At NAVIX, we know that most business owners’ top goal at exit is to reach financial freedom, which means having enough money so that work is a choice and not an economic necessity. If reaching financial freedom is the number one goal at exit, then your Exit Magic Number™ – the net amount needed to get there – is the most important number to know. So, what’s the second most important number to help you prepare for exit? Your company’s adjusted EBITDA. Unfortunately, many owners either do not know this number or calculate it incorrectly. Here’s why.

If you intend to sell your business at exit, potential buyers will typically look to your company’s adjusted EBITDA to determine their offer price. EBITDA stands for Earnings Before Interest, Taxes, Depreciation and Amortization. Contrary to misconception, it does not really calculate a company’s profitability. However, buyers put such importance on EBITDA because it shows the company’s current earnings power. EBITDA, in essence, ignores a company’s current ownership issues (debt, tax structure, and depreciation and amortization, which are all largely the byproduct of past capital investment and acquisition decisions) to isolate the company’s current cash flow.

You don’t have to calculate or track your company’s EBITDA; it’s not required to complete your tax returns. You probably tend to focus more on top line growth. Yet for most buyers, EBITDA is the first and most important step in determining what they will pay for a company they seek to purchase.

So if that’s EBITDA, then what is adjusted EBITDA?

Well, like many business owners, you might not always make decisions that maximize your company’s EBITDA. Sometimes, you have other motives and priorities. For example, if your salary exceeds what you would pay somebody else to do your job, your extra above-market rate compensation is lowering the company’s earnings, hence lowering EBITDA. The same thing happens if you enjoy significant tax-deductible ownership-related perks such as company cars, expense accounts, travel reimbursement, and family members on payroll for generous amounts. All of these discretionary expenses depress the EBITDA, but most likely you don’t mind since they also lower your tax bill each year.

Other business decisions may cause EBITDA to be artificially overstated. For example, if you are paying yourself a below-market salary, either to free up money to grow the company, or because you take the lion’s share of your income from the company in the form of profit distributions, the EBITDA may be higher than it otherwise would be if you were paying yourself market-rate wages.

It’s not just owner compensation and perks that can influence EBITDA. Other issues can impact your EBITDA one way or another, including: accounting methods, benefits programs, leases on space or equipment, and product development costs. As a result, many if not most privately-held companies either do not track their EBITDA, or if they do, EBITDA has not been “normalized” to reflect other business decisions and issues that may understate or overstate the figure.

An adjusted EBITDA therefore involves carefully reviewing these issues and calculating a truer picture of the earnings, as if the company was owned by somebody other than you. Items that artificially understate EBITDA are “added-back” into the figure and any items that artificially overstate EBITDA (“negative add-backs”) are factored in as well.

None of this may matter until you get to the point where you intend to exit within the next several years. If you intend to sell your business at exit, accurately presenting the company’s adjusted EBITDA is paramount. Because buyers typically want to see the prior three full years’ financial statements, owners need to begin calculating their adjusted EBITDA well before they intend to exit—we recommend at least five years before the desired exit, in case you sell more quickly than planned.

Unfortunately, too many companies do not accurately calculate their adjusted EBITDA. Adjusting the EBITDA properly and thoroughly requires somebody with experience preparing companies for sale; many small to mid-sized company bookkeepers and controllers lack this experience. If you get close to exit and don’t know your true adjusted EBITDA, then any of the following problems can occur:

• If your EBITDA is artificially understated, as is common, offers from buyers will be much lower than otherwise possible. For example, if a buyer is offering to pay five times the earnings for your company, then every $1.00 that your EBITDA is understated will cost you as much as $5.00 off your sale price.
• If your EBITDA is overstated, this will likely come out during negotiation or the due diligence process, throwing a rather large wrench into your plans to sell the company for a certain price. For example, a buyer paying five times the earnings may reduce its offer price by $5.00 for every $1.00 that EBITDA is discovered to be overstated.
• Whether under- or overstated, if you and the potential buyer cannot agree on what the accurate adjusted EBITDA is, it will be hard to reach agreement on other important figures, undermining your chance to sell the business at all.

