task or tasks you assign are very representative of what youneed them to do. Tell them you will pay by the hour.



5.3 Give them a simple form indicating starting and finishing times and total timeexpended for each task, and the total amount due to them. Give them a deadlineand a reasonable upper limit on the fee that is, perhaps, 50% more than youthink the job will require.

5.4 When you receive their submissions or observe the results they produce,evaluate their work against your requirements. Rate each task on a 1-5 scalewhere 5 is best. Evaluate the time they are charging you. Rate thereasonableness of time billed on the same 1-5 scale.

5.5 Ideally, the person who scored highest on a combination of the telephoneinterview, personal interview, and consulting tasks is the person you will bemost comfortable with who can also probably do what you require.

6.0 Some Other Thoughts

6.1 It is often a good idea to keep starting wages about 25 percent below what youare willing to pay. Tell the applicant that it is less than what they are worthbased on what they have represented but that’s what you can pay as a startingwage. Let them know that as they prove what they have represented throughperformance, the wage will increase.

6.2 Make sure that they understand that their Negotiated Job Agreement Form 2should be their primary guide in performing their job.

6.3 Also let them know that the first performance review will take place in about 30days from their date of hire along with a salary review and that performancereviews will then take place at 6 month intervals – assuming that you plan tofollow through in this fashion.



Chapter ElevenA Primer on Marginal Contribution

Marginal Contribution Analysis is one of the most powerful tools that a small business managerhas to know what is going on in their business – in advance of historical financial reports.

In this chapter, I will explain Marginal Contribution Analysis. In the next, I will show you anumber of applications.

These explanations assume that you understand the basic components of an Income Statementand the basics of bookkeeping using a program such as Quickbooks or Quicken.

What Is Marginal Contribution?

Marginal Contribution (or Contribution Margin) is calculated in the following way:

Dollar Marginal Contribution = The Net Price of the product or service less its DirectCost.

Percentage Marginal Contribution = Dollar Marginal Contribution divided by NetPrice.

The Net Price is simply the price that you charge less any discounts and rebates.

The Direct Cost is the cost of the actual product or service. It DOES NOT include any IndirectOverhead. In the simplest terms, Direct Costs can be counted on a unit by unit basis of productor service, Indirect Costs cannot. Indirect Costs, therefore include things like rent, advertising,salaries and wages for employees whose work cannot be allocated on a unit by unit basis suchas secretaries, accountants, sales people, management.

For example, if you are selling something that you purchase from someone else, use theInternet to sell it and UPS to deliver it, your Direct Cost for that something would be:

• what it costs you to buy it• any incoming shipping charges that you pay• what it costs in labor and direct labor overhead (e.g., social security taxes and benefits

that your business pays – including the cost of sick days and vacation) to unpack, repackand ship it to the customer

• any credit card fees that are charged you• what UPS charges you to deliver it.



Direct Cost does not include any of your selling expense (except commissions), advertising,facilities, interest, utilities, management (including you), warehousing expense or indirect laboroverhead.

Your Breakeven Sales Level

The Breakeven Sales Level is the dollars of sales you have to make before your business startsearning a profit.

If you add up all of the Indirect Costs just listed and divide them by the Percentage MarginalContribution, you get the Breakeven Sales Level of your small business.

For example, if your Percentage Marginal Contribution is 50 percent and your IndirectOverhead is $160,000, your breakeven is $320,000 sales ($160,000/0.5). At this saleslevel, your profit is zero. Below it, you are running at a loss. Above it you are making aprofit.

Profit and Loss

After you reach the Breakeven Sales Level (assuming you don’t then increase your IndirectOverhead), the Dollar Marginal Contribution of each additional unit sold goes directly to ProfitBefore Taxes.

For example, if your Indirect Overhead is $100,000 and your Percentage MarginalContribution is 40 percent, you will have to make $250,000 in sales ($100,000 dividedby 0.40) before you actually make a profit.

However, if you make $300,000 in sales which is $50,000 over the Breakeven SalesLevel, all of the 40 percent of selling price that is your Percentage MarginalContribution will go to Profit. In this case, on $300,000 of sales, your Profit would be$20,000.

But on $400,000 of sales, your Profit would be $60,000 and on $500,000 of sales yourProfit would be $100,000.

Keep Your Indirect Overhead Low!!!!!!!

If you are considering increasing your Indirect Overhead by, for example, leasing a car, dividethe annual leasing cost by the Percentage Marginal Contribution to determine how much you



will have to increase your sales to pay for it. (After that, you’ll probably decide not to get a caror to get the cheapest one you can find.)

For example, using the same Percentage Marginal Contribution of 40 percent, if youlease a car whose cost is $500 per month or $6,000 per year, you will have to increaseannual sales by $15,000 just to pay for it.

The same thing goes for when you consider giving yourself or anyone else a raise. And forfacilities expenses, furnishing, advertising, additional employees, etc.

One of the most basic causes of small business failure is excessive Indirect Overhead. So be atough guy. Ruthlessly scrutinize any Indirect Overhead expense. Evaluate what each proposedincrease in Indirect Overhead will yield in increased sales or reduced expenses.

For example, an adequate personal computer yields a big decrease in accounting andsecretarial expense (if you can use part-time people) but a more expensive model (e.g., alaptop vs. a desktop or a fast, high capacity machine when a slower, lower capacitymachine will do) will probably decrease your Profit. A fancy copying or fax machinemay or may not yield an expense reduction while always involving an increase inexpense. Only if you need the added capacity should you get a fancier model when a lessexpensive one will work.

The basic rule is that the decreased expense resulting from an improvementin efficiency must be equal to or greater than the increased expenseresulting from any equipment or personnel involved in generating thatincrease in efficiency.

I’m sure that some of you are saying that this is obvious. If so, I’m pleased. However, mostsmall business owners only learn these things through very painful lessons, frequently includingbankruptcy. Need I say more?

KEEP YOUR INDIRECT OVERHEAD LOW!

The Value of A Customer

In Quickbooks or similar programs, you can easily determine the Dollar Marginal Contributionthat each customer contributes and, if you properly allocate your sales and support expense toeach customer, what it costs to sell to and support each customer.

If the cost of selling to and supporting that customer exceeds the Dollar Marginal Contributiongenerated by that customer, you have four intelligent choices:



• Increase your prices to that customer enough to make a reasonable Contribution toOverhead and Profit (Dollar Marginal Contribution less what it costs to sell to and supportthat customer).

• Increase the volume of your sales to that customer which is something you can often do bytelling them that their prices will increase if their monthly sales fall under a certain figure.In this case, the minimum sales level that you specify should generate a big enough totaldollar marginal contribution to ensure that the customer yields a meaningful Contribution toOverhead and Profit.

• Reduce your selling and support costs for that customer so that they are less than the dollarmarginal contribution that customer generates.

• Get rid of the customer if they won’t agree to any of the first three alternatives.

In a very few cases, the prestige of having a particular customer makes it worthwhile to accepttheir business at zero or very little Contribution to Profit.

You should NEVER retain a customer that has a negative Contribution to Profit. Doingso is one of the most frequent ways that small businesses fail.

That is NEVER. Period. Full stop.

If you want to make a charitable contribution, make it to an organization that provides you witha taxable deduction for that contribution.

More About Breakeven Of Your Business

As previous noted, your Breakeven Point is the sales level that produces the first dollar ofprofit.

Breakeven Dollar Sales = (Total Indirect Overhead) / (Percentage MarginalContribution expressed as decimal).

The Breakeven Unit Sales level is the number of units of product or services that must be soldto break even.

Breakeven Unit Sales = Breakeven Dollar Sales/Net Price per Unit

Each unit below that point that sales fall produces a loss.

Loss = (Units below Breakeven Unit Sales) x Marginal Contribution/Unit.



Each unit above the breakeven point produces a profit.

Profit = (Units above Breakeven Unit Sales) x Marginal Contribution/Unit.

Percentage Marginal Contribution

Percentage Marginal Contribution =[(Net Selling Price) - (Direct Cost of Producingand Delivering Product or Service)] / (Net Selling Price)

Typically, the Direct Cost of Producing and Delivering Product or Service consists of the totalof:

Components of the Product and Supplies usedLabor to make the product or deliver the service plus Labor OverheadInbound and Outbound ShippingCredit Card FeesPercentage Sales Commissions.

When operating your business, you will usually total these costs over a number of units ofproduct or service rather than on an individual unit basis. If delivering a service, divide the totalby the number of hours of service delivered to get a cost per hour. If delivering a product, dividethe total by the number of units of product delivered to get a cost per unit of product.

How This All Works

Knowing your Marginal Contribution and your Indirect Expense provides you with a simpleway of keeping track of where your business stands in terms of profitability – and of takingcorrective action while you still have time to do so.

For example, suppose that it is the end of September and your business operates on anaccounting year ending on December 31. This means that ¾ of the year has alreadypassed.

