Leadership Lessons

Beware of Key-Person Dependency Risk

September 7, 2018 By Nagesh Belludi

Key-Person Dependency Risk is the threat posed by an organization or a team’s over-reliance on one or a few individuals.

The key-person has sole custody of some critical institutional knowledge, creativity, reputation, or experience that makes him indispensable to the organization’s business continuity and its future performance. If he/she should leave, the organization suffers the loss of that valued standing and expertise.

Small businesses and start-ups are especially exposed to key-person dependency risk. Tesla, for example, faces a colossal key-man risk—its fate is linked closely to the actions of founder-CEO Elon Musk, who has come under scrutiny lately.

Much of Berkshire Hathaway’s performance over the decades has been based on CEO Warren Buffett’s reputation and his ability to wring remarkable deals from companies in duress. There’s a great deal of prestige in selling one’s business to Buffett. He is irreplaceable; given his remarkable long-term record of accomplishment, it is important that much of what he has built over the years remains intact once he is gone. Buffett has built a strong culture that is likely to endure.

Key Employees are Not Only Assets, but also Large Contingent Liabilities

The most famous “key man” of all time was Apple’s Steve Jobs. Not only was he closely linked to his company’s identity, but he also played a singular role in building Apple into the global consumer-technology powerhouse that it is. Jobs had steered Apple’s culture in a desired direction and groomed his handpicked management team to sustain Apple’s inventive culture after he was gone. Tim Cook, the operations genius who became Apple’s CEO after Jobs died in 2011, has led the company to new heights.

The basic solution to key-person dependency risk is to identify and document critical knowledge of the organization. (Capturing tacit knowledge is not easy when it resides “in the key-person’s head.”) Organizations must also focus on cross-training and succession planning to identify and enable others to develop and perform the same tasks as the key-person.

Idea for Impact: No employee should be indispensable. A well-managed company is never dependent upon the performance of one or a few individuals. As well, no employee should be allowed to hoard knowledge, relationships, or resources to achieve job security.

How to Buy a Small Business // Book Summary of Richard Ruback’s HBR Guide

June 26, 2018 By Nagesh Belludi Leave a Comment

Beyond the capital markets and startups, I’ve been exploring buying a suitable small business to invest in and operate. To inform myself with the process of searching and valuing privately-held establishments, I recently perused Richard Ruback and Royce Yudkoff’s resourceful HBR Guide to Buying a Small Business: Think Big, Buy Small, Own Your Own Company (2017.)

The authors of this HBR Guide teach a popular Harvard Business School class on “acquisition entrepreneurship.” Their curriculum trains self-employment-inclined MBA students to search, negotiate, and buy an established business and become an entrepreneur-CEO within a year or two.

According to the authors, MBA students are drawn to their class by the prospect of a meaningful leadership responsibility earlier in their careers, as opposed to slowly climbing the corporate ladder or taking on the great risk of starting a company from scratch and establishing a viable business model.

The first section of the HBR Guide to Buying a Small Business can help you decide if entrepreneurship is a good match to your temperament, lifestyle, work-experience, and career ambitions. The largest part of the book provides a comprehensive roadmap for all aspects of acquiring a business—bankrolling the search process, deal-sourcing, managing risk, organizing equity- and debt-financing, running due diligence processes, structuring the purchase, and closing the deal. The final section of the book discusses changing the leadership over and transitioning into operating management.

Reflection: Is Acquisition Entrepreneurship Right for You?

Self-employment is not for everyone. Entrepreneurs need to be smart, driven, business-savvy, self-motivated, strategic, resilient, persuasive, and be able to deal with uncertainty.
On top of the challenges of self-employment, acquiring and operating a small-business will require reaching out, projecting self-confidence, and persuading people you don’t know—business brokers, financiers, investors, regulators, sellers, employees, and customers.
During your exploration of what business to buy, you’ll have to quickly learn about unfamiliar industries, markets, and companies. As a leader, you must be able to develop cross-functional expertise quickly.