When owners do not accurately know their company’s adjusted EBITDA, one more problem commonly occurs. If a potential buyer unexpectedly comes knocking on your door via an unsolicited email or phone call inquiring if you wish to sell, you should not share any financial data before you can produce an accurate adjusted EBITDA. Prematurely sharing inaccurate or non-adjusted EBITDA figures gets the process with this potential buyer off on the wrong foot from the very first step.

Knowing your adjusted EBITDA in advance is fundamental to a successful sale. At NAVIX, our clients know their adjusted EBITDA, as well as other key financial figures and metrics needed to prepare a company for sale to an outside buyer.

To learn what it takes to prepare your company for sale, and to help you get ready for exit, contact us for a complimentary, confidential 45-minute consultation, at your convenience contact Tim 772-221-4499.

Periodically, I share a favorite book review from Readitfor.me. There is never enough time to read all the latest books – this tool is a great way to learn and to stay on top of the latest topics and new ideas.

Your Team is your greatest resource. Recognizing each member’s abilities and fostering their growth to full potential will grow your Team’s Strength.

This review of Build an A Team   by: Whitney Johnson outlines the “S Cures” of learning that you can use to strengthen your team to reach peak productivity. 

Build an A Team
by: Whitney Johnson

Book Review by ReadItFor.me

Disruptive innovation, at its simplest, explains how low-end industry insurgents take on—and eventually outcompete—high-end incumbents who seemingly should have known better Things take traction and the David beats the Goliath.

It is now generally accepted that disruptive innovation underpins the invention of new products and services. Less generally recognized, is that personal disruption in the workplace—the movement of people from one learning curve to the next, one challenge to another—can drive learning, engagement, and even innovation. Johnson claims we can build an A Team this way. Let’s explore how.

The S curve of learning

The S curve of learning represents three distinct phases:

1. The low end, involving a challenging and slow push for competence.
2. The up-swinging back of the curve, where competence is achieved, and progress is rapid.
3. The high end of the curve, where competence has evolved into mastery and can quickly devolve into boredom and disengagement.

An A-Team Is a Collection of Learning Curves 

Johnson challenges us to visualize our team as a collection of people at different points on their own personal S curves. New team members will be at the low end of their curve for approximately six months depending on the difficulty and aptitude. At the six-month mark, they should be hitting the tipping point and moving onto the steep back of their learning curve. During this second phase, they’ll reach peak productivity, which is where they should stay for three to four years. At around the four-year mark, they will have made the push into mastery. In the mastery phase, an employee performs every task with ease and confidence. But ease, and even confidence, can quickly deteriorate into boredom without the motivation of a new challenge. It is  time for them to jump to a new learning curve.

Accelerants of Learning And Growth 

Johnson gives us pointers to progress on how to get the right Team on the right Learning S-curves.

Johnson challenges us to visualize our team as a collection of people at different points on their own personal S curves. New team members will be at the low end of their curve for approximately six months depending on the difficulty and aptitude. At the six-month mark, they should be hitting the tipping point and moving onto the steep back of their learning curve. During this second phase, they’ll reach peak productivity, which is where they should stay for three to four years. At around the four-year mark, they will have made the push into mastery. In the mastery phase, an employee performs every task with ease and confidence. But ease, and even confidence, can quickly deteriorate into boredom without the motivation of a new challenge. It is  time for them to jump to a new learning curve.

Accelerants of Learning And Growth 

Johnson gives us pointers to progress on how to get the right Team on the right Learning S-curves.

1.Identify the Right Risks 
What needs aren’t being met on your team? Does it make sense to redistribute responsibilities? Create a new role? Would more high-quality candidates be available if you looked beyond the spec of the current job? As a manager your job is to mitigate the risk of disruption, not to plug gaps with human resource plugs.

2. Play to Individuals’ Distinctive Strengths 
What does each person do well that other people on the team do not, and what sorts of problems do those strengths equip them to solve? As a manager, your job is to pinpoint what people do uniquely well and pit these abilities against assignments that make their strengths relevant

3. Stepping Backward Is a Way to Move Forward 
Why would an employee be motivated to step back from success in a role while resting on their laurels at the top of the curve, enjoying privilege and entitlement? Because stepping back is your slingshot to moving further forward and contributing more. Pull back and accelerate further.

4. Give Failure Its Due 
At the low end of the curve, when you hire within the organization you must expect staff to flounder. This gives them support for learning, allowing them to quickly engage in the actual work. With employees in the sweet spot of the S curve it can be harder. You may want to shield them from failure, but when tasked with undemanding assignments their confidence begins to falter. Give them stretch goals to keep the edge.

5. Encourage Discovery-Driven Growth 
With discovery driven growth the initial plan is skeletal and is fleshed out as feedback rolls in. We can use this approach when managing people. As you learn about a person’s capabilities you can redeploy them to improve the match between strengths and unmet business needs. Job descriptions should be deliberately vague attracting talented prospects who can contribute now, while offering potential unexplored roles.

Hire People Who Can Grow on the Job 

Begin by reminding yourself that the goal is to approach human resources as raw materials rather than as finished products, the same way you would handle other resources. Johnson suggests we consider the following.

1. Identify the tasks you want a new hire to perform. Don’t accept that it has to stay as it currently is. Genuinely understand what you are looking for, then make the effort to find it.
2. Do a team check: consider how the new role will affect the team. How might a new hire enhance the capacities your team already has? Where are the gaps in good team compatibility?
3. Do a sanity check: identify your motivation for the new hire.  Having identified these, may require an adjustment to expectations. If we onboard someone who can do the functional job but can’t do the emotional job, we won’t be satisfied no matter what they do.
4. Write the right job specification. The target should be to attract talented people who are qualified to onboard at the low end of the job’s learning curve. They won’t be experts, but they will have what it takes to learn and grow into other roles. If we inflate the necessary qualifications to attract the crème-de-la crème we will get a candidate who will become disinterested within the first few months of employment.

Managing the Hungry New Hire 

New hires need a vision. Understanding why their job is important will aid them through early stage difficult days. Initially they may struggle and try your patience. You may even wonder why you hired them. But you can increase their odds of moving up the learning curve by laying out a vision from the outset. Just as your new employee needs to understand the company’s vision, you’ll want to understand theirs. Find out what they are trying to accomplish as a person and how this new role fits with their goals, as well as what they anticipate they will need from you to be successful.

As your employees share their goals with you, clarify expectation that progression by learning is important. Be explicit: I am here to help you help me get my job done. Here’s how. I will then reward you for your contributions. And here’s how I’ll do that. Get your new hire’s perspective on your operation. Being able to hear the contrary ideas of others allows us to move more quickly up the learning curve. Learn to solicit ideas and opinions from newcomers who aren’t yet blind through familiarity. Future performance and innovation may hinge on it.

Be a Chief Encouragement Officer. Feeling the agitation or disapproval of the boss can cause concern. Remember staff took this job and will stay in this job—or not—largely because of the leader. If you can make them feel safe and acknowledge their efforts, even when imperfect, you’re sitting on a gold mine.

Playing to Sweet Spot Strengths 

Sweet-spot employees are confident in their abilities, having moved past the daily struggle at the low end of the curve. Yet it is common for managers to be reluctant to provide these employees with stretch assignments. Maybe you don’t want to discourage or derail them. But experiencing a genuine risk of failure – working under pressure – is what motivates most of us to step up to the plate. Allow, and even generate, pressure. In the case of your sweet-spot employees, consider imposing constraints that fall into the following categories:

• Time – A task that is less demanding becomes a major challenge if you impose a tight deadline. Here are some questions to ask your employees, and yourself. To hit annual targets in nine months instead of twelve, what would you do differently? If you were going to be away for three months, what would you do to make sure things could run without you? What are the most important priorities? Which things aren’t as important? What must you absolutely get done so that your manager can advocate for your jump to a new curve? 
• Money – Trim back the expenditure on the team. Ask questions such as: If your business unit had to be profitable as a stand-alone entity, what would your business model be? If you only had half of the current marketing budget, what would you do differently? If you had to assemble an A-team with only 80% of your current budget, what would you do? 
• Expertise – Exploit their deep understanding. Ask: If you were CEO for a day and ran the company based on your area of expertise, what would you change? What if everyone on your team were new? No experts, only novices. What would you do differently? 