Suppose, as above, your Breakeven Dollar Sales is $250,000 and that your UnitMarginal Contribution is $2.50. You, therefore, have to sell 100,000 units before youstart making the first dollar of profit.

Suppose that you have only sold 60,000 units this year so far. If you keep selling at thesame rate, you will only sell 80,000 units which is 20,000 short of breakeven. Thismeans that, all else remaining the same in your business, you will lose 20,000 x $2.50which equals $50,000 this year.



That’s a big problem but you are now aware of it with three months left to fix things.You have the options of at least: effective promotion, price changes, and reducing yourIndirect Expenses.

For example, suppose you have noted that your sales are pretty insensitive to modestprice increases. Suppose your current net sales price is $6.25. If you raise your price by$1.25, to $7.50, your Unit Marginal Contribution will increase by the same amount to$3.75.

The increased Unit Marginal Contribution will, if sales stay constant, decrease yourprojected loss by the projected number of units sold during the rest of the year times theincrease in Unit Marginal Contribution or 20,000 times $1.25 equals $25,000. So thatone change has the potential of halving your loss.

Suppose that last year you ran a direct mail campaign that cost $12,000 and generated60 new customers, each of whom bought an average of $500 during the ensuing 3months. (If you keep appropriate accounting records, you should be able to determinethis in about five minutes.) With your 40 percent Marginal Contribution, this means thatthese new customers contributed an additional Marginal Contribution of .40 x $500 x 60which equals $20,400 during the first 3 month period.

Given the cost of $12,000 for the advertising campaign, these new customer generatedan additional $8,400 Contribution to Profit which is not enough to close the gap butcertainly helpful. However, with your proposed new pricing, this will increase by $6,000to $14,400. Better but not yet good enough.

Thinking about the situation, you remember that you have recently been approached bya direct marketing consultant who claims to be able to produce a 1.5% to 2%conversion to sales versus the 0.5% you got. He’s given you case studies and referencesof similar businesses so you get on the phone and call them. Indeed, what the consultantclaims is true, at least with these clients – who are probably his best, of course.

The consultant usually charges $5,000 to design a small business campaign but will giveyou the first one for half of that as an incentive to get your business.

So you think, okay, let’s assume that he’ll produce at least a 1% capture rate, doublewhat I got last time. If he does and nothing else changes, that will generate double theMarginal Contribution of last time, bringing it to $40,800. If I deduct from that the$12,000 cost of the campaign and his $2,500 fee, this yields an additional Contributionto Profit of $26,300 assuming my old prices. And if I add in the 50% increase in UnitMarginal Contribution resulting from my proposed price increase, I add anotherpotential $20,400 to my Contribution to Profit bringing the total from the direct mailpromotion to $46,700.



Now, I see the possibility of increasing my Contribution to Profit by $25,000 through theprice increase on the sales that I project making if I change nothing else plus the$46,700 that I project making through the improved direct mail campaign and the priceincrease, bringing the total to $71,700.

Given the initially projected loss for the year of $50,000, this would yield a $21,700profit – assuming no negative reaction to the price increase. If, however, unit sales dropby 10 percent of the now projected 29,600 unit sales for the 3 months or 2,960 units, myprofit would drop by 2,960 x $3.75 Unit Marginal Contribution which equals $11,100,still leaving a $10,600 profit – which is a lot better than a $50,000 loss.

In fact, I realize that I could lose just under 20% of the 3 month projected sales due tothe price increase and still break even for the year. ($21,700 profit divided by $3.75Unit Marginal Contribution equals 5,786 units which, in turn, equals 19.5% of theprojected 29,600 sales for the quarter.)

That’s pretty comforting since my experience is that I really won’t lose more than a fewpercent in sales due to the price increase, given that I really have no local competitionand that shipping costs from my competitors would more than outweigh my priceincrease on a typical order.

However, while I’m thinking this way, lets go a little farther. I remember the admonitionto keep my Indirect Expenses low. So I take a look at them. My secretary/administrativeassistant, Norma, handles the bookkeeping, letters and phone traffic. She’s been askingme if she can cut 2 hours per day out of her schedule so she’ll be home when her kidsarrive from school. This could be a win-win situation.

So I talk with her and ask her whether she believes she can get all her work done in 6hours a day. She says, “Normally yes. However, you’ll have to handle the phones whenI’m not here. But there usually aren’t too many calls at that time of day.” I think aboutit. My 16 year old son has been pestering me for more spending money and could do agood job with the phones.

I’m paying Norma $36,000 a year which, with labor overhead of 18% (not includinghealth insurance), costs me $47,280. She works 40 hours a week which equals 2,080 peryear. So she is costing me $20.42 per hour not including health insurance whichwouldn’t change if she cut her hours.

At $20.42 x 10 hours per week, I’d save $204.20 per week which would add up to$204.20 x 13 weeks equals $2,655 for the quarter. If I pay my son $5.00 per hour“allowance” to do this, my savings for the quarter would still be $2,005 which wouldincrease my profit by that amount – and I’d have two happier people.



That’s not bad. If I make the price increase and get right on the direct mail campaignand tell Norma and my son, Doug, the new deal, I could be looking at a profit as high as$23,705 for the year.

This is the kind of thinking that a successful small business person has to do!

But if she hadn’t known her Marginal Contribution and kept decent accounting records, shewouldn’t have been able to do this exercise. In fact, she might have just kept in a straight lineand gone out of business.



Chapter TwelveApplications of Marginal Contribution Analysis

The Cost of Acquiring a Customer

Your Cost of Acquiring a Customer can be calculated as the period (i.e., annual, monthly orwhatever length of time you are considering) total of:

AdvertisingNon-Percentage Sales ExpensePromotional Materials and Other Expense.

Since, using Quickbooks or any similar accounting software, you can easily produce monthlyfinancial reports, it would seem logical to make this calculation on a monthly basis.

However, the effect of advertising and other promotional activities is cumulative and may lastlonger than a month. That is, the third time you run an ad or do a direct mailing, you’ll usuallyget a higher response than the first.

You can observe these effects by keeping a daily record of sales (as with an Excel spreadsheet)and automatically calculating the average weekly sales. If you compare the results following apromotional activity with the longer term average before that, you can see the impact of thepromotional activity.

For example, lets look at the direct mail campaign discussed in the last example. Thecost of the campaign was $12,000 and it produced 60 new customers in 3 weeks. Weknow the length of time by looking at a graph of the number of new customers capturedper week versus time and seeing where the number of new customers captured per week

WEEKLY SALES

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dropped to about the level before the campaign.

If you divide the period Direct Cost of Acquiring a Customer by the number of customersacquired during that period, you have the Direct Cost of Acquiring an Average Customer.

In this example, the period costs were $12,000. The number of new customers was 70total in 5 weeks less 10 that would have been captured at the rate that existed before thecampaign, for a total of 60 new customers attributable to the campaign. This works outto $12,000 / 60 = $200 per average new customer captured.

If you divide the Total Dollar Marginal Contribution by the average number of customers thatyou had during that period, your have the Dollar Marginal Contribution per Customer.

Per the example cited earlier, these new customers yielded $20,400 MarginalContribution in a 3 month period and, since this business’ customers buy at a prettyconsistent rate month in and out, we can multiply this by 4 to get an annual MarginalContribution for these customers, or $81,600. If we divide this by the 60 new customers,we get a $1,360 Annual Dollar Marginal Contribution per Customer.

If you divide the Direct Cost of Acquiring an Average Individual Customer by the DollarMarginal Contribution per Customer, you have the Breakeven Number of Periods for anIndividual Customer.

Continuing with this example, if we divide the Direct Cost of Acquiring an IndividualCustomer by the Annual Dollar Marginal Contribution per Customer we get$200/$1,360= 0.147 years or 1.8 months to pay for the cost of acquiring each newcustomer, on the average.

This is a remarkably short period.

This latter calculation is very important. On the average, a customer who leaves before that timehas passed costs you money. One who stays longer than that period makes you money.

The Value of a Customer

The Value of a Customer can be calculated on both a period and a lifetime basis. The Value of aCustomer is simply the Dollar Marginal Contribution contributed by sales to that customer lessthe Dollar Direct Cost of Selling To and Supporting that customer.



The Dollar Marginal Contribution for that customer is the Dollar Sales to that customer timesthe decimal Percentage Marginal Contribution.

The Direct Cost of Selling To and Supporting a customer is the total of all burdened labor andexpenses associated with selling to and supporting the customer. Usually, the biggestcomponents of this is advertising and promotion.

Advertising And Promotion

How do you know whether advertising and promotion pays off? That’s a very importantquestion for a small business.

The answer is that you can only tell if you keep detailed and orderly records of customersacquired following a promotional activity and the sales that they contribute.

If I capture twelve new customer following a direct mail ad campaign that cost my business$12,000 (perhaps 12,000 direct mail pieces), the cost per capture is $1,000 per new customer.

If my average customer contributes $750 in sales per year at a Marginal Contribution of 45percent, that equates to $337.50 of Marginal Contribution per year per average customer.

If my average customer sticks with me for 5 years, (without taking inflation into account -which I don’t need to since I raise my prices at greater than the rate of inflation), they contributea lifetime $337.50 x 5 = $1,687.50 of Marginal Contribution.

If I’m running an auto repair shop and am able to charge for essentially all of my customersupport, my Total Cost of Selling To and Supporting the average customer is, therefore, $1,000– the cost of acquiring that customer via direct mail marketing.

Therefore, over the life of that customer their Contribution to Profit is $687.50 ($1,687.50 -$1000.00).

That makes the advertising worthwhile. However, if I look at sending out 12,000 pieces ofdirect mail and capturing only 12 customers, I see that my capture rate is only 0.1 percent. Alittle research on the Internet indicates that the average capture rate for direct mail is 0.5 to 1.0percent. So I’m leaving a lot on the table.

If I could increase my capture rate to 0.5 percent, my cost of capture would drop to $200 percustomer and the lifetime Marginal Contribution of a customer would increase by $800 to about$1,488, an increase of 116 percent.

Clearly, I should focus some attention on this aspect of my business.



A little research on the web tells me that including meaningful personal testimonials in mydirect mail will bring my response rate up a great deal. And, by using a very good headline thatclearly puts my selling proposition out in a way that anyone can grasp will also bring mycapture rate up. And if I effectively use colors (red) to make my point, my response rate goes upagain. Finally, if I use the Clustering Market Analysis process (see later in this ebook) to veryspecifically identify who I want to reach and what I want to say to them, my rate goes up again.

In fact, I talked with an ad man who claimed to have achieved a 14 percent response rate on anInternet sales campaign in this way (David Garfinkel). I hired him to write the sales letter forthis ebook series.

Now, through a little simple analysis, I have found one of the most important ways to focus mytime.

Replacing versus Retaining a Customer – Customer Service

If you can acquire a customer for $100, you are doing better than the average. For example, thecustomer acquisition cost for Internet sites such as AOL averages $250, it is $50 to $75 forcredit card companies, $100 for long-distance phone service providers, and $100-$250 formortgage lenders. For large consulting firms, the customer acquisition cost can run as high as$50,000.

Clearly, replacing an existing customer is an expensive proposition.

If you lose an existing customer after only 2 years when your average customer life is 5 years,you have lost not only the 3 years of Marginal Contribution that you forfeited but you have alsolost the cost of acquiring a replacement customer.

For example, if your average Customer’s annual Marginal Contribution is $1,360, theaverage customer sticks with you for 5 years and it costs $200 to acquire a newcustomer, losing a customer after only 2 years costs the forfeited Marginal Contributionof $1,360 x 3 plus the cost of acquiring a replacement customer of $200 or a total of$4,280.

Clearly, if you have to give that customer a bonus of $500 to keep them or have to settlea disputed matter by giving away $750 of product, rather than losing them, you shoulddo it.

If you don’t and if you then have lost and spent $4,280 to get a replacement customer,you’ve spent a lot of money to be in the same place that you were when you started.



That’s bad business.

If your customer is generating a positive Contribution to Profit and youhave to spend some money on keeping them, on making them happy, DO ITif the amount of money is less than the Contribution to Profit you wouldprobably forfeit by losing them.

Obviously, it is in your interest to keep the amount spend as far below that figure as reasonablebut, think, won’t a customer for whom you did a special favor stay with you stay with you farlonger than an ordinary customer?

This is what might be called “a moment of truth.”

Nordstrom neatly expresses this by their rule that:

1. The customer is always right.2. If the customer is wrong, the customer is right.

From a customer’s point of view, Nordstrom is a very nice place to shop, assuming that theirselection and prices meet your needs. It’s also a $6 billion sales corporation that yields a netprofit of about $110 million.

Costco is another example. Their returns policy is almost open ended. I recently asked how longI would have to return a computer monitor if it didn’t work right. The answer? Two or threeyears.

Of course, Costco is a service organization that makes all of its net profit before taxes frommembership fees. But it has grown to be a $35 billion in sales - service organization. They usethat clout with their suppliers to generate a remarkable returns policy for their customers.

While they are big, they’re good examples.

That’s what Customer Service is about! The sooner you do something special for yourcustomer, the sooner you bond with them and do so at the lowest cost.

That bond is worth lots of money to you. A happy customer is a long-term customer. However,know what your customer’s worth and make sure that what you spend to bond with yourcustomer makes sense.

Adding Equipment?

To add or not to add, that is the question. Toys are nice but this is a business. Anything you addhad better make you money or you may not be in business very long.



Deciding whether to add equipment involves a very simple calculation – as well as some verynot so simple other considerations.

The calculation is that if the Marginal Contribution that a piece of equipment willgenerate through either acquiring new business, increased prices or cost savings – or all ofthe above – OR as required to retain customers that you would otherwise lose exceeds theacquisition and installation cost of that piece of equipment, the answer may be a go.

However, when calculating the acquisition cost of a new piece of equipment, remember that anynew piece of equipment usually requires training, learning time and has direct installation costsinvolved in putting the equipment into action. All of those costs should be included in theacquisition cost calculation.

Adding Personnel – And The Highest And Best Use Of Your Time

The same thing goes for adding personnel. The calculation is the same.

However, in this case, you have to take into account another factor: the highest and best use ofyour time – or that of others in your business – that anyone new might free up.

Think about what you do in your business, the various activities. Then try to calculate the perhour Marginal Contribution that each generates. Obviously, some contribute more than others,some much more.

In accordance with the Delegating process, you should delegate all of the activities that generatea relatively low Marginal Contribution as appropriate. This may involve hiring new personnel.

If you carefully use the Negotiated Job Agreement process to define what you want a newperson to do, you should be able to find that person. (A precise specification usually produces aprecise result.) And, using that same process, you should be able to get them up to speedrapidly.

Of course, you should include in the cost of acquiring this person the value of your time as wellas any direct expenses.

The Highest And Best Use Of Your Funds

You usually have lots of ways of using your funds – such as adding and training people,advertising and promotion, acquisition of equipment and paying off high interest loans (e.g.,



credit cards). And you usually don’t have enough money to do all of these things. So you haveto decide what to do.

The first step is to calculate the Marginal Contribution that each possibility will contribute, onboth an immediate and a longer-term basis.

Then pick the one that contributes the most.

That’s pretty simple, isn’t it?

Keeping Detailed Records

In order to calculate all of these nifty factors, you’re going to have to keep careful and detailedrecords.

Lots of small businesses fail because they don’t know what it costs them to produce, sell,deliver and support their product or service.

I once consulted to an investor thinking of investing in a modest size food servicebusiness. The company’s vision was extremely compelling, the lead entrepreneur wasvery skilled and had great credentials and references, the customer list was veryimpressive – including many large corporations whose names you would find familiar.All of that was great but the company was small and had lost money for the past years.Its sales were about $3 million with a $1 million loss in the most recent year.

So, at the request of my client, I started digging. I first asked to see the records ofproduct cost by customer and was given them. Then I asked for the underlying job costdata – how much material and labor had been used to produce each product lot. Thatdata simply didn’t exist.

In fact, when I dug a little bit more it became obvious that the company had no idea ofwhat its costs were except in total. So I had them do some job costing on sample orders.

The results astounded the management and the investor. Of 24 products they sold totheir largest and most prestigious customer, 23 were sold at prices far below their costand 1 was sold only slightly under cost.

When we added things up, based on that data, we found that the company had given$1.2 million dollars to their largest customer in the most recent year. Their customerwas well aware of this and when the small business tried to raise prices, they wereunsuccessful. There were lots of other suckers out there bedazzled by the big company’sbright-lights name.



For example, do you know what your time costs your business?

When I asked a group of small business people how much it cost them to make a 5minute phone call, the highest estimate I got was $1.00.

Take a look at what it probably cost.

Your hourly cost is calculated as:

Your hourly salary x [1 + (Labor Overhead per Dollar of Salary and Wages) + (Dollar IndirectOverhead per Dollar of Salary and Wages)].

Total Indirect Overhead per Dollar of Salary and Wages is calculated by dividing Total IndirectDollar Overhead by Total Dollars of Salary and Wages.

So, if you are paid a salary of $62,400/year, all of which you spend in direct activitiesand you work a 40 hour work week (2,080 hours/year), your salary is $30.00 per hour.

If your business’ Total Dollar Indirect Overhead is $130,500 and its total of Salary andWages is $150,000, its Indirect Overhead per Dollar of Salary and Wages is 0.87. If itsLabor Overhead is 0.18 per Dollar of Salary and Wages, your Total Indirect Overheadper Dollar of Salary and Wages equals 1.05.

Your cost per hour is, therefore, $30.00 times (1 + 1.05) = $61.50 per hour or $1.025per minute.

So a 5 minute phone call costs your business $5.13.

What Is Direct and What Is Indirect?

In order for this to work, you have to allocate all salaries and wages to either direct or indirectexpense.

For example, if you decide that you will spend 30 percent of your time on producing the productor delivering the service and 70 percent on managing, planning, training, product or servicedesign and accounting – and stick to it, 70 percent of your salary will be correctly included inindirect expense.

A good small business CPA can help you work out allocation rules and the framework of youraccounting system. It’s a good investment.



This another lesson that lots of small business people learn too late.



Chapter ThirteenJob Costing

This is a very brief but very important chapter.

Again, I’ll remind you that “If you don’t know where you’re going, any road will take youthere.” And in small business, “there” is often bankruptcy.

Have I got your attention?

Do you remember the story of the food service company I evaluated on behalf of a potentialinvestor? They thought they were doing great but it turned out that in the previous year, theyhad made a gift of $1.2 million to their largest customer. That resulted in a loss of $1.0 million.

In other words, they took $1.2 million out of their own pockets and gave it, as a gift, to theirlargest customer, one of the world’s larger firms.

That was downright stupid!

They just didn’t know what things were costing them. They were flying by the seats of theirpants.

Well, that’s a great way to fly into bankruptcy and one of the foremost reasons that smallbusinesses fail.

How Do You Get Around It?

The answer is called Job Costing.

It simply requires that, in your accounting system, you assign every item of expenses that youcan to a specific job.

For example, I had the food service company set up a simple job costing system. Itwasn’t easy but it wasn’t complicated. The hard part was getting everyone to do theirpart.

The first aspect was labor. Every minute of every person’s direct labor time had to beassigned to a specific activity such as preparing the ingredients for product #10 orpackaging the finished goods for product #13.

The second was material. One person was made responsible for dispensing rawmaterials. She recorded the item, amount and job to which they were assigned, for



example 13 lbs. carrots for product #7 or 10 lbs. ground chuck for product #2. Since notall of the material checked out was always used on the assigned job, the same personwas responsible for checking in the remaining material and deducting it from what wasused for that product batch.

Then, the accounting department entered all of this information by date and productnumber and also entered the number of finished units of the product produced from thatlabor and materials. From this, they derived the direct cost per unit of that product andthen, after adding labor burden and indirect overhead, the total cost of each unitproduced.

Given that most accounting software is designed to handle job costing, once all theemployees became aware of the need to keep accurate records and the consequences tothem personally of not doing so, the job costing system produced daily updates andweekly and monthly averages of unit cost for each product.

With this information in hand, management could focus on reducing costs where they wereexcessive and bringing the pricing structure into line with costs.

That’s one of the things that you’ll have to do to make your small business successful.

Therefore, be sure to have your CPA assist you in designing a job costing system from the veryoutset.

Remember: Knowledge is power and ignorance promotes failure.



Chapter FourteenClustering Market Analysis

This and most of the other chapters are in the format of so-called standard operating procedures.These are more direct, by the numbers descriptions than the rest of the book. They are intendedto be reviewed at once and then put into action when the appropriate requirement arises in yourbusiness.

1.0 INTRODUCTION

1.1 Clustering Market Analysis is a unique process that I invented after many yearsof working with and developing Artificial Intelligence software and products. Itconverts intuitive knowledge into specific logical tools that will make youMUCH smarter than your competition about your market.

1.2 It is pretty simple, pretty quick and very inexpensive. That makes it ideal for asmall business.

1.3 And it makes you much wiser – given that wisdom is unconscious knowledgeput into the world and learned consciously.

1.4 As you may have gathered by now, one of my favorite sayings is, “If you don’tknow where you’re going, any road will take you there” and, in small business,“there” is usually failure.

1.4.1 One of the things that a great number of small business people don’tknow enough about is their business’s market. In other words, theyusually don’t know who will actually buy something that they can offer;what, specifically, these people want and why; what will they pay; how toeffectively reach them; and how to effectively sell to them.

1.4.2 That’s a lot of not-knowing and the results can be devastating. The mosttypical results are: products and/or services that won’t sell, lots of wastedtime and money trying to change that, catastrophic underpricing, losingsales that could easily have been closed, etc., etc.

1.5 Research indicates what is intuitively obvious – that there are many differenttypes of people in the world – in fact, there are 12 basically different clusters ortypes of unconscious perception and behavior.

1.5.1 Unfortunately, however, most people assume intuitively that others arebasically like them and also trust others to be like them, a very self-destructive approach. This creates violated expectations most of the time



because the odds that this approach is correct is about 1/12 of the time orabout 8 percent of the time, on the average.

1.6 The most effective market analysis is based upon recognition of the 12 differentclusters of people. Members of each clusters can be relied upon to perceive andbehave in basically the same way – and in a way that is uniquely different fromthe other clusters.

1.6.1 The research that originally isolated the 12 “unconscious personalitytypes” was done utilizing very sophisticated artificial intelligencesoftware running on the largest computers in the world and, because ofthe cost, was available only to multinational corporations andgovernments. However, further developments have allowed thetechniques to be effectively utilized by groups of individuals withoutcomputer intervention at all.

1.7 This can be accomplished because of the amazing power of the human brain.Recently neuro-anatomists were finally able to synthesize a “silicon neuron” – asemiconductor version of a single brain cell. Based on this work, they were ableto estimate that a single human brain (containing, typically, about 100 billionneurons) has about 1,000 times the computing power of all of the computers inthe world – if those computers were efficiently networked together. All in all, aremarkably powerful resource.

1.8 Therefore, when using the process described herein, do not be fooled by therelative ease of the process. It is a very sophisticated process that draws upon farmore of your brain power that most things that you do.

1.9 When this type of Clustering Market Analysis is used to integrate the knowledgeof a sales team, it produces powerful awarenesses of the types of people whowill buy - and how to most effectively deal with them - and those who will notbuy.

1.10 When groups of actual and potential customers that represent the most likelycustomer clusters interact with you and your people, you can very rapidlydevelop highly sophisticated and effective ways of sharply expanding yourcustomer base and profits with minimal investment.



2.0 HOW TO ISOLATE THE CLUSTERS

2.1 The most effective way to identify the unconscious personality type clusters isthrough guided intuition. The guidance is provided by an intellectual frameworkand the contents that fill this framework are provided by your tremendous bodyof unconscious knowledge, knowledge that you and the others in your businesseshave been collecting throughout your lives.

2.2 The concept of framing is relevant in this process. Framing is simply the processof separating one logical element from another. Usually, intuition is rather vagueand generalized – but through framing, it can become quite clear and precise.

A demonstration of framing is, therefore, in order. Please read the following,which is written in English:

StreddogranthroughthEcitystreetsbarkingandwAgginghistailhappilyash

If you found that a difficult thing to do, the reason is the lack of framing. Nowtake a look at a framed version of the same thing:

…st red dog ran through the city streets barking and wagging his tail happily ash….

In this case, the logical elements - words – were framed by blank spaces.

2.3 In similar fashion, the type of logical framework described below will frameyour intuitive knowledge of people, knowledge that usually comes forth as vaguefeelings and perceptions.

3.0 DEVELOPING THE FRAMEWORK

3.1 The most effective way of providing such a framing structure is by defining thedimensions of difference among a set of paired individuals. For example,Presidents.

One group I worked with compared Presidents Lincoln and Clinton andidentified the following dimensions of difference between them:

a. honestyb. agec. self- vs. other-centeredness



d. intuitive vs. intellectuale. trustworthinessf. worldly vs. spiritual underlying beliefs.

By using this process with additional presidents, they identified the dimensionsof difference among the clusters in the “presidential marketplace”.

3.2 By then establishing the endpoints of each dimension and calling them 1 and 10,this group was then able to convert their intuitive experience of each Presidentinto a series of numerical ratings.

For example, on the scale of honesty, where 1 = very dishonest and 10 = veryhonest, they rated Lincoln as 10 and Clinton as 1 and on the age scale, they ratedLincoln 10 and Clinton 5 (even though, chronologically, they weren’t thatdifferent in age when elected president).

The total set of ratings (for these and other presidents) evolved to the following:

Dimension Lincoln Clinton Kennedy Reagan NixonHonesty (Low = 1, High = 10) 10 1 3 10 3Age (Young = 1, Old = 10) 10 5 3 10 6Self- vs. Other-Centeredness(Self = 1, Other = 10)

10 1 3 9 2

Intuitive vs. Intellectualntuitive = 1, Intellectual = 10)

3 8 8 5 8

Trustworthiness (Low = 1, High = 10) 10 1 3 10 3Beliefs (Worldly = 1, Spiritual = 10) 10 3 3 8 3

3.3 By comparing the numerical ratings, they clustered together Lincoln and Reagan(Cluster 1) and Clinton and Nixon (Cluster 2) – and that Lincoln and Nixon werequite different.

Lincoln-Reagan Clinton-Nixon Lincoln-NixonAverage Absolute

Difference in PairedScores

0.8 0.7 6.3

3.4 The way that the Absolute Difference score presented in the preceding table iscalculated is by:



• Calculating the difference between the scores between the pair on each of thesix dimensions (e.g., Integrity Difference = 2).

• Totaling these scores for all six dimensions = 5.• Dividing that total by the number of dimensions = 5/6 = 0.83.

3.5 In similar fashion, you can intuitively cluster customers.

4.0 CLUSTERING YOUR CUSTOMERS AND PROSPECTS

4.1 The people in your business who should be involved in the Clustering processare those who have the most personal experience with your types of customers. Itdoesn’t matter how they gained that experience.

4.2 Bring together this group for a session of at least several undisturbed hours,preferably off-site where you won’t be disturbed by the phones.

4.3 Have each person read this process description. Discuss the process to ensurethat each person understands it.

4.4 Have each person prepare a set of differentiating dimensions, as we did with thePresidents. Be sure that they note the names of the people whom they used asexamples in isolating the dimensions.

5.4.1 They can most effectively do this by identifying different personalitiesthat they have encountered. Pick the first customer or prospect whocomes to mind and record their name on a clean piece of paper. Now,intuitively, pick someone who seems different and record their name onthe same paper. Continue this until you run out of people who seemdifferent from any of those already listed. If you find that someone whopops up seems like someone you have already identified, write their namealongside the similar person.

5.4.1 Now compare any two of those different pairs of people and identify theways they are different. Do so by picking adjectives as was done with thepresidents. Continue this process until you run out of newly identifieddifferences. If two or more adjectives really describe the same thing, pickone of the set and eliminate the others.

4.5 Discuss the dimensions among your group. The objective of the discussion is toagree on a limited set of dimensions (not more than 10) and to define the 1 and10 ends of each scale.



4.6 The entire group should then Cluster their prospects, captured customers, and thecustomers they lost as we did with the Presidents.

5.4.1 The best way to do this is to, first, each make a list of all the prospectsand customers that you/they feel you/they know at least modestly welland the sales results with each.

5.4.1 The next step is to rate each of the persons on this list on each of theagreed dimensions. Also rate each of the initial group of people createdunder step 4.4. Finally, all of you, individually, group the identifiednames into Clusters.

5.4.1 The best way to do this is to “eyeball” the scores. Patterns will pop out.Start with the largest group of individual customers and/or prospects thatappears to be similar and generate Total Scores for each pair.

5.4.1 Pairs that are in the same cluster will have low scores while pairs indifferent clusters will have high scores.

4.7 Now ask them to submit the names of people whom they see in their largestindividual Cluster. Discuss this within the group, submitting additional Clustersfor consideration until the both the set of Clusters and the list of Clusters-members is acceptable to all in the group.

5.4.1 When all of the prospects and customers have been grouped in this way,the homogeneity of each Cluster’s sales results will be very great.

4.8 Finally, have those group members with the highest percentage of “wins” withprospects and customers in a given Cluster, identify the sales tactics that workbest with members of that Cluster.

5.0 USING THE CLUSTERS TO IMPROVE YOUR SELLING ABILITY

5.1 Once having established the Clusters, you have a powerful tool forunderstanding your market. Each cluster represents or is a surrogate for an entiresegment of your market.

5.1.1 By averaging the sales results for each customer, you will clearly see theClusters that are non-buyers and those that are the “hot” buyers.Obviously, your business should direct itself toward the latter andabandon efforts aimed at the former.



5.2 Once you have identified the tactics that work best with each Cluster (step 4.8),you will have a very powerful tool (a roadmap) for achieving much improvedsales performance with members of that Cluster.

5.3 Through simple techniques such a Metastory modeling and anchoring and Role-Playing, this knowledge can be embedded in your intuition and that of youremployees. By setting appropriate Cybernetic Transposition objectives, thiseffect can be substantially enhanced.

5.4 By sitting down with a group of customers and prospects whom you haveidentified as belonging to a single high-potential cluster, you can gain anpowerful intuitive understanding of the members of this cluster, what they wantand don’t want and how to find, who is and isn’t significant competition andwhy and how to sell to members of this cluster.

5.4.1 By repeating this step for all of the high potential clusters, you willdevelop a very powerful intuitive and intellectual understanding of yourmarket.

5.5 You can effectively use these clusters on an ongoing basis, updating them byadding and subtracting member identified via the clustering process justdescribed.

5.5.1 Use them to monitor your market, your business’ offerings and behaviorand competition. This is a very important leading indicator – so that youbecome aware of required corrections before it costs you a lot of money.

5.5.2 Use them to evaluate new product, advertising, promotion and serviceofferings.

5.5.3 Use them to identify opportunities that you haven’t yet recognized andthings that your business is doing that are no longer effective.



Chapter FifteenConstructing Value

1.0 Introduction

This is a very important concept that is best illustrated by thinking about the lasttime you bought a car.

Rate the importance of each of the following factors to you personally using a 1to 10 scale where 1 equals “of no importance whatever” and 10 equals “ofmaximum importance”.

• Body style• Body shape• Exterior color• Type of engine• 0 to 60 mph acceleration time• Type of suspension• Type of brakes• 60 to 0 mph braking distance• Type of transmission• Number of gears• Tinted windows• Power windows• Power steering• Power brakes• Air conditioning• Aluminum wheels• Materials covering the seats• Interior color• Quality of the sound system• CD player• VCR player• Reliability• Gas mileage• Off-road performance• Trailer hauling capacity• Luggage space• Type of seat belts• Rear window defroster



Obviously, this list could have been much longer.

Now make a new list of everything you rated 4 or below and a second new list ofeverything you rated as 8 or above.

Imagine an auto sales person spending all their time selling you on the merits ofeverything on your 1 to 4 rating list.

That would be a pretty total waste of time, wouldn’t it?

Even if they prove that what they are selling is excellent with respect to all ofthose factors, it wouldn’t have much, if any, effect on your buying decision.

But if they spend all of their time proving to you that their product is best withrespect to all of the factors on your 8, 9 or 10 rating list, you’d probably thinkthey’d done a pretty good or even excellent job of selling to you.

The difference is that, in the first case the sales person was trying to prove thevalue of the car’s selling price by focusing on things that had little value to you.If he or she were to have asked you to put a dollar figure of what you would bewilling to pay for each of the features on your 1 to 4 list, the total would be farlower than the purchase price of the car.

But, if they did a good job of proving to you the excellence of their product interms of each of the items on your 8, 9 or 10 list and they asked you to do thesame thing, your total would probably exceed the price of the car.

And if that total exceeded the purchase price by 25 percent or more, you’dprobably tell them you want to buy the car, on the spot.

An effective sales person will understand the items that would be on your 8, 9 or10 list and be able to prove the excellence of their product with respect to each –because they intuitively understand what customer cluster you represent andwhat’s important to that cluster.

In so doing, they will be constructing value and when the value that youintuitively perceived exceeded the price of the car by about 15 to 20 percent, youwill probably buy.

That’s exactly what you have to do with your prospective customers. You mustunderstand how they intuitively construct value and sell your product features byproving the excellence of your product with respect to each of the high valueitems incorporated in their intuitive value model.



In order to do this, you have to intimately understand your customers.

The best way to do that is by clustering and querying your customers viaClustering Market Research, querying relevant peers, selling to your customers,framing the knowledge that you gain by doing so, integrating that knowledgewith other people in your small business who also sell or provide customersupport and putting all of that knowledge into a useable framework using theCybernetic Transposition techniques.

2.0 Identifying Valued Aspects

2.1 Based on whatever knowledge of your market you have developed, makea list of as many potentially valuable aspects of your product, service,image and customer relationships that you can.

2.2 Ideally, you will have conducted the Clustering Market Research processand have identified your high potential target clusters and specificindividuals in each of those clusters.

If so, do the following separately for each of your target clusters. If not, doit with an intuitively selected group of your “best” customers.

Ask each of these customers to review each item on your list and to rate iton a scale of 1 to 10 where 1 = has absolutely no value to them personallyand 10 = has the maximum value to them personally. When they havefinished this, ask them if there are any other aspects that are important tothem. If so, ask them to record those aspects and rate them on the samescale.

2.3 Ask your respondents to put a dollar figure on the value that a particularaspect has to them. Do so by asking them to consider a specific situationwith and without the value aspect in question. Also ask them to give you adollar value of a new “basic” version of your product, one with none ofthe bells and whistles.

2.4 Transcribe all of this data into an Excel spreadsheet, one page per cluster.Title each row with the name of the customer who gave you data. Underthat, title a row “value.” Do this for each customer, two rows apiece. Titlethe columns with the complete list of value aspects. Next to each “valuerating” column, head a column “$ value.” Thus, you will have twoadjacent columns for each value aspect. Record the customer scores in theappropriate cells.



2.5 Use Excel’s average function to calculate the by-cluster dollar value ofeach value aspect (column).

2.6 Use Excel’s average function to calculate the average rating for eachvalue aspect (column).

2.7 Group all value aspects with an 8 to 10 score together under the title “highvalue” and all of those with a 1 to 4 score in a second list headed “lowvalue.” Put the average dollar value next to each value aspect.

2.8 Add up the dollar values for each of the aspects with an 8 to 10 score andadd the dollar value of a “basic” version of your product or service foreach cluster. This will give you an approximation to the intuitive valuethat members of each cluster put on a product or service for which you areable to prove the existence of each of the high value items.

2.8.1 If this value is less than your selling price, you will need todevelop arguments that take apart each value item into itscomponents and prove a high value for each of them.

For example, a value item might be front airbags. Clearly, they canreduce the probability of the driver or passenger being killed in anaccident. However, there are a lot of other aspects to this: avoidingthe guilt of hurting someone else, avoiding ruining your children’s’lives by injuring them, avoiding pain and suffering, avoidingscarring and grotesque distortions of appearance, etc. By focusingon each of those items, you can substantially increase the intuitivevalue of front airbags in most people.

2.8.2 If, however, this value is greater than your selling price, you havethe opportunity to raise your prices. And if you additionally gothrough a program of increasing the intuitive value of one or moreof the high value components, those where you have a good storyto tell, you can raise your price even more for that cluster.

Or you can focus selling activities on that cluster without raisingprices and get an extremely high rate of closing deals.

2.9 When constructing communications aimed at a particular cluster, use asmany of the high value aspects as you reasonably can and none of the lowvalue ones. Don’t be afraid to repeat the high value aspects. Repetitioncreates an unconscious priority which means that your target customersand prospects will intuitively get the message.



2.10 Now, in Excel, create a summary spreadsheet covering all of the valueaspects and all of the clusters. On this page, create a row for each highpotential cluster. Label each row with the appropriate clusteridentification. Now label two columns for each value aspect, labeling onewith value name – rating and the other with value name – dollar value.Record each cluster’s average ratings and dollar values in the appropriatecells.

2.11 Use Excel’s average and standard deviation functions to calculate theaverage and standard deviation for each column.

2.12 Where the standard deviation for a particular value aspect is greater than1, be very careful about using that aspect in your GENERALcommunications. A high standard deviation means that, while some targetclusters put a high value on the aspect, others put a low one. Put maximumemphasis on aspects that have a high average and a low standarddeviation.

2.13 Wherever possible, you should sharply target your communications toyour highest potential clusters, individually if they have significantlydifferent value structures, or in groups that have similar value structures.By evaluating the demographics, favorite magazines, favorite TVprograms and favorite movies, you should be able to identify a series ofthese factors that are consistent for each cluster. Using these factors, youcan then get mailing lists of prospects meeting the various criteria frommailing list brokers.

2.14 When you create a communication, test it on the relevant target group. Ifyou are working with clusters, test it individually on the target cluster forwhich it was developed and the other high potential target clusters,individually.

If a communication gets a low rating, ask the respondents to circle orunderline the words and phrases that bother them, if any. Ask them tosuggest alternatives. Ask them what’s missing. Ask them what they wouldsay.

If a communication gets a high rating, ask the respondents to circle orunderline the words or phrases that most impressed them.

Videotape the session if that’s okay with your respondents. Second best isaudio taping. And, if you do neither of those, have someone take verbatimnotes of the respondents’ comments during the session.



This information will substantially expand your intuitive understanding ofyour market and how it responds. It will also guide you in creating highlyeffective ads, direct mail campaigns, and sales training.

3.0 Summary

3.1 It is a fairly easy process to identify the aspects of your product, service,support and customer relations to which your prospects and customersassign a high value.

3.2 By repetitively emphasizing these aspects in your communications and inthe ways that your business addresses and appears to your customers, youcan sharply increase the perceived value of your product and/or service.

3.3 Higher perceived value allows higher prices. So be sure that your pricingkeeps track with your customers’ and prospects’ perceived value. Thedollar averages that you have computed will give you some guidance inthis.

3.4 Normally, when you prove a perceived value that is 25 percent higher thanthe price, you have an impulse buy. This may be a good way of capturingnew customers – assuming that you can hold them. Otherwise, you areleaving money on the table.

3.5 Normally, when your customers rate your prices as a 7 on a 1 to 10 scalewhere 1 = an outstanding bargain and 10 = much too high, you have foundthe right pricing point – assuming that you have included prospects in yourgroup who are currently buying from meaningful competitors.



Chapter SixteenSelling To Pain

1.0 Introduction

1.1 The purpose of this Standard Procedure is to define and explain theprocess of selling to a person's needs.

1.2 Many sales people try to prove how much they know about a productwithout bothering to determine whether it meets the prospect's needs. Andeven if they do identify the prospect’s needs, they typically launch intoproduct recitation. This isn’t effective.

1.6 Sales are made emotionally and it is therefore necessary to build emotionsin a way that will make the prospect want to buy what you are offering. Todo this, you need to identify the pain that a prospect is feeling and to keepthem focused on that in ways that bring the prospect to the readiness tobuy. At that point, you typically don't have to ask for the sale; they offer it.

2.0 The Process Of Selling To Pain

2.1 The sales person's primary job is to identify the “pain” that the prospectfeels with respect to some problem or situation that your company cansolve. People do not buy pretty brochures, amazing specifications, oroutstanding presentations. They buy solutions to what ails them. In otherwords, they'll pay money to cure their pain.

2.2 Consider this from your own experience. When you have a severetoothache, do you ask how much the dentist will charge to fix it? Or areyou more concerned with how quickly you can see the dentist? The paindrives you and the dentist is the solution.

2.3 Not only is it the sales person's job to identify the pain, they must keepreturning to that pain, assisting the prospect in become fully aware of it.With very little input from the sales person, when the pain is great enough,the prospect will buy.

2.4 If you can honestly meet the prospect's needs, can honestly cure their painbetter than other alternatives, you can ethically sell in this way. If not, theprocess may blow up in your face. Remember, it is amazing how effectivemost people are in knowing when you don't believe in what you're selling.



3.0 Specific Techniques

3.1 Asking open-ended questions is key to identifying the prospect's pain. Anopen-ended question is one that can't be answered with a simple yes or no.It requires discussion and explanation.

As you guide the prospect in experiencing his/her pain, carefulobservation of their words, intonation, and body language will alert youwhen they approach it.

3.2 When they are on the verge of coming into contact with their pain, it isabsolutely okay in most situation to say something like, “What was that onyour face a moment ago?” if you see them flinch, grimace, blanch or such.Or “Did you notice that your voice got harsh when you said that?” In otherwords, help them to convert their unconscious signals that you observeinto conscious awareness on their part.

3.3 Remember, it is your job to keep them consciously aware of the pain, notby calling it “pain” (which is just a conscious label) but rather by assistingthem to recall situations where they experienced the pain.

3.4 Once the prospect is primed, by being in intimate contact with his or herpain, it is time to very briefly offer your solution.

The operative word is “very briefly.” Each person has a value structure. Ifyou hit their “hot buttons,” those points they value highly, it takes veryfew words to communicate the value of what you're offering. (See theprocedure Building Value for more on this.)

Obviously, resolution of their specific pain is the foremost of these “valuepoints.” So absolutely don't go on automatic, making a major presentationat this point. The key is to say only what is necessary. If you hit it right,they will give you the order. You won't even have to ask.

3.5 If the prospect raises objections, you haven't done your job of focusingthem on their pain well enough. The key is not to directly answer theobjections but rather to bring them back to the pain by asking open-endedquestions.

A good question might be, “Would you tell me more about that?” whenthey voice an objection. Your job is to get to the root of their thinking, notto try to resolve your own discomfort by just talking.



3.6 Asking open-ended questions is an art. The following is a briefintroduction.

3.6.1 Open-ended questions cannot be answered with a yes or no. Forexample, “How do you think the current economy will affect yourcompany?” “What colors and fabrics do you like best?”

3.6.2 Focus the questions. Start with the general and head toward thespecific. For example, “In what ways are cleaning servicesimportant to your business?” Then, “Which chemical cleaningservices seem best for your business?”

3.6.3 Ask uncued questions first and the cued ones. For example, anuncued question is, “What is needed?” A cured question is, “Hereis a list of possible needs. Do you have needs that aren’t on thatlist?”

3.6.4 Probing open-ended questions is important in guiding the processalong. The answers to open-ended questions can be very general.You want to guide them to the specifics of their pain. So you mightask clarifying questions. For example, if the answered the question,“What is needed?” by saying, “More precision in our analyticaltechniques.” You might probe with, “What sort of analyticaltechniques do you use now?” or “How are your analyticaltechniques imprecise?”

3.6.5 The best probes for clarity are the ones that tell exactly what youwant to know. For example, “Could you be more specific aboutthat?” “What do you mean?” “Could you tell me a little more aboutthat?”

3.6.6 Probing for completeness is often appropriate. For example, “Whatelse bothers you about that?” “What other reason do you have forsaying that?”

3.6.7 Be sure to avoid asking probing questions that can be answeredwith a yes or no. Those really interfere with the process. Forexample, “Is there anything else?”

3.6.8 Other types of probes include brief pauses (up to about 5 seconds),“Would you explain further?” “Would you give me an example” “Idon’t understand.”



3.6.9 Here are some examples of open-ended questions design to probe.

3.6.9.1 “If you could change one things (about the service theyare receiving from a present supplier), what would itbe?

3.6.9.2 “What additional services (or product types) would youvalue? Why? How could that help your business?”

3.6.9.3 “What works well in your company’s relationships withits best suppliers? How might that be tweaked so itwould be even better?”

3.6.9.4 “What is your peak time of year? What is your leantime?”

3.6.9.5 “How can we help you be more successful? How canwe help you do more business?”

3.6.9.6 “What needs of your business aren’t currently beingmet in (specify an area)?”

3.6.9.7 “With respect to (specify an area) of your business,what works best? What works least well?”

3.6.9.8 “What would your area of the business like to be doingthat it isn’t doing? What would it like to hand off?”

3.7 Remember that you’re using open-ended questions to focus the prospecton their pain. That requires you to be very alert to both their responses andthe emotional responses that accompany them.

3.7.1 Usually, people avoid focusing on what pains them. They try topaper it over. But they are often grateful for an opportunity to talkabout it with a sympathetic other person. Therefore, you should puton your empathetic self while still maintaining perspective of yourobjective. This requires practice.

3.7.2 Role-playing is an excellent first step in learning to be an effectiveopen-ended questioner in focusing someone on their pain. Askyour role-playing partner to identify a real area of pain in their lifethat they would be willing to discuss with you and to record it on apiece of paper. Then use your open-ended questioning skills to try



to discover it and focus them on it. Finally, ask them how you didand how you could have done better. Take careful notes.

3.7.3 Use this information to create a series of Metastories about askingeffective open-ended questions to focus a prospect on his or herpain. Using the Cybernetic Transposition Three-Step process, turnthis into an unconscious Target. Refine the result via role-playing.

4.0 Conclusion

4.2 If you do an effective job of identifying the prospect's pain that yourbusiness can resolve, bringing them into and keeping them in contact withit, and briefly proving the value of what you are offering, you will be verysuccessful in selling.

4.2 The key skill in this process is open-ended questioning, a skill that you candevelop and enhance through role playing and use of the CyberneticTransposition Three-Step.



Chapter SeventeenCold-Calling

1.0 Introduction

Let’s be honest. I have only met one person in my entire business career wholikes to make cold calls. He was so unique that his colleagues called him“The King of the Cold Callers.” However, cold-calling is often necessary. Sothis process is designed to make the best of a difficult activity.

2.0 Cold Calling Stage One

2.1. Cold-calling is the name given to first contacting someone you have neverprevious met or spoken to, either in person or by phone.

2.2. Making “cold calls” is difficult for practically everyone because theconcept triggers a basic human emotion, the fear of rejection.

2.3. You can substantially resolve this fear by doing one or a series of BaseReframing and Sub-Personality Negotiation processes once the fear hasbeen triggered by giving cold-calling a try.

2.4. Many companies have developed a two-phase format for cold callingwhich has been found effective and seems easier.

2.5. First is a telephoned cold call. This is a type of limited telemarketing,the purpose being to arrange a appointment for a telephone or in-person discussion rather than to take an order for a product.

2.6. Studies made at the Wharton School of Business, indicate that peopleare more comfortable making initial approaches on the telephone.

2.7. Many prospects will occasionally interrupt an important meeting totake a stranger’s telephone call, a phenomenon that has been labeledthe “tyranny of the telephone.”

2.8. These same people will almost always refuse to see an unscheduledvisitor, even someone who has taken the time and effort to travelacross the country to see them.



3.0 Cold Calling Stage Two

3.1 The appointment-making is followed up by the salesperson who is now ascheduled (therefore anointed) visitor, even though their call is still “cold.”

3.2 It has been determined that this two-phased cold call works best when thetelephonist and the personal caller are different people. But it will workwith one person taking both roles.

3.3 A change in sexes seems to work best for this two-phase cold call.

3.4 If at all possible, to make an appointment for a salesman, utilize afemale; for a saleswoman, a male

4.0 Guidelines For Telephone Cold Calling

Telephone cold calling has the best chance of success if you set a CyberneticTransposition objective and follow these guidelines:

4.3 Look good! Be proud of your appearance. Believe it or not, if you feelunkempt, you will project that image over the telephone.

4.2 While telemarketing, talk to your image in a mirror on your desk.Smile. It will come through in your voice.

4.3 Say your piece, then listen and take notes. Use open-ended questionsto specifically identify their objections. It is impossible to overcomeobjections if you do not hear and understand them.

4.4 Be polite, be enthusiastic. Your tone of voice, pace, volume,brightness and timbre can convey a tremendous amount ofinformation. What you convey is your choice.

4.5 Remember you are arranging to get the called person's appointmenttime with verbal charm and empathy, you’re not selling anything else.

4.6 Many salespersons give up too readily in their attempts at conductingtelemarketing appointment-making. Usually, it requires an average ofseven calls to confirm one appointment. However, using theCybernetic Transposition Super Techniques and the Zappers, youshould do a lot better.



4.7 Your success rate will increase significantly if before you make anappointment-setting cold-call, you use the Zapper process of Short-Term Unconscious Planning.

4.7.1 Imagine yourself successfully completing the call in a fewminutes. Make this a complete imaginary experience of how itfeels when you succeed. Surround this with a ball of whitelight and anchor it in your Inner Anchor Point while saying,“This is the way I’d like things to be in a few minutes, havingjust confirmed an appointment with (insert the name of theperson you are calling) or their equivalent associate. Pleasemake this happen in ways that are for the highest good of meand of all concerned.”

4.7.2 Imagine yourself making the call, feeling fully confident,enthusiastic and successful. Surround this with a ball of whitelight and anchor it in your Inner Anchor Point while saying,“This is the way I’d like to feel as I make the call to (insert thename of the person you are calling). Please make this happenin ways that are for the highest good of me and of allconcerned.”

4.7.3 Then make the call.

5.0 Seven Steps That Make Cold Calling Easier

5.1 Get their attention. Do not just say hello and start your spiel, tell them it isa call to borrow some of their time. If they are too busy to talk now, ask ifyou may call them back. Pick a time! “May I call back between three andfive this afternoon?” Making that appointment for a call back sets the stagefor making the target appointment.

5.2 Have an outline script. It need not be formal or complete, but youneed to keep on track. Do not memorize. Its job is to remind you ofthe next point you want to cover.

5.3 Identify yourself by name and organization.

5.4 Tell them the exact reason for the call. Don’t waste their time.

5.5 If you get a yes, set an exact time for the appointment. Then restateyour understanding of the agreement, “Mr. Johnson will call you at4:15 PM today, as agreed.”



5.6 Never pursue a negative person. Accept that they are having a bad dayor a bad life and get on with yours.

5.7 No matter how the call has gone, be polite and thank the person calledfor their time and patience.

6.0 Follow Through

As in golf, follow through is of the greatest importance. So once you have setan appointment, come to a complete halt in your telephoning and:

6.1 Fill out a prospect sheet for the salesperson to follow.

6.2 Record the name of the business called, everyone you spoke with, the timeand date of the appointment, the telephone number and extension(s) atwhich you made contact.

6.3 If you are the salesperson who has a telemarketing appointment, rememberthat you are still making a cold call. Behave accordingly. Be sure to set aCybernetic Transposition objective for your overall selling results and usethe Zapper process of Short-Term Unconscious Planning immediatelybefore each sales call.

6.4 Do not assume an appointment means the contact wants to see you; thetelephone call may have hit at a weak moment. Be prepared to resell fromscratch. If things seem to be going wrong, be sure to use the Zapperprocess of Off-Track to On-Track.

6.5 Know as much as possible about your potential customer.

How big, how many locations, who is your competition, who are youtalking to and where does he or she fit in the company.

Amazingly enough, many of these answers can come from his or hersecretary or assistant if you know how to ask.

Be sure to check the Internet. Most businesses have a web site thesedays and they usually present meaningful information about thebusiness and their products. Learn to do this quickly.

If you have done your Clustering Market Analysis, you should know agood deal about the types of prospect who are likely to become acustomer.



If you have developed Cluster Type Intuitive Signals, be sure to checkyour intuition. If the person is a low probability prospect, don’t spendmuch time on them. If they are a high probability, respond with thetactics that work best with their cluster.

6.6 If you don’t know something about the customer, ask. Do not beafraid to verify what you think you know. People generally like todispense knowledge.

6.7 Do not attempt to overwhelm the contact with your knowledge. Sell topain.

6.8 Remember that the call is successful if you get a contract or a positiveagreement to go to the next step in obtaining a contract.

6.9 Acknowledge your successes. Keep a written record. Note anythingthat you did that worked well. Note the prospect’s questions and youreffective answers.

6.10 Periodically, integrate what works into a series of Metastories. Alsocreate a series of Metastories from what did not work. Turn these intoan unconscious target using the Cybernetic Transposition Three-Step.

7.0 Summary

Cold calling can be emotionally challenging. An effective process, anorganized routine and use of the Cybernetic Transposition Three-Step andZappers makes it much easier – and much more successful.

The two-step process described above is one of the most effective coldcalling approaches for most situations.



Chapter EighteenEffective Negotiating

1. Introduction

1.1 There are lots of books on negotiating tactics. A few of them present what I thinkis good advice.

However, the purpose of this chapter is present and explain one simple form ofeffective negotiation that I know works because quite a few of my clients haveeffectively used it.

1.2 The steps covered in are:

• Identifying the negotiation space.• Planning your tactics.• Matching energies.• Selling to pain.• Rehearse!• Consolidate your gains.

1.3 In any negotiation, there are “brick walls” that limit the negotiator’smaneuvering room. Until you determine these, the chances of achieving asuccessful negotiating result are substantially reduced, especially in “difficult”negotiations.

1.4 Negotiations are like the rest of life: “If you don’t know where you’re going, anyroad will take you there.” So you need to set specific goals and establisheffective tactics to be successful in your negotiation. Your tactics are the “how”that leads you to the goals.

1.4 The concept of matching energies is key to any negotiation, with your children,your spouse, or your prospect.

• If you are perceived as weak, the other negotiator will typically try to takeadvantage of you - with the expectation that you’ll give in.

• If you are perceived as too strong - overbearing - the other negotiator maysimply refuse to “enter the arena,” fearing that they will certainly lose.

• The key is finding a middle ground where the strength you are projectingmatches that of the other negotiator. That’s called “matching energies.”



1.6 Buying decisions - whether purchasing an object or agreeing to yourrequirements in a negotiation - are emotional decisions. Make no mistake aboutthat! If someone feels that you’ll walk out, leaving them high and dry if youdon’t get what you need in a negotiation, they will experience the emotion offear - or at least anxiety, assuming that you have created the expectation that theyneed what you have to offer. (See Chapter Fifteen.)

Identifying what causes such emotions and triggering them are key to asuccessful negotiation.

It’s often good to get such issues on the table quickly, for example saying:

“I know that we provide 60 percent of your requirements for our type ofproduct (or service).

But we cannot continue to do that unless we are compensated for ourcosts plus a reasonable return on our investment. I want to be clear aboutthis at the outset because the present arrangement is not something thatmeets our needs and we would be better off working for othercustomers.”

Clearly, that gives you some power in the negotiation but making such astatement without being willing to follow-through is foolish and unproductive. Inthat case, your “opponent” will probably call your bluff which puts you in aseriously weakened negotiating position.

1.7 Just as an actor or actress needs to prepare and rehearse to give an effectiveperformance, you need to prepare and rehearse to play out an effectivenegotiation.

The best way to prepare is by setting a Cybernetic Transposition SuperAchievement Three-Step objective.

The best way to rehearse is through “role-playing” where someone plays theother negotiator and you play yourself. Then you switch roles and continue to doso until you feel fully confident in implementing your tactics.

1.8 If the negotiation seems to be getting off track, use the Zapper Off-Track to On-Track process. It will usually get things back on track in a few minutes.

1.9 Many people get into a “feel good” mode when a negotiation is going well - andthey forget to consolidate their gains. To consolidate, you must get a written and



signed agreement of some form. Otherwise, you’re just dealing with talk - andtalk can change from day-to-day.

2.0 The Steps In Preparing To And Effectively Negotiating.

2.1 You need to identify the negotiating space by gathering information about theother negotiator and his/her firm. This can be done by talking with others whoknow what’s going on with him/her and their firm but we really want to go onestep deeper.

If the firm is publicly held, it is easy to get information about it from the Internetand by scanning the government records of the SEC (the Edgar database of theSecurities and Exchange Commission).

If the firm is private, they may have a web site and you may be able to also getuseful information from D&B. Another good tactic is to search the Internetand/or your public library where you can find magazine databases. You can lookup all the articles on your “opponent’s” company. Usually, these are the result ofa great deal of research and can bring you up to speed quickly. Do the same thingwith respect to the personalities involved. It’s amazing how much you can find ifyou track someone back through their previous employers.

If, for example, you find that the firm is short of cash and pushing like crazy forprofitability, it is likely that their negotiator will have these considerations onhis/her mind. Thus, when you ask for more money, to stay within the negotiatingspace you also have to point out how your proposition will make their companymoney - e.g., through your firm’s knowledge, reliability, etc. In this example,you are then participating in the space of “profit,” by talking about helping themto make profit, creating a partnership.

2.2 Planning your tactics involves identifying your very specific goals, identifyingthe strengths you have to present, knowing your weaknesses well enough toavoid getting into discussions of them, knowing what’s important to the otherside, knowing how you are going to ask for what you want and knowing how tocounter the other side’s objections, if they raise them. The key is to go into thenegotiation with your best plan, rather than “winging it.”

2.2 Matching energies requires feeling strong and prepared inside of yourself,knowing that you have a lot of value to offer, being aware that what you arerequesting is reasonable, and being prepared. If you have trouble seeing the otherperson as an equal, tending to feel they are “above you” in some way, you’re notready to match energies.



I had an English client some years ago who quickly built a verysuccessful company with my help. In doing so, one of the things we hadtranscend was that my entrepreneur client felt “one down” in thepresence of powerful and successful large-company CEO’s. By workingwith his self-image using Base Reframings and setting CyberneticTransposition objectives and, then, by role-playing until he feltcomfortable, he eventually was able to successfully negotiate with the topof the British business culture and, then, with then Prime Minister,Margaret Thatcher.

The key is tactics, practice, tactics, practice... after setting your CyberneticTransposition objective. The watchword is that if you can successfully pretend tobe equal, you probably will be perceived as being equal. By role-playingpractice, you can convert pretense to reality.

If you feel nervous or out of sorts just before a negotiation, do the Zapper KiGrounding process. And always do the Zapper Short-Term Planning process justbefore entering the ring.

2.4 It is key that you know enough about your negotiating “opponent” so you knowwhat he/she wants. The fact or the threat of denying them what they want makesthem feel pain. To the extent you are able to intensify their awareness of thatpain, they will be increasingly willing to give you what it takes to satisfy theirpain. So your job is to keep focusing them on their pain until they are willing to“buy” your position. But, again, never say or imply you will do something thatyou are not prepared to do. (See Chapter Fifteen.)

2.5 Rehearsing is so key to successful negotiations that I can’t really stress it enough.Role-play with your spouse. Role-play with friends who know your negotiating“opponent.” As you do, you will invent more and more refined tactics forreaching your goals. Keep notes and incorporate your “inventions” in yournegotiating “script.” Your role-playing “opponent” can help you in this processby letting you know what worked and did not work with them and what otherapproaches would have worked better.

2.6 If you follow the steps described in this procedure, chances are extremely goodthat you will be successful. When you reach the point where your “opponent” isready to “give in” or has already done so, you will have a choice: consolidateyour gains or lose them.

Do not be afraid to ask him/her to sign a document that you’ve already preparedor to ask him/her to prepare such a document on the spot that he/she will sign.



Keep your eye on the ball. What you’re after is a result that matches your goal,not a “feel good” experience.

3.0 In Summary

3.1 Identify the negotiating space, plan your tactics, match energies, sell to pain,rehearse, and consolidate your gains. Use the Cybernetic Transposition Three-Step. Learning to do all of this will take some time and effort but the results willbe worth it.

For example, I had a client who had an urgent negotiation coming up ina few days and didn’t have enough time to learn the CyberneticTransposition techniques. So he focused on doing all of the other things Idescribed above.

His was a small firm that had been repeatedly beaten down in price byone of the largest firms in the country. He initially thought he didn’t haveany choice but by the time he left for the negotiation, he was raring to go.

He returned with an immediate 20 percent price increase that evenextended to the remaining six months on his existing contract.

He was pretty pleased with the results of the process. Just think whatwould have happened if he’d also used the Cybernetic Transpositionprocesses!

Hopefully, you will.



Concluding Remarks

There’s a lot more that I could have covered but I just picked out the “nuts and bolts” that Ithink will give you the best leg up with your small business.

If you diligently use the Cybernetic Transposition techniques and apply what I’ve describedherein and in my ebook that I gave you as an advertised bonus, Proven Secrets for Making LargeSums of Money in Your Own Business, I’ll expect you to send me an email one of these daystelling me how remarkably successful your small business has become and that you’re rollingin money.

That will certainly put a smile on my face.

Enjoy the journey.

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The Nuts and Bolts of Small Business Management€¦ · Unadvertised Bonus #7 The Nuts and Bolts of Small Business Management by Stuart A. Lichtman