Searching: A Full-time Job in Itself

Plan to commit full-time for six months to two years to raise funds from financiers, identify and vet potential acquisition targets, and negotiate with sellers on a realistic purchase price. Afterward, plan for no less than three more months to perform due diligence and complete the transaction.
“When you are seeking out a business to buy, you might face months when you work 12 hours a day and simply not find a desirable prospect. It’s a frustrating experience with lots of effort and no reward.”
Arrange for debt and equity financing from potential backers and risk-sharing partners. Contact affluent folks in your network and investors who specialize in small-businesses. The networks of people you bring together to help your mission can also lend a hand during the deal making and the due diligence processes.
To find potential businesses to buy, try reaching out directly to businesses whose owners may be inclined to sell. Engage small business brokers (there’re some 3,000 small business brokers and intermediaries in North America,) or comb through databases of small businesses for sale.
For potential sellers, look for business owners who, after building their firms over the decades, are approaching retirement and don’t have an inheritor interested in running the business. Many aging business owners are determined to ensure that their businesses live on.

Seek Enduringly Profitable Businesses: Recurring Customers and Predictable Revenue

Look for “enduringly profitable businesses”—stable, slow-growth companies in dull-and-boring industries (such as sandblasting, equipment maintenance, industrial repair and overhaul, window-cleaning, service-providers) in small, defensible niche markets.
Seek businesses whose business-to-business customers are unlikely to switch vendors because the product or service their customers buy isn’t a big part of the costs of their business. Consequently, they’re not motivated to shop around for lower-cost vendors and squeeze margins.
Focus on businesses with yearly revenues of $5 million to $15 million and cash flows of $750,000 to $3 million.
Avoid promising start-ups and risky turnaround opportunities; “it is tempting to imagine buying a troubled business or one with uneven performance, because the purchase price would be very low. But we strongly advise against it, because you’ll have to reinvent the business model and doing so is a very difficult and risky endeavor. Instead, buy a profitable business with an established model for success—one that is profitable year after year.”
Avoid high-growth businesses because “high growth means that your new customers will quickly outnumber your existing ones. Because new customers bring new demands, there are many ways to get in trouble. New customers are, well, new; they have no loyalty to the company and no history. High growth requires great management effort. It also absorbs money rapidly, and raising that money puts a strain on the business and its owner. A rapidly growing firm also attracts competitors, which see the expanding market and the opportunity to attract new customers. So, in a high-growth business, you could work hard and still fail if you cannot keep pace with your competitors. And even if your business survives, you might find that competition has forced you to sell at low prices, so you enjoy little financial reward after all. Making this all the harder, the seller will demand a much higher price for a business that has the potential to grow quickly.”
Avoid technology-driven companies (they face shifting customer needs and therefore demand constant reinvention,) cyclical business, and businesses with well-established competitors.
Small business-owners usually don’t hire large consulting firms or investment banks to sell their businesses. Their businesses are too small to appeal to private equity firms. “We think it makes sense to buy a business with between $750,000 and $2.0 million in annual pretax profits. … At the upper end of our size range—$2 million or more in profitability—we find that institutional investors, like smaller private-equity firms, start to become interested and that competition raises the purchase price, reducing the financial benefits of owning the business.”
“EBITDA margin (EBITDA/revenue) ≥ 20% for services and manufacturing or 15% for distribution and wholesale”

A Checklist for Enduringly Profitable Businesses

Initial Filters:

Is the prospect consistently profitable?

Is it an established business instead of a startup or turnaround?

Is it in the right size range?

Is it located in a place you are willing to live?

Do you have the skills to manage it?

Does it fit your lifestyle?

Deeper Filters:

Is the prospect enduringly profitable?

Is the owner serious about selling the business?

Valuing the Company and Negotiating a Deal

Use the company’s past financial information to project future earnings and your return on investment. Then decide on how much you should pay for a small business: “You’ll need to base the offer price on the general range of 3x–5x EBITDA.” Adjust the multiple for profit margins and growth prospects.
Run a primary due diligence—“a focused period of rapid learning in preparation for making an offer. This is when you’ll test the seller’s initial claims and verify the information that has made the business appealing to you. … You’re looking for any reason that you might not want to acquire this business.”
Finance using equity and debt. “Visit banks and approach your investor network to raise money for the acquisition. You should be prepared to provide information about the business and its industry, details on the due diligence that you’ve done, your financial projections, and the deal terms that you are proposing.”
Once your offer has been accepted after negotiations, run a confirmatory due diligence “in which the company’s records will be fully open to you. You will typically have around 90 days to work with your accountant and attorney to check for any inconsistencies and red flags. … This can be an extremely nerve-racking time for both the buyer and the seller, so it’s important to be patient and calm.”

Transitioning into Leadership and Emphasizing Business-as-Usual

As part of the negotiated deal, try to get the seller to stick around for 3 to 6 months to help you in the transition.
“After closing the sale, you should focus on four tasks: introducing yourself to all your managers and employees, meeting with external stakeholders, communicating the transition plan to everyone, and taking control of your cash flow.”
“The most common trouble for small firms under new owners is running out of cash. … So set up a process whereby you approve all payments before they go out, and review your accounts-receivable balances at least weekly. You should also implement a 90-day rolling cash-flow forecast.”
Meet with all the constituencies and reassure them that they won’t see any immediate changes. Lay emphasis on “your overarching goals for the company—for example, excellent customer service, commitment to quality, a satisfying work environment—and encourage people to stay focused on their work.”
Visit every major customer as soon as you can. Keep your ears open for ideas to improve your product- and service-offerings.
Don’t make any big changes early on, get to know the business, and be very respectful of all the constituents—they know more about the business than you do.

Recommendation: Read ‘HBR Guide to Buying a Small Business’ for a Very Good Introduction on How to Buy and Organize Finance for a Business

Richard Ruback and Royce Yudkoff’s HBR Guide to Buying a Small Business is excellent manual for prospective entrepreneurs, employees of small businesses, financiers, and value-seeking investors. You will also become acquainted about interactions with bankers, brokers, sellers, accountants, and attorneys you meet while searching for a business to buy.

Is IBM Becoming Extinct?

April 9, 2018 By Nagesh Belludi Leave a Comment

Change Forces Leaders to See Business Models Afresh and Imagine New Paradigms

The American venture capitalist Guy Kawasaki often tells the following story about the need for entrepreneurs to adapt themselves to emerging market settings and stay relevant.

In the latter part of the nineteenth century, a sizeable ice cutting and trade industry flourished in the US Northeast. Harvesters sawed off blocks of ice from frozen lakes and rivers, and transported and sold them for industrial and commercial consumption around the world. The biggest consignment of natural ice weighed some 200 tons; half of it thawed en route to India, but the remaining 100 tons of ice returned a profit.

In due course, the invention of icemaking machines caused the downfall of the natural ice harvesting industry. Anybody needing ice could purchase artificial ice during any season from ice factories. As a sign of the times, the trade publication Ice Trade Journal changed its name to Refrigerating World.

Subsequently, the emerging popularity of commercial and domestic refrigeration units put the ice factories out of business. Residences, stores, and businesses could make their own ice conveniently and maintain cold storage.

The Best Leaders Anticipate Change and Nurture Their Own Innovations

During the first of the aforementioned disruptions, according to Kawasaki, the ice harvesters did not recognize the benefits of industrial ice-making and did not adapt to the revolution in their industry. Instead, they chose to defend their existing trade—they continued to innovate sawing equipment, invest in efficient storage, and improve their rail- and ship-transportation systems.

Correspondingly, the industrial icemakers of the following generation never embraced or adapted to the emerging advent of consumer refrigeration.

The take away lesson is that many successful companies are so set in their ways that they don’t pivot themselves when they face disruption in their industries.

Successful Companies Can Become Victims of Their Own Success

Kawasaki’s anecdote illustrates how disruption drives many companies into stagnation. Every so often, entire industries vanish into oblivion.

Major economic disruptions can compel companies to question what they stand for. Sadly, many companies choose to defend their existing domains instead of raising their technological edge and reinventing their products, services, and brands.

When the fundamentals of a time-honored business drastically change, the most successful companies are often the slowest to recognize the shifts and pivot. Well-established in the comfort of routine and stability, they entrench deeper into their tried-and-true formulae. As described in Harvard strategy professor Clayton Christenson’s well-known thesis The Innovator’s Dilemma, the strategic inertia often gets companies with at-risk, but established business models into a state of denial. Consequently, they refute the challenges posed by fiery startups.

Can IBM Beat the Odds?

IBM has fought off a technological and economic disruption once before. During the 1980s, IBM fell from glory, but got reborn as a vibrant corporation after Lou Gerstner became CEO in 1993. He redefined IBM’s businesses, fortified its value proposition, and changed the mindset of the company, its employees, and its customers. As Gerstner detailed in his bestselling biography about IBM’s reinvention, Who Says Elephants Can’t Dance?: Inside IBM’s Historic Turnaround (2002,) this was an astonishing achievement given how deeply-rooted IBM was in its existing, but increasingly irrelevant business model.

At present, IBM is struggling in the midst of yet another digital revolution—one that is exemplified by the commoditization of hardware and the enterprise-adoption of cloud computing. Shackled with legacy business models of older, less-differentiated products and services, IBM has struggled to catch-up with cloud platforms offered by Amazon, Microsoft, and Google.

Instead of reckoning honestly with the growing shift to cloud-based services, IBM has concentrated for far too long on its Wall Street-pleasing financial shenanigans (buying back shares to prop up earnings-per-share, cutting costs, firing employees, reducing tax rates, selling less-profitable operations, and the rest.)

The jury is still out on the long-term success of IBM’s much-ballyhooed Watson platform and its cloud computing initiatives. What makes this cycle of disruption worse is that IBM faces aggressive competitors who are pushing profit margins toward zero in a bid to dislodge IBM’s historical footing in the enterprise IT landscape and to establish dominance.

Lessons from Peter Drucker: Quit What You Suck At

March 1, 2018 By Nagesh Belludi 1 Comment

The essence of leadership is risk- and opportunity-assessment and resource allocation. It follows that one of the persistent responsibilities of leadership is to mull over each individual and organizational endeavor and investigate, “Do we produce results that are meaningful and profitable enough for us to justify investing our resources to this purpose?”

Jack Welch’s Strategy for General Electric: #1 or #2 Businesses Only

When Jack Welch became CEO of General Electric (GE) in 1981, he set out to make GE “the world’s most competitive enterprise.” However, the company was a hodgepodge of many businesses—some unrelated or irrelevant, several unprofitable, and a few at the brink of failure.

Management pioneer Peter Drucker famously advised Welch to ask of each constituent of the GE business portfolio he now presided over, “If you weren’t already this business, would you enter it today? And, if the answer is no, what are you going to do about it?”

Welch’s responded with his legendary dictum that every GE division be—or become—the leading or the runner-up business in its respective industry, or plan to exit it completely.

Welch argued that in many markets, the number three, four, five, or six players suffered the most during cyclical downturns. On the contrary, number one or number two businesses could protect their market share by way of aggressive pricing approaches or by developing new products. Welch’s approach portended the emergence of oligopolies in many industries.

The resultant strategic focus eventually led to an immense restructuring of GE. Welch sold or discontinued dozens of divisions—including computers and time-shares. Over the next decade, he cut nearly one in four jobs at GE, warranting the nickname “Neutron Jack.”

By year 2000, GE had reached dominance or near dominance in most of its business markets across the globe.

Peter Drucker on Strategic Reprioritization

Explaining this method of strategic reprioritization, Drucker wrote in Post-Capitalist Society (1993,)

To turn around any institution—whether a business, a labor union, a university, a hospital, or a government—requires always the same three steps:

Abandonment of the things that do not work, the things that have never worked; the things that have outlived their usefulness and their capacity to contribute;

Concentration on the things that do work, the things that produce results, the things that improve the organization’s capacity to perform; and

Analysis of the half successes, half failures. A turnaround requires abandoning whatever does not perform and doing more of whatever does perform.

Drucker further elaborated on abandonment as the keystone for strategic reprioritization in his Five Most Important Questions (2015,)

To abandon anything is always bitterly resisted. People in any organization are always attached to the obsolete—the things that should have worked but did not, the things that once were productive and no longer are. They are most attached to what in an earlier book I called “investments in managerial ego.” Yet abandonment comes first. Until that has been accomplished, little else gets done. The acrimonious and emotional debate over what to abandon holds everybody in its grip. Abandoning anything is thus difficult, but only for a fairly short spell. Rebirth can begin once the dead are buried; six months later, everybody wonders, “Why did it take us so long?”

Idea for Impact: Assess What Endeavors Must Be Intensified or Abandoned

Don’t do—or continue to do—something just because it’s been a tradition, custom, or habit. Strengthen, abandon, or stay on. Align your efforts with your mission, your values, and the results you want to achieve.

If you abandon something important mistakenly, you can quickly pick up where you left off.

Invest your precious resources where the returns are rich.

Figure out what’s vital and stay focused, even if you have to cut your losses (read about sunk costs.)

A Sense of Urgency

December 18, 2017 By Nagesh Belludi Leave a Comment

The most successful managers I know are highly attentive of their colleagues’ sense of urgency and incessantly adapt to them.

In his excellent Steve Jobs biography, Walter Isaacson evokes Apple CEO (and operations wizard) Tim Cook’s responsiveness and a sense of urgency:

At a meeting early in his tenure, Cook was told of a problem with one of Apple’s Chinese suppliers. “This is really bad,” he said. “Someone should be in China driving this.” Thirty minutes later he looked at an operations executive sitting at the table and unemotionally asked, “Why are you still here?” The executive stood up, drove directly to the San Francisco airport, and bought a ticket to China. He became one of Cook’s top deputies.

Idea for Impact: Bosses and customers often respond more positively to your focus on creating a sense of urgency before emerging problems erupt in a crisis.

Choose Your Role Models Carefully

November 17, 2017 By Nagesh Belludi Leave a Comment

Heroes and role models are very useful—they embody a higher plateau of cognitive and emotional truth, knowledge, and accomplishment that you can aspire to.

But the modern world has a dangerous problem with hero-worship: pop artists, rappers, film stars, sportspersons, capitalists, and so on command attention and affection as never before. This 2013 Financial Times article noted, “Way back in 2008, the three most admired personalities in sport were probably Tiger Woods, Lance Armstrong and Oscar Pistorius. They were portrayed not just as great athletes but as great men, role models….” And all these three popular heroes fell from grace.

While admiring and drawing wisdom, meaning, and inspiration from heroes can be constructive, you must take “hero narratives” with a grain of salt. The Buddha warned us not to trust anybody or anything just because it seems logical or it resonates with our feelings. He advised that we test our hypotheses by the results they yield when put into practice and shield our minds against the risk of biases or other limitations of our ability to discern from our experiences wisely. According to the Kalama Sutta, an aphorism of the historical Buddha that has been preserved orally by his followers (translated from the Pali by the eminent American Buddhist monk and prolific author Thanissaro Bhikkhu,)

Now, Kalamas, don’t go by reports, by legends, by traditions, by scripture, by logical conjecture, by inference, by analogies, by agreement through pondering views, by probability, or by the thought, ‘This contemplative is our teacher.’ When you know for yourselves that, ‘These qualities are skillful; these qualities are blameless; these qualities are praised by the wise; these qualities, when adopted & carried out, lead to welfare & to happiness’—then you should enter & remain in them.

Idea for Impact: Don’t blindly place much faith in today’s experts and celebrities. Realize the truth yourself.

An Old Joke about Accounting and Leadership

September 1, 2017 By Nagesh Belludi Leave a Comment

A man in a hot air balloon gets lost over Nebraska. He has no idea where he is or where he is going. He does not see anybody… nothing but farmland as far as the eye can see.

Eventually, he sees a woman down in a field. He goes down and cries out to her, “Where am I? I’m already an hour late for an appointment!”

She hollers back, “You’re at 42 degrees 15 minutes and 4 seconds North latitude and 98 degrees 12 minutes 15 seconds West longitude.”

The man yells out, “You must be an accountant.”

“Hmm … how did you guess?”

“Your information is absolutely precise and accurate … but totally useless.”

“You must be an executive.”

“Yes … but how do you know?”

“You’re higher up, you do not know where you are, you do not know where you’re going, you’re over-scheduled, and you blame your subordinates—someone below you.”

Reference: A Year with Peter Drucker by Joseph A. Maciariello

How to Manage Smart, Powerful Leaders // Book Summary of Jeswald Salacuse’s ‘Leading Leaders’

August 22, 2017 By Nagesh Belludi Leave a Comment

The Most Valuable People are Often the Most Difficult to Manage

As you climb the career ladder, you will find yourself working increasingly with many other powerful leaders—both inside and outside your organization—who hold the key to your success. Often, you may share responsibility and control with a variety of leaders over whom you may lack authority and influence. Compared to others you’ve worked with in the past, many of these leaders will be more talented, ambitious, competitive, accomplished, assertive, controlling, and ego-centric.

According to by Jeswald W. Salacuse’s Leading Leaders (2005), driving change when you lack influence over other leaders requires you to tread carefully. You must employ all the diplomatic and tactical skills at your command. “Your ability to lead other leaders arises not just from your position, resources or charisma, but from your will and skill.”

The Only Way to Lead Leaders is to Do What is in Their Interests

Salacuse’s central idea in Leading Leaders: How to Manage Smart, Talented, Rich, and Powerful People is that your success depends exclusively on your personal ability to negotiate shared and conflicting objectives, and subordinate your interests to theirs. “Move your followers to take action by characterizing a problem or challenge in such a way that it is in their interests to do something about it.”

To do this, you must determine the interests of those you wish to lead and then make it loud and clear to them that you are indeed serving their interests. This requires meticulous listening, reframing of your objectives in terms of their interests, and respecting their authority and autonomy.

Salacuse breaks the challenge down into “seven daily tasks,” each of which takes a chapter in Leading Leaders.

How to Direct and Negotiate the Vision: To negotiate a compelling vision for your organization that other leaders will buy into, decide on your direction for them and then have a strategic conversation on that subject. Lead an open discussion that allows for their enthusiastic participation. Do not impose your new vision from the top. Through a series of premeditated questions, pilot them to your conclusions. Such collaboration ensures that the leaders will own and support the decisions you select for them. Learn to identify those internally influential people relevant to your objectives and appeal to them. “Beware of becoming so intoxicated by your own vision that you fail to see clearly the reservations that members of your organization may have about pursuing that vision enthusiastically.”
How to Integrate and Make Stars a Team: Your job as the leader is to make sure that all the members of your organization understand that they have common values, shared history, and collective interests. Focus on communication. Demonstrate both by word and by deed that you put the interests of the organization above your own. Understand the nature of the cultural differences that may divide your organization’s leaders and then seek to find ways to bridge any gaps. “Deal directly with other leaders who are spoilers by converting them or isolating them.”
How to Mediate and Settle Leadership Conflicts: The more autonomous the other leaders are, the greater the odds of conflict over turf, power, style, and goals. A leader must intervene and mediate when other leaders come to disagreement. When conflicts arise, read between the lines. Observe the adversaries’ interactions, and find ways to improve communication. Look beyond the conflicting parties’ stated positions; probe for deeper interests. Work as a bridge, and find areas of agreement that can resolve the conflict. Consider how you could apply the six mediation power tools (incentives, coercion, expertise, legitimacy, reference, and coalition) most effectively to resolve conflicts. “A mediator, unlike an arbitrator or judge, has no power to impose a solution.”
How to Educate People Who Think They are Already Educated: Approach your teaching role tactfully. Leaders tend to be proud and sensitive—they may begrudge being treated as unqualified, unskilled, or inexperienced. Before you instruct them, make sure you understand their frame of reference. To the maximum extent possible, do your educating one-on-one, rather than in groups. Actively involve and invite their contributions. The command and control method of instructing them will be ineffective. Instead, use the Socratic Method—ask questions that encourage people to discover the truth for themselves. “In leading leaders, the most effective instrument is not an order but the right question.”
How to Motivate and Persuade Other Leaders: Learn as much as you can about other leaders—their backgrounds, interests, and their goals. Design the specific, personalized incentives that will accord with their interests—only individualized incentives persuade people to act in desired ways. Agree on future goals for the short term, medium term, and long term, and show how those goals relate to those of your organization. Be open and transparent with information so everyone knows where they are and where they are going. “Motivate your followers by envisioning a future that will benefit them and communicating that future to them in a convincing way.”
How to Represent Your Organization to the Outside World: As a leader, you are always on the stage. Everything you do will be subject to scrutiny. Your every action and statement, whether in public or in private, can affect your organization’s relationships with the outside world—customers, competitors, regulators, media, investors, and the public in general. Actively manage their perceptions and expectations. If those interests are dysfunctional or unworkable, seek to change or transform them through one-on-one diplomacy. “One of the most important functions that leadership representation serves is the acquisition of needed resources.”
How to Create Trust to Get the Most out of Your Leadership: People will trust you not because of your appeal, charm, or foresight, but because they’ve decided that aligning with your leadership will move their interests forward. Understand the people you lead and know their interests. Manage their expectations and deliver what you’ve promised. Reinforce your communications during problems and crises. Be consistent and predictable in your actions. “Openness is not just an easy smile or a charming manner; it refers to the process by which you make decisions that have implications for your followers’ interests.”

Tact and Diplomacy Matter More When Leading Other Powerful Leaders

Recommendation: Read Jeswald W. Salacuse’s Leading Leaders. This excellent book’s insights make a great template for the basics of executive leadership. You can especially learn how to gain persuasive skills in situations where you may not have much influence.

Beyond the academic pedantry (the author is a professor of law, diplomacy, and negotiation,) the abundant examples from political leadership are far more multifaceted than the narratives in Leading Leaders tend to imply, but they serve as good cases in point.

Leading Leaders offers a matchless resource in documenting what constitutes effective emotional leadership, which is, in spite of everything, all about persuasive power and influence to get things done through people. The key learning point is, “In developing your leadership strategies and tactics, you need to take account of the interests of the persons you would lead. Leading leaders is above all interest-based leadership. Leaders will follow you not because of your position or charisma but because they consider it in their interest. Your job as a leader is to convince them that their interests lie with you.”

Five Signs of Excessive Confidence

June 20, 2017 By Nagesh Belludi Leave a Comment

Confidence is generally a respectable and necessary workplace trait.

However, there is a darker side to confidence.

People who display overconfidence, hubris, and narcissism engage in self-destructive behaviors at work because their self-aggrandizement blinds them from their personal judgment and their managerial and leadership performance.

If you believe you may be displaying any of the following signs of excessive confidence, you need some coaching and feedback. Ask a trusted friend, colleague, or mentor for some honest feedback. Work to change your attitude—promptly.

You tend to believe that your ideas are the only ones worth acting on. When others contribute ideas and suggestions, you tend to turn them off while promoting only the ideas that you come up with. You tend to get angry with others for their unwise and impractical suggestions. You are resistant to learning from others or from previous experiences.
You tend to act on solutions without input from others. You believe that it is up to only you to supply new ideas and solve problems. You are convinced that you are the only one who knows as much as necessary to do the right thing. When others summon up ideas and suggest watch-outs, you tend to brush them off with “I know that” statements.
You tend to express an opinion on everything—even when the topic of interest is outside your area of expertise. You act as if you’ve accepted the reality that you have to work with less-qualified people who just can’t get the right things the right way (i.e. your way.) If only your opinions were considered and if you had your way, your team and company would do “so much better.”
You tend to defend your mistakes and your failures. You don’t recognize your limitations and the mistakes of your ways. You can’t take help. You are closed off to others’ feedback and suggestions for change.
You tend to externalize blame. You’re often a victim of everyone else’s failures or a victim of external circumstances. You gripe that others just don’t understand you or they aren’t qualified enough to see the wisdom of your ways.

If you can’t recognize and accept the problems related to how your behavior comes across to other people, you may be derailing your managerial and leadership potential.

Idea for Impact: Greatness lies in balancing self-assurance with self-effacement. I recommend leadership coach extraordinaire Marshall Goldsmith’s outstanding What Got You Here Won’t Get You There. Addressing already-successful people, Goldsmith describes how personality traits that bring you initial career success could hold you back from going further!

How to Handle Conflict: Disagree and Commit [Lessons from Amazon & ‘The Bezos Way’]

May 5, 2017 By Nagesh Belludi 1 Comment

How Amazon’s Jeff Bezos Propels Innovation

Amazon’s founder and CEO Jeff Bezos once remarked that it takes five to seven years before the innovation seeds that Amazon plants flourish enough to have a significant impact on the economics of the business.

Since its founding in 1994, Amazon has made endless investments in expanding its business models. It has successfully used its money-making ventures to bankroll explorations into peripheral lines of business. Many of its capital allocation decisions haven’t yielded strong profits; yet, Amazon has flourished beyond everyone’s expectations and its growth potential is undeniable.

Central to this innovation strategy has been Bezos and his leadership team’s foresight, early commitment, and stubborn confidence in the prospect of R&D. Under Bezos’s direction and long-term focus, Amazon still operates as a founder-driven start-up in several major areas.

Bezos has a compelling cultural influence and has institutionalized his distinctive entrepreneurial mindset across the company. His core values are codified as Amazon’s 14 Leadership Principles, one of which is “Have Backbone; Disagree and Commit”:

Leaders are obligated to respectfully challenge decisions when they disagree, even when doing so is uncomfortable or exhausting. Leaders have conviction and are tenacious. They do not compromise for the sake of social cohesion. Once a decision is determined, they commit wholly.

“Disagree and Commit”

Jeff Bezos’s latest short-but-compelling annual letter to his shareholders contains pearls of wisdom on leadership, management, and teamwork. Read the letter; it won’t take long.

Speaking about high-velocity decision making in an ingenious culture, Bezos says he encourages Amazon’s leaders and employees to use the phrase “disagree and commit” to disagree respectfully and experiment with ideas:

Use the phrase “disagree and commit.” This phrase will save a lot of time. If you have conviction on a particular direction even though there’s no consensus, it’s helpful to say, “Look, I know we disagree on this but will you gamble with me on it? Disagree and commit?” By the time you’re at this point, no one can know the answer for sure, and you’ll probably get a quick yes.

This isn’t one way. If you’re the boss, you should do this too. I disagree and commit all the time. We recently greenlit a particular Amazon Studios original. I told the team my view: debatable whether it would be interesting enough, complicated to produce, the business terms aren’t that good, and we have lots of other opportunities. They had a completely different opinion and wanted to go ahead. I wrote back right away with “I disagree and commit and hope it becomes the most watched thing we’ve ever made.” Consider how much slower this decision cycle would have been if the team had actually had to convince me rather than simply get my commitment.

Note what this example is not: it’s not me thinking to myself “well, these guys are wrong and missing the point, but this isn’t worth me chasing.” It’s a genuine disagreement of opinion, a candid expression of my view, a chance for the team to weigh my view, and a quick, sincere commitment to go their way. And given that this team has already brought home 11 Emmys, 6 Golden Globes, and 3 Oscars, I’m just glad they let me in the room at all!

Bezos’s “fail-and-learn” refrain echoes what he wrote on risk-taking in Amazon’s first annual shareholder letter in 1997: “Given a 10 percent chance of a 100-times payout, you should take that bet every time … Failure and invention are inseparable twins. To invent you have to experiment, and if you know in advance that it’s going to work, it’s not an experiment.” That letter has become Amazon’s manifesto on the benefits and methods to long-term thinking and Bezos quotes that letter in every year’s annual letter.

To “disagree and commit” compels people to step out of their comfort zones and to sincerely commit to a project’s success. There is no room for sabotage and disruption—neither can people wait in the wings to exclaim “I told you so.” To “disagree and commit” is to be willing to take prudent risks by acknowledging that others may have diverse beliefs, approaches, ideas, and styles.

Idea for Impact: Embrace Failure because it Leads to Innovation

Many people want to be curious, creative, and experimental—they like to take initiative and investigate new products and solutions. But, when facing difficult choices, they’re naturally afraid of what they don’t know. Self-doubt sets in. They resort to safe and predictable processes. This mindset stifles the very inventive approach they want to apply and foster.

Fear of failure and self-doubt are not usually rooted in facts. They’re emotional. Don’t let this emotion make you play it safe. Don’t overthink your way out of challenges. Understand the types and amounts of risks that are acceptable to you. When facing the prospect of failure, you’re more likely to get unstuck by trying low-risk actions. Experiment. Fail. Learn. Innovate.

Success may instill confidence, but failure imparts wisdom.

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