Managing Masters 

Here’s the challenge: after months, maybe years of investment, our employee shoots up the learning curve. They have become our go-to person, willing and able to do whatever is asked. We’ve become accustomed to an outsized return on their effort. Why would we push them to try something new, when we’re still reaping the rewards of our investment? As growth peaks and flattens out, if change isn’t on the horizon, our high performer may become a low performer. This is seldom intentional, but it happens anyway, either because they feel stymied or because work has become too easy, and routine is boring.

Have Your Best Workers Share What They Know 

High-end-of-the-curve employees are sought after assets internally but even more so externally. So how can you manage (and keep) this human resource you’ve worked hard to develop in a way that will work for your organization, your team, and you? There are three important roles they can play:

Pacesetters: pushing low-enders to excel. Put your top performers to good use by showing low-enders what success looks like.

Trainers: conveying corporate memory. Have the top enders create their legacy in the creation of the Organisational Encyclopaedia – The business Book of Knowledge.

Mentors: the benefits of mentoring offer a fresh angle on the job for someone who may be a bit idle while they await the jump to a new curve, and it disperses the training responsibility through a wider pool of talent.

Keeping Masters Engaged

The goal is always to retain talent, but the more people achieve seniority, the more it becomes a challenge. Not everyone can go up. But it is also true that “up” isn’t the only way up: a lot of learning and growth can happen in lateral moves that may give employees the perfect skill set to forge ahead. If lateral moves carry some stigma, then backward moves are often seen as even more so. We tend to assume something’s wrong with someone who takes a step back. But sometimes taking a step back is exactly the right move. Like the slingshot, we pull back to get the momentum we need to catapult forward.

Shake Things Up 

Managing people as a series of S curves requires a disruptive mindset on your part. Here are some important questions Johnson says we should consider.
How can I shake up employees or teams who have become set in their ways? What goals might be accomplished by shifting people into different roles? How can I create a company culture that encourages and even insists on curve jumping? 

Where to Climb When You’re at the Top

For some employees, there may not be a next curve to jump to within the organization, especially those who are approaching retirement. Data tells us that more people are choosing to work past traditional retirement milestones. Some may have the work-life bandwidth remaining to tackle entirely new learning curves, others may not. Efforts to accommodate their needs, perhaps part-time or remote work can keep them contributing at great benefit to everyone involved. Many will be willing to discuss adjustments to compensation that will maintain their high value to the firm while allowing them more flexibility to pursue noncareer objectives. The key is to think creatively. Years of experience is a human resource not to be wasted.

Conclusion

Team Strength DISC

Team Strength DISC is a simple, practical, powerful tool used to understand people. It focuses on individual patterns of external, observable behaviors and measures the intensity of characteristics using scales of directness and openness for each of the four styles:

Dominance
Influence
Steadiness
Conscientious

Using the Team Strength DISC model, it is easy to identify and understand our own style, recognize and cognitively adapt to different styles. The Team Strength charting app makes it easy to develop a process to communicate more effectively with others.

Team Strength DISC a tool to:

• Demystify behaviors
• Improve communications
• Develop strong teams
• Build better relationships
• Facilitate conflict resolution
• Self-growth

Team Strength DISC provides tools to help you become a better you – to develop and use more of your natural strengths while recognizing, improving upon, and modifying your limitations. Then, because we can easily see and hear these behaviors, we can quickly and accurately “read” other people and use our knowledge to enhance communication and grow our relationships.
Historical and contemporary research reveal more than a dozen various models of our behavioral differences, but many share one common thread: the grouping of behavior into four basic categories:

Dominance, Influence, Steadiness, and Conscientious.

There is no “best” style. Each style has its unique strengths and opportunities for continuing improvement and growth.

BEHAVIORAL STYLES

Historical and contemporary research reveal more than a dozen various models of our behavioral differences, but many share one common thread: the grouping of behavior into four basic categories.

The Team Strength DISC styles are Dominance, Influence, Steadiness, and Conscientious. There is no “best” style. Each style has its unique strengths and opportunities for continuing improvement and growth.

The assessment examines external and easily observable behaviors and measures tendencies using scales of directness and openness that each style exhibits.

This is part one of the Team Strength DISC Profiles Series.

Please share this with a friend/colleague

By: Patrick Ungashick

Your company’s buy-sell agreement may be one of the most important legal documents in your life. It may not seem or feel that way most of the time, but if and when you need that agreement, it can either save you huge sums of money and incalculable stress and suffering, or it can cause you to lose huge sums of money and suffer incalculable stress. The outcome depends on whether or not your buy-sell agreement is well designed, or not. And, unfortunately many buy-sell agreements make one or more of several surprisingly common mistakes.

Quickly – What is a Buy-Sell Agreement

Buy-sell agreements (also commonly called shareholder agreements or member interest agreements) are legal documents that identify situations where ownership in the company may change hands, and then provide instructions on how to handle each case. The most familiar example is what happens upon the death of a partner. A buy-sell agreement usually requires the deceased owner’s heirs to sell the interest back to the company or the surviving owner(s) and at a specified price. This provision protects everybody: the deceased owner’s heirs receive a cash payout while the remaining owner(s) move forward without unwanted business partners. Most buy-sell agreements have provisions to address a shareholder’s death or other triggering events, such as retirement or severe disability.

Mistake #1 – Not Address the Sale of the Company

The first common mistake deals with a triggering event that many buy-sell agreements do not address—the sale of the company. If you wish to exit by way of sale, but one or more of your co-owners don’t want to sell, typically you cannot make them sell their portion of your company if your buy-sell agreement does not directly address this scenario. So, if a co-owner does not want to sell, then you might not be able to sell either. Most buyers will not want to acquire less than 100% of a company, particularly, when one of the owners was already opposed to the deal.

This reality often comes as an unwelcome surprise to owners seeking to exit. Some owners only learn their partners can block a sale when a potential buyer is standing in the doorway, and they discover that the buy-sell agreement does not address a sale. This omission leaves business co-owners at risk. To fill in the gaps, be sure your agreement includes “drag-along” and “tag-along” rights. These odd-sounding provisions bind co-owners together when selling the business to an outside buyer. The “drag-along” part requires that if a majority of the owner(s) decide to sell the company, all of the other owners are required to join the deal. This clause protects majority co-owners against minority co-owners holding up a sale. “Tag-along” is the reverse—majority co-owner(s) cannot sell their interest without tagging along and including the minority owners at the same price and terms. This stipulation protects minority co-owners from being left out of any deal. Together, these provisions bind all the co-owners into a single block and restore the majority owner’s control over the decision to sell the entire business.

If you wait until a buyer is standing in your doorway to address this, you run the serious risk of undermining or killing your deal.

Mistake #2 – Inadequate Valuation Method

The second common mistake is the buy-sell agreement uses a valuation method that produces an undesirable outcome or price, or both. Every buy-sell agreement will have some provision for determining the value of the company (or a partial interest in the company) upon a triggering event. There are several commonly used methods, with the three most common being:

• Defining a fixed price (“The company is worth $10 million”)
• Setting a formula (“The company is worth five times EBITDA”)
• Calling for and performing a formal business validation upon a triggering event

It is possible to define reasonable scenarios where any of these methods would be a good or a poor fit to accomplish what the business owners need. So, while some professional advisors will clearly advocate one approach over another, each method offers significant advantages and disadvantages, so there is no one-size-fits-all answer to which valuation method should be used.

Instead, owners (and their advisors) must do two things on this issue, both of which commonly get overlooked. First, the different valuation methods need to be discussed and carefully weighed to determine which fits best for your situation. This analysis rarely gets done, which is both dangerous and unnecessary because the question typically only takes a little time to evaluate and answer.

Second, the valuation method selected today needs to be reviewed and updated over time. Frustratingly, that rarely happens. Few owners get excited about “reviewing and updating my buy-sell agreement” as a project or task, for understandable reasons. However, over time, the valuation method used in your buy-sell agreement likely gets less and less current and relevant to meet your new reality. Then, one day, a triggering event occurs. At that point, it’s too late to make a change, and the obsolete valuation method or price can do more harm than good.

Mistake #3 – Bad Form

Exactly how does the buy-sell agreement work upon a triggering event is crucial, and there are different forms of agreements. For example, assume one owner dies. The buy-sell agreement calls for the deceased owner’s heirs or estate to sell that interest in the company, as you would expect. However, how will that purchase occur? For example, does the company purchase the deceased owner’s interest? Or, do the remaining owner(s) acquire the interest? Or can they split it? The buy-sell agreement’s form will answer this question, and the question typically has significant financial and tax considerations.

The different types of buy-sell forms typically include:

• Entity purchase (the company buys back the stock or units)
• Cross purchase (the remaining owners buy the stock or units)
• Wait-and-see (a combination of the two)

While there are exceptions, in most situations, a wait-and-see method offers the most advantages with few if any disadvantages. Ironically it seems to be the least commonly used form in our experiences. Under this method, the legal agreement does not predetermine who or what will be the buyer—the agreement will “wait and see.” The legal document usually accomplishes this by giving the business the first option to purchase the interest within a narrow window of time, such as thirty days. If this time period expires with no purchase, then the option shifts to specified individuals (such as remaining owners) to make the purchase. If these individuals do not purchase the interest within the second time period, then usually the agreement concludes that the third and final step is the business must purchase the interest. The wait-and-see sequence (easy to remember as Business-Owners-Business or BOB) gives owners and advisors flexibility to determine the best course of action upon a triggering event.

Avoiding Oops

Buy-sell agreements are critically important documents that, when triggered, can either cause a disaster or rescue you from one. You cannot afford to wait until a triggering event occurs, to discover that the agreement is lacking in some way.

If you have questions about your agreement, contact us for a complimentary and confidential consultation to discuss or review your existing agreement. Better to know about and fix a small oops now.

If you have a quick question coming out of this article or, if you want to discuss your situation in more detail, we can set up a confidential and complimentary phone consultation at your convenience contact Tim 772-221-4499.

The Ultimate Question 2.0

By Fred Reichheld

There is one question that can help you define a great customer experience, leading to more customer loyalty and profits. Learn what it is and start using it today.

Readitfor.me Book Review

We all want our customers to be happy. And we all know that happy customers is the only way to create long-term success in business.

The challenge is to understand how customers are feeling and how to create a customer experience that delivers more happiness and less frustration.

Traditional surveys aren’t up to the task. There are too many questions, and instead of action, they inspire paralysis by analysis.

Financial reports don’t help us either because they don’t distinguish between, as Fred Reichheld calls them, “good profits” and “bad profits.”

This book is all about asking a deceivingly simple question, calculating a score, and then taking actions to increase your score. It’s simple, and that’s why it works.

The Questions

The system that Reichheld suggests we use in order to increase customer loyalty is called the Net Promoter System (NPS for short).

The system has us ask 2 simple questions and then use the answers to create our path forward.

First, you ask the Ultimate Question, which is:

On a scale from 0 to 10, how likely is it that you would recommend us (or this product/services/brand) to a friend or a colleague?

Next, you ask a follow up question:

What is the primary reason for your score?

This open-ended follow up question allows you to hear the reasons for the score in the customers’ own words. This is important, because it avoids the leading questions that are often built into the customer loyalty questionnaires.

Promoters, Passives and Detractors

After asking the two questions, you sort people into different buckets based on their answers.

Promoters

These are people who answer the Ultimate Question with a 9 or a 10. This is a signal that their lives have been enriched by doing business with your company. They typically make repeat purchases and give your company a larger amount of their spending. They are also big word of mouth advocates and tell their friends, family and colleagues about their experience.

The goal is to have as many of our ycustomers be Promoters as possible.

Passives

These are people who answer the Ultimate Question with a 7 or 8. They are satisfied customers, but not loyal customers. The behaviours you see from these customers are different. They don’t make many referrals, and the ones they do make are not enthusiastic. If a competitor runs a promotion, they are likely to defect. These are customers that you cannot bank on sticking around for the long-run.

Detractors

These are people who answer the Ultimate Question with a 6 or below. They are the reverse of the Promoters – their lives have been diminished by doing business with your company. They are completely dissatisfied with their experience, and are likely to tell their networks about it.

Calculating Your Net Promoter Score

Now that you have figured out which buckets your customers go in, it’s time to calculate your Net Promoter Score.

This calculation is very simple as well:

NPS = % of Promoters – % of Detractors

Now that we’ve covered exactly what the Net Promoter Score is and how you calculate it, let’s move into why you should use this at your company, and exactly how to implement it.

Two reasons to use NPS

The Net Promoter System is based on two pillars – economic and inspirational.

The economic pillar of NPS is about understanding why it makes business sense to invest in customer loyalty, and what the ROI is on creating more Promoters and less Detractors. If you’re not the person in charge of the finances at your company, they you need to build the case for the person that is (usually the CFO). We’ll cover the economic reasons to use NPS in the next section.

The inspirational pillar of NPS is about helping enrich the lives of the people at our company by putting the Golden Rule at the centre of your decision making process. You’ve heard from many other books and experts how important it is to help your team find purpose in their work – treating others as you’d like to be treated as a customer is a concrete and tangible way to do it.

Good Profits/Bad Profits

At the core of the Net Promoter System is the idea that good profits are better than bad profits in the long-run, and that you use NPS to get more good, less bad.

Bad Profits

Bad profits are the ones earned at the expense of the customer. They are about extracting value from customers, not creating value for them.

They show up in many different ways. For instance, discounts, sales promotions and expensive advertising lead to a profit squeeze, which usually leads to more discounts, sales promotions and expensive advertising. It’s focussing on the wrong end of the problem.

The consequences of relying on bad profits are enormous. They blacken your reputation, and they alienate customers and employees alike. They make you vulnerable to competitors. The ultimately lead to poor results over the long run.

Good Profits

Good profits, you might have already guessed, come from loyal customers.

These customers ultimately lead to great business results over the long-run. A great example of this is Costco, which is the leader in customer-loyalty among warehouse retailers. They went from start-up to a Fortune 50 behemoth in less than 20 years. How much did they spend on advertising and marketing? Almost nothing. Their customers are so loyal that they have depended almost entirely on word-of-mouth for its growth.

Ok, but just exactly how much are they worth?

Now that we’ve covered the general, let’s get to the specific.

The first thing you need to do in order to calculate exactly what Promoters are worth to your business is to figure out the lifetime value of your average customer.

Then, using that as your baseline, calculate the same thing for your Promoters, Passives and Detractors. If you are like most businesses that go through this exercise, you’ll find that the lifetime value of Promoters are worth much more to your business.

There are many different business metrics at the heart of why this is the case:

• Retention rate. Promoters stick around at a much higher rate. This also means that your customer acquisition costs get spread out over a longer lifetime, leading to a more profitable customer.
• Pricing. Promoters are more often less price sensitive than Detractors, which means that you don’t have to rely on discounts and expensive marketing campaigns to keep them.
• Annual spend. Promoters spend more of their money with you than Detractors do.
• Cost efficiencies. You already know this intuitively – your best customers require the least amount of time and attention. So, they actually cost you less than Detractors.
• Word of mouth. Between 80 and 90 percent of positive referrals come from Promoters. So, each Promoter is not only worth the revenue you generate from them, but from the revenue you generate from the referrals they make as well. And to make this element even more powerful, the people that Promoters refer to your business are much more likely to become Promoters themselves than customers that find you through more traditional means.

Even if you can’t come up with an exact figure around how much a Promoter is worