Transcript:

0:01
Good morning; this is John Heinrich again. I want to talk to you now about leadership in small businesses. I call it leadership in small business because that’s why we launched the school and did the School of Entrepreneurship in the first place.

0:21
Small business is the heartbeat of America. It’s not big business. It employs more people, and it drives the economy. But, one of the problems has always been the lack of leadership in small businesses. Now, I want to run through some principles of leadership that I think pertain to small businesses.

0:45
You can disagree or disagree if you wish. Our phone line is always open, but let’s start with this. First, when you start a business, let’s assume that you’ve taken our other courses and or you’ve intuitively gotten your business position correctly, and everything seems to be going along swimmingly.

1:09
Maybe you’re operating outside your garage or bedroom, but that’s okay. We don’t fault you for not having to go out and lease a big building right at the outset anyway. But when starting your business, you don’t necessarily need any leadership because you know what you’re doing, and even after hiring up to about five employees, you don’t need any leadership because they know you’re the boss. They will follow whatever you do.

1:39
Now, you have a responsibility to keep the company going and growing; otherwise, the employees will be unhappy and might leave. You are also responsible for listening to your employees because many of them will come up with good ideas, believe it or not. Still, there’s a limit defined by chaos, for example, as what you can tolerate in a new business.

2:09
Now, the way I used to handle it, and some of my clients have handled it, is that this solicitation of new ideas is on Friday afternoon, or whenever things are slow, pull everybody together in your conference room or any ample space that you’ve got and just talk over how the business is going, where you see it going and open it up to questions from your employees and you will get questions and you have to answer them honestly and truthfully, because if you’re not honest and truthful with your employees, they will think less of you, and they might even leave.

2:48
The odds are that they won’t because they probably need the job, but they might, and you don’t want quiet quitters working for your company. So be careful of your leadership up until probably five employees. And then after that, it becomes more of an issue, say till probably 10 or 20 employees, and you hire your first supervisory people, maybe at 10 people.

3:18
It depends on the type of business you run to some extent because if you’re doing line manufacturing, that line will probably run with 5 to 10 employees and run by itself. It needs a line leader, and you need to lead the line leader. But that’s all it needs, and it’ll go by itself. We know that having had clients doing that doesn’t require a lot of supervision unless you run into production and quality control problems, at which point you have to exercise your leadership.

3:55
Now, when you get to about somewhere between 10 and 15 or 20 employees, leadership becomes more pronounced, and the need for leadership becomes more pronounced because people will still look to you, as the founder of the business, as the leader. Even if you bought the business, you have bought the business and would still be looked at to lead the business, and you know that you’ll be looked at because that’s where you bought the business in the first place: to lead something.

4:29
However, I will say there’s a major caveat because many people will buy a business just to guarantee a source of income, and they’re not interested in growing the business or even leading the business. I encounter this all the time. So that’s not what we want you to do because the title of our school is the Small Business Success School, with an emphasis on success.

4:57
And it is a school because we are teaching you the techniques we know have worked over the years for small businesses. So the question becomes, let’s say, 20 employees, what kind of a leader should you be? In today’s environment, generally speaking, since you’ve got the last vote as the company’s leader or the owner, even of the company, you might even be the majority partner if you have a partner.

5:30
You might even be the minority partner under some circumstances, but you’re leading the company, so people will defer to you and what you want to do in terms of leading the company. Then, you have to start developing the leadership style. Now, the one that has worked for practically all of my clients is somewhere between an authoritative and a coaching leadership style. There’s another one that I like called situational leadership.

6:00
We developed it in the Navy because sometimes we didn’t have enough time to discuss what needed to be done to complete the mission. And I, as the leader, had to make some snap decisions about what needed to be done. And some of them turned out, well, some of them turned out poorly, but as people have said, lead, follow, or get out of the way.

6:25
That was General Patton, and I’ve always subscribed to that. So, as the leader, you will be looked to to either make that decision or solicit other ideas that people may have in which direction the company should go. For example, we discovered a durable metal coating other than chrome for exhaust parts in my company.

6:54
And our first reaction was that this could be big. So, at the same time, we were very deliberative about introducing it to the market because we didn’t want it to flop. And it could have flopped if we hadn’t been very careful in the testing. As a result, the product took off without much urging from us and had tremendous word of mouth.

7:24
Now, as a leader, you’re kind of like dealing with a controlled crash because, you know, the stuff is flying out the door, and you just want to maintain quality and, but as a leader, you could have easily lost control of the process and messed up the product launch of what turned out to be something like 25 percent of our sales at the time I sold the company.

7:49
So, as a leader, you have to oversee your whole product development process. And this is the lifeblood of your company because if you’re going to grow the company, then you need to do that. Now, even if you’re a caretaker and you’re just buying yourself a job where you don’t have to report to anybody, you still have to be a leader to some extent in order to keep the company on an even keel because competitors are nasty folks. There are and will be forever more competitors out there for you. Whether it’s retail or wholesale, it doesn’t make any difference.

8:29
They will show up, and they will make your life miserable, and if you don’t beat them by coming up with better products or better services, they will eventually force you out of business, and you won’t be the leader you might even be in court for having screwed things up for your employees, believe it or not, might sue you. And I say that sitting here in Arizona, which is not particularly labor-friendly, I guided a couple of clients to the labor court after a couple of employees sued them. So, it was a result of poor leadership in both cases that they got sued.

9:08
Here’s something else to consider now. You need to develop a leadership style, and eventually, that leadership style will translate into company culture. My particular company culture was flat out in fifth gear all the time. And people needed to have that as an expectation when they signed on because if they couldn’t keep up with that, we didn’t want them as employees.

9:39
And my partner bought into it. I bought into it. If anything, he was kind of the restraining flywheel
on me to keep us within our financial resources, which again, I, as a leader, since my name was on the side of the building, it was my responsibility to keep things on a sort of even keel.

10:03
Another thing, which is a derivation of the Friday afternoon bull sessions with their employees, is a more organized process, which I used to do periodically, about once a year, known as a 360-degree survey.

10:22
Now, that is meant to solicit any problems or questions that people might have in your leadership, and you can do it in a small company because you might only be dealing with 25 to 50 employees, which is easy. I even used to do it among our sales force, and their sales force was all over the place nationally and even internationally. They were usually my severest critics and came up with several new product ideas, but to get back to the 360-degree survey, just look it up.

11:03
It’s a fairly simple questionnaire distributed to all employees that asks how I am doing. And you might say on personality leadership. Are you happy with the direction of the company? If not, what would you do differently? If you are happy. That’s good. What could we do better? And you, as a small business leader, have to be sufficiently confident to indulge in that sort of thing.

11:38
We have not done it a lot in our clients because, by and large, they have had, excuse me, enough employee confidence in their leadership. So they don’t necessarily have to do it. We encourage it, but many simply don’t feel comfortable doing it, and it is what it is. Yes, they may be handicapping their growth somewhat by not doing it, but there it is.

12:05
Now, one other thing: a major field of leadership is if you buy a business, as I did for my first entrepreneurial venture outside of Ford. Don’t do anything. You first need to do nothing for the first 90 days until you get a sense of exactly what you bought because you can look at the financials.

12:27
You can say, okay, this looks good. The price looks good. The prior owner is willing to sell it to you, and everything is hunky dory. But you have a bunch of people that you just acquired, and you don’t know what their capabilities are because you can’t, as a leader, measure that necessarily from the outside, and the prior or then owner may restrict you from actually talking to these people before you’ve signed on and bought the company.

13:01
So, as I say, don’t do anything for the first 90 days unless you’re forced to do something in this, then go with whatever you think the right course of action was, you know, as it turned out because even when I bought my family company, my culture and running the company was much different than my father’s culture and running the company.

13:25
And as a result, I had around 60 or 70 percent employee turnover in my first year. We were fortunate to replace all the employees with better employees that were more culturally suited, but you have to be aware that that might be a problem and you might get very familiar with our course on how to hire the right people, because it was quite apparent to me that I didn’t have the right people on the bus and we needed to have that happen before we can go forward with where I saw the company going.

14:01
When you buy a company, you will have a vision for what you want to do with it. And if you’ve done your homework and you’ve taken our courses, you know, how you’re going to either buy yourself a job, which in which case all of what I’ve said is less important, but if you want to take the court, the company forward, as, as I did, we in seven years, we practically tripled sales.

14:27
That required a lot of very aggressive people, and I used to say that when I gave raises fairly lavishly, but always with a purpose, we used to say that we kept 10 percent of their effort for the company and gave them 10 percent annually. Occasionally, we would particularly target people who had done something notable; we would either give them a cash award or another 10 percent raise.

14:58
And it wasn’t uncommon for people to experience a 30 to 40 percent raise in a year working for our company. But these were what we would regard as high-potential employees. So when does this stop? It doesn’t stop until you sell the company. After seven years, I burned myself out and sold my interest to my business partner.

15:28
He normalized things, slowed down, and owned it for 12 years, and it grew from 4 million to about 6 million, which is a much lower growth rate. And that was fine. The company needed that. That was just his style; he was willing to buy it, and I appreciated it. It’s interesting because after he ran it for, I think, 12 years.

15:56
Then he got tired of it. He didn’t burn himself out but was nearing retirement age and wanted to go fishing in Lake County. His wife owned a nice little cabin over there, and he went into retirement, which was well deserved because he probably worked for 50 years at that point. He was ready to retire, so he sold it to Lubrizol, a big manufacturer of specialty chemicals.

16:22
That is exactly why they bought it; I’m not too sure. Still, at that point, I wasn’t privy to question what was happening. Kenny decided to make it, pocketed a couple of million dollars, probably still a bargain, and retired. The company is still known as Xair and as a division of Lubrizol.

16:48
It’s gone more into specialty chemicals than exhaust and air intake parts, but that’s okay. They bought it. They can do what they want with it. So, the bottom line of this leadership talk is that you have to trust yourself to be a leader. Your leadership style will develop over time based on what’s comfortable for you.

17:14
And, I like to say, you know, I, I thank the Navy for helping me develop my leadership style because I got thrown into a situation where I was captaining a surveillance plane over Vietnam as a Navy Lieutenant, and I had somewhere between 18 and 20 people working for me. All of them were smarter than I was, but the Navy had made me an officer, and I was the natural or unnatural leader of these 20 souls.

17:48
So, I had to learn to get the best out of them. That’s what evolved my leadership situation because when I started in the Navy, I was one of the screamers, and that’s what the Navy taught. Still, I discovered that leadership style would not work for these people because they were all smart and knew what they were doing. They just needed somebody to coach them and tell them that they were doing the right thing, or, you know, they were doing what they thought they saw, or we had to encourage very free thinking.

18:23
And it turned out to be very successful. We have the Navy unit accommodation. So it worked. Now, that was an unusual situation, but the point is that I evolved my leadership style over years or years on that particular deployment. Even 20 years later, when I was on Navy reserve duty, courtesy of the good Senator McCain, he raised enough money to sponsor me and another Navy captain to write a book on what the Navy leadership should be.

19:05
Because he thought the Navy had too many mid-level managers and not enough pure leaders, the growth in the Navy had to come from the pure leaders. So what we did, which was kind of instructive, is because you, you think of the armed services, you think of the URA yell, scream, and they all fall into line.

19:28
Well, it turned out that the most successful Navy commands, and we surveyed, I think, about 50 of them, as I recall. Use somewhere between an authoritative and a coaching style of leadership. In other words, they knew the officer core knew who was ultimately in charge, but they had to get the best out of their people.

19:52
The way to do that was through a coaching style so that they would understand how to get the best out of themselves. And this is in the Navy intelligence community, which is a bunch of bright people. So, even the Navy developed a modified coaching style, which was the most successful leadership.

20:12
So we hope you take that to heart and the number of the 1st lesson is. Develop your style, whatever it is, and if it works and your company grows and people follow you, that’s what you need. But be aware that you may have to change it over time as your company grows and, even as you grow, as you get smarter in leadership.

20:36
I got smarter as I went along in the Navy, and after six commands, we pretty much had it down. So we knew what worked. We found out when we did the leadership survey that it not only worked for us, it worked for other commands in the Navy, and the Chief of Naval Operations codified it into a book, which he distributed to every command in the Navy.

21:03
I wish I had a copy of it, but somewhere, it’s gotten lost to the ages, I think, when I had a robbery several years ago. Anyway, the point of it is to develop your style. You can tell if it works if you’re accomplishing what you want to do for the company. My father was content to let things roll along because he started the company in the garage and built it to the point where it was a nice, successful 15-employee company.

21:32
You know, yielding, he and my mother, a very nice lifestyle. When I came out of Ford, I had many different ideas because I had to pay off a note, which Kenny and I did to my father, which was substantial. So we had to grow. Fortunately, we knew how and where we wanted to grow, and our success in product innovation was a bonus.

21:58
It made us get to where we wanted to get faster, but it took some leadership to decide and determine. Okay, we’re ready to go. Let’s introduce it. Go to truck shows, sent to all the salesmen worldwide, and sit back and watch the questions come in, and the product flies out the door, which it did literally.

22:24
So again, this takes leadership. This is what we wanted to do. It made me happy up to a point when I was just working 80 hours a week, and when I was even in the country, my leadership style probably got me in trouble. Now, I try to coach my clients to stay out of trouble and not burn themselves out, but we have had cases where people have burned themselves out.

22:53
Even now, we coach people to avoid that because I can notice signs of burnout in some of my company clients. Now, the other major thing you have to do in leadership is if you have a family company and a lot of businesses. Our family companies. You have to pass it off to the next generation successfully, meaning you must sell it.

23:21
It’s not a good idea generally to give it to your offspring because they might screw it up. But if you sell it to them where they’ve got to pay you money, whether you need the money or not is not the point. Then you have to coach them up to run the company successfully so they can pay you the money.

23:41
And there’s a lot of satisfaction in knowing that something you built is still going 30 years after you sold it. And it’s nice to know. Anyway, many of my company and clients companies are going, and some of them are in the second or third generation. And they’re presumably going off and doing great things.

24:08
Because if they weren’t, we’d probably hear about it. So you as a leader have to, if you want to perpetrate your culture, and there’s no reason why you wouldn’t; if you’re the usual egomaniac entrepreneur, you want to perpetrate your culture. You want to see your company thrive and go into the next millennium or the next generation successfully. So, you have to train your successors and then, at the right time, reach an agreement, which can be contentious about selling the company. I had the 3rd generation of 1 of my clients who had a certain gleam in his eye. The last time I saw him, he said. As of July 1st, I finally own the company, and that’s good.

25:01
You know, he’s the third generation. He’s the youngest of five children and is running the company. All of the other four are involved in the company. And that’s interesting because it’s a great lesson in corporate dynamics. They can all get along. After all, they’re all dedicated to the same thing: making the company successful.

25:24
But even Chris, the youngest, is dedicated to the same thing. So I hope this has been helpful. If you have any questions about leadership at any point in time, call us at 480 200 5678. Thank you for listening.