The Difference Between Management and Leadership

Carly Fiorina, Former CEO of HP, discusses the difference between leadership and management. Leadership is all about changing the order of things and only leaders can drive change.

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Checking References Saves You Trouble

One of the lessons from Jim Collins’ Good to Great (2001) is that great companies strive to place employees in the right seat of the bus. Your own due diligence as a hiring manager or business owner is the best way to ensure that 1) you have the right employee for the job and 2) they are placed in the right seat of the bus. It’s been my experience, however, that many employers fail to perform adequate due diligence in the process of checking references. This is crazy! It would seem only appropriate that if you’re considering spending the money and time to hire and train a new employee then you’d want to thoroughly check as many references as possible.

The fear of being involved in a lawsuit after you check on or provide references can be a powerful motivator to avoid the situation entirely. At least, it is for many hiring managers. But checking references is critical and can be done in a way that hedges, if not eliminates, the risk of being involved in any legal repercussions.

AllBusiness has published the following 9 Tips on Checking References:

1. Tell all applicants that you will check their references before you make any hiring decisions. Business owners often hire applicants because of a sharp-looking resume or a “good feeling” from an interview. No matter how quickly you’d like to get a position filled, always perform due diligence before you take the hiring plunge.

2. Ask each applicant to sign a release form permitting you to ask detailed questions of former employers and other references (sample background check permission forms are listed on this page). Make sure the form prevents the applicant from suing you or any former employers based on the information you learn during the reference checks. Without this permission, you may only be able to confirm employment dates, pay rate, and position – information that tells you little about a prospective employee’s character. Also, check with your lawyer, because some kinds of liability cannot be waived.

3. Fax over a copy of the prospective employee’s background check waiver and your personal credentials before you call a prospective employee’s references. Many employers fear being sued for defamation if they say anything negative about a former employee. Your fax will ease their fears. Keep in mind that some states now consider employers’ comments to be “qualifiedly privileged.” That means the employer cannot be held liable for the information he or she reveals unless he or she knows it to be false or reckless. If that’s true in your state (check with your lawyer), make sure the references know it.

4. Verify basic information such as employment dates, job titles, salary, and types of jobs performed. If one of the basic checks doesn’t match the prospective employee’s resume or what you heard during an interview, you’ve got a clear sign that something may be amiss.

5. Avoid vague questions. Ask specific questions based on what you learned about the applicant in the interview. For example: how did the employee contribute to projects mentioned in the interview?

6. Pay attention to neutral or negative comments from references. Lukewarm comments or half-hearted praise speak volumes. Ask the former employer if they would hire the person back. If they hesitate, move on to the next applicant.

7. Put less weight on positive references. Most people can find someone to say something good about them. And some employers give positive references even to bad ex-employees, because they’re afraid of legal action or are tired of paying unemployment taxes on the applicant.

8. Use former supervisors or senior coworkers as references. An applicant might not want you to contact their current employer (who might not know about the job hunt), but there are always people who can provide a reference.

9. Don’t rely on prospective employees’ verbal word regarding salary figures. Ask for a current pay stub to verify employment and pay rate.

How To Nail An Interview

Oh my goodness! I can’t stop laughing at this guy. It’s a great example of what NOT to look for in your applicants.

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How To Nail An Interview lists some good pointers and hilarious clips. But I’m more interested in the response from the other side of the table. What kinds of questions should managers be asking during the interview? What shouldn’t be asked?

My experience has been that–for whatever reason–interviewers can be just as nervous as their interviewees. It may be that they feel intimidated by the situation. Or they might feel inadequate in their ability to asses the candidate’s quality. Whatever the reason, it usually manifests itself in their questions. Personally, when an interviewer asks, “What kind of animal describes you best?” you know they are either inexperienced or scraping the bottom of the barrel for something to help them drag out the time. Don’t ask this question. It’s meaningless. It tells you nothing about your applicant. I mean, who cares if your talking to a buffalo or door mouse? There are much more effective questions you can ask, such as situation-based or behavioral questions. These come in the form of, “How would you respond to [given situation]?” These questions do a better job of extracting job-related behavior that can be verified against your own due diligence when calling references.

EE Interview: Marion Freijsen of E.factor (Part 2)

marion-freijsen-2This is the second part of my interview with Marion Freijsen, Co-Founder of E.factor. We had an enlightening conversation about business development and the role of entrepreneurs in the current economic crisis. We also discussed how entrepreneurs can succeed in raising external financing, among other areas of Marion’s area of expertise.

Marion, what makes a great entrepreneur? Define their essential characteristics, personality and skills.

This is one of the questions that many academics have tried to answer, but no one has yet been able to bottle it! I do think there are a number of factors that each entrepreneur has and they are equally true for myself. Passion is number one, determination closely following; you need to be stubborn to a certain extent and not care about what others will say or think. You need optimism, and a deep belief in what you are doing. In terms of skills, many of these can be learned, but you cannot learn to be an optimist or to not take no for an answer or never give up.

So, what exactly is business development? What does a Director of Business Development do?

Business Development is looking at ways of developing new clients, new territories, new channels and even to look at ways of developing new products. All of these make up “Business” and so ought to be part of the role.

What are the biggest mistakes you think entrepreneurs make in the area of business development?

The most common mistake I have seen is that many entrepreneurs believe that they have the best product out there (which may be very true) and therefore that people will automatically come and buy it from them (which is never true).

You have to go out and Sell! Sell! Sell! Never give up selling, and don’t hand it over completely to someone else either. After all, you are the one that knows the product and company inside and out–you are the master sales person.

What is the best strategy entrepreneurs can use to get new customers under the adverse conditions of the current economy?

Use the tools that you have available to you via the internet. Many entrepreneurs still fear presenting themselves on the internet – but you need to get an online presence. There are many ways that allow you to control what your potential clients read about you on the internet…taking the fear out of the equation.

What is the most effective way entrepreneurs can penetrate a new market in today’s economy?

Find a local connector. You can’t do it all yourself, and you can’t begin to grasp another market’s intricacies without some help in the beginning. Do make sure though that you don’t just simply sit in meetings set up by the other person, without working hard on establishing a relationship with your new contact yourself. If you don’t get a personal bond, you will lose the contact the moment you stop working with the introducing partner (see more on this in The N-Factor, authored by Adrie Reinders and myself, which was published in 2007).

What role does business intelligence play in an entrepreneur’s success? How should an entrepreneur best approach the process of gathering business intelligence?

It is crucial to your success. Without proper background info, you are relying purely on luck–not the best basis for success, right? Always do your homework, on people, on markets, on products on anything and everything. If you don’t know your prospect – google them before meeting them. Going to a conference? Google the attendees and make a shortlist of who you really want to meet. It’ll save you a lot of time.

What are the biggest mistakes entrepreneurs make when executing their business plan and other strategic initiatives?

To think that it is set in stone. A business plan is a guide and laying it out is great preparation and forces you to think about your goals. But it is a living document and you need to constantly fine-tune it based on what you encounter, changing market conditions, new competition, etc.

What do you think an entrepreneur must do to survive the tough times? What is your recommended formula for success in general?

Be creative, be flexible and be strong.

You can survive, but don’t expect to do it the same way you did last year. For instance, funding is not going to come from banks or VCs as easily as it did before; you have to look for people that will invest in YOU, that know you and that trust you.

What role do you see entrepreneurs playing in the county’s eventual economic rebound?

A big one, it is essential that we continue as entrepreneurs to build our companies and hire people and expand our businesses. We are the engine of the economy. Don’t expect global corporates to really be able to contribute in terms of growth much for a couple of years. They are laying off people and saving costs. However, entrepreneurs–when they start a business–don’t really look at interest rates. They just know they have to start and see it as another challenge to work with. This is the attitude we need in these times.

What do VCs want to see in a business plan that entrepreneurs overlook?

In a business plan you have to make it as easy for a VC as possible, clearly put the key financials in the first page (executive summary), make it easy for them to understand your differentiating factor. Most of all, you need to understand that these days a VC is much more interested in what you and your management team have to offer in terms of relevant experience and skills than in what your product is like. It is YOU they bank their money on and then your product/service.

What other advice do you have for entrepreneurs seeking external financing?

Be as clear and concise as possible. Take time to LEARN how to prepare your pitch the best possible way. This could be the most important thing you do in your entrepreneurial life, and just assuming you know how to do this well would be just as bad as not doing any market research.

What is the most frequent advice you give struggling entrepreneurs?

Don’t blame anyone else for failures, always take a hard look at yourself and learn from the process. That way, you will grow and grow and ultimately you will be successful. And never be afraid to ask for help or advice; we all need it from time to time.

Are you an entrepreneur that would like to tell EE readers about your business? Click on the interview form at the top and feature your business!

Struggling Business? Call On Your Board of Advisors.

Entrepreneurs fail when their support structure is inadequate. A Board of Advisors to Management can be very supportive, especially in the early stages of a business. It can be comprised of any number of professionals who may or may not have experience in your exact same industry.

Advisors do just that. They advise, consult and recommend. But a Board of Advisors does not vote on strategic initiatives or the governing bylaws of a firm like a Board of Directors, who typically have an interest stake in their firms.

Selecting and organizing your Advisory Board is a strategic process, not to mention a diplomatic one. So calling up your rich uncle and asking him to spoon-feed you advice on a quarterly basis isn’t going to cut it in today’s competitive economy (unless your uncle happens to be Jack Welch). Rather, Advisors and their area of industry expertise need to be an appropriate fit for your enterprise; their background and management style needs to complement the needs of your company and be strategically aligned with its vision. This necessitates a thorough evaluation of your business plan and identifying how exactly a potential Advisor can help.

But the process doesn’t stop there. Now you have to call them and ask for their help. Sometimes this is can be a breeze if you know the would-be Advisor very well or if you already have a history together. I mean, just because your uncle made his millions in waste management doesn’t necessarily mean he’ll make a significant contribution to a company that develops casual online video games. However, when you identify a high-profile professional who’s background will compliment your company and who’s experience will contribute to the achievement of your goals, then convincing them to be an Advisor may require a little finesse and diplomacy.

Talk with them. Consult with them about the opportunity. Be candid and transparent about your needs and expect the same from them. It’s especially important to remember that Advisors are typically not paid for their contribution and sacrifice their time for your benefit. So if you ask for their advice, you’d better listen. Nothing can turn off an Advisory Board faster than soliciting feedback and then ignoring it. Bad form!

Board Meeting Etiquette Part 7 (General Etiquette)

The effectiveness of Board meetings has a significant impact on the ultimate performance of an organization. And they require a certain etiquette in order to be most effective. But how exactly should they be treated? Why should we have them? What should be discussed? Who should attend? Answering such questions can be difficult for first-time entrepreneurs who find Board meetings to be a foreign experience. Even veteran entrepreneurs should be reminded of proper Board meeting etiquette. So I’ve asked some experienced entrepreneurs and investors to offer their opinions about Board meeting etiquette in the context of small, private businesses. Their responses have been compiled into a series of seven separate blog entries.

Please share any general thoughts you have about Board meeting etiquette.

“There should be an outline and opportunity for each member to have a time to express whatever they want, but overall, it should be at the direction of the Chairman. The Chairman needs to call for a vote. The Secretary needs to be assigned to take meeting minutes or find a 3rd party meeting “stenographer” or the meeting can be recorded for future reference. The Chairman needs to call for a specific vote on matters that Board members or management bring up for a decision.” –Jaime Villagomez

“Keep it simple.” –Allan Young

“Prepare a board meeting packet and distribute to board members at least one week in advance of the meeting.  Include items that require board vote and approval so board members can consider them ahead of the meeting instead of trying to process them in the meeting.  Detail in the board packet will depend on what your board members like – some like lots of detail and some don’t.  For the meeting itself, prepare a crisp, short presentation for the company overview, but keep a lot of data and detail close at hand. Take notes.  Be formal with items requiring a vote – introduce voting items by motion, seconded by another board member and voted upon by all board members.” –Gregg Rosann

“Since the CEO tends to stuff the board with trusted allies, some boards provide only a rubber-stamp function. This is a total waste of time. A good CEO is one who encourages honest discussion and toleratesdissention on major issues. Likewise, it is not good to have cross-directorships, where the CEO serves on the board of another company whose CEO serves on his.” –Robert Rieger

“As is the case in general, Boards have experienced various levels of legal liability and cooresponding challenges. As a result it is critical that Boards’ and their members consider seriously and manage accordingly their responsibilities and follow due process and legal procedure at all times. All topics and discussions should be held in greatest confidence and recorded.” –Tricia McGarry

“There can (and should) be issues discussed regarding the (always) pending threats to the business. Disagreements better happen in a board meeting. If it is a year of “feel good” meetings then the board is dangerously blind.” –Scott Spurgiez

“The Board employs the CEO, who is responsible for maximizing shareholder wealth. It is common for the Board to also employ other chief executives.” –Jacob Webb

Previous questions:

Pt. 1: What is the purpose of a Board meeting? Why should we have them?

Pt. 2: How long should a Board meeting be?

Pt. 3: Who should do the speaking in a Board meeting and why?

Pt. 4: When is it appropriate, if ever, for someone other than a board member to attend a Board meeting?

Pt. 5: How often should a Board meeting take place?

Pt. 6: What is the most important topic a Board of Directors should address during Board meetings?

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Thinking Thin as Start Up Companies Begin to Die

The economy continues to weed out the weak. Pui-Wing Tam and Ben Worthen of the Wall Street Journal describe the great and terrible shakeout that is happening among start ups. In fact, the average price for each start up sold has dropped from over $50 million in Janaury 2008 to less than $10 million in January 2009. And the problem isn’t limited to just Silicon Valley, either. From CA to NY small companies, particularly high-tech start ups, are struggling to keep their lights on.

In response, owners need to be “thinking thin”. The line between want and need is much more obvious during times of economic drought and entrepreneurs must evaluate this difference before investing in any resource of any size. Think you need that new copier? Think again. Tired of that 3 year-old laptop? Live with it.

I once consulted for a small, venture-backed internet company that provided a distance learning solution for diploma-seeking students. It was an educational experience and I really enjoyed the people who work there. Although, I had somewhat of a cultural shock on my first day that made quite an impression on me. The working space was a large common area. No cubicles. No independent offices. Just one big happy family. The copy machine was sitting on top of the box it came in. The walls were bare–no pictures. There were no expensive desks. No high-priced fixtures. And no designer furniture.

Why would they do such a thing, you ask? Simple. They didn’t need it. They would rather reinvest their discretionary money into making the company more profitable for the stakeholders. And as far as I know, the company is doing well and its top line continues to grow. This experience taught me a lot about the benefits of frugality and responsibility to investors.

I once heard a similar story about Sam Walton, Founder of Walmart. Supposedly, after a company party had ended Walton was seen at the refreshment table consolidating the half-empty bottles of Coke. Why? To save it for the next party. Okay, this anecdote may be only partially true. And while saving refreshments was probably not the reason Wal-Mart has become such a powerful firm, it still serves to remind us of the value and ethics of thinking thin.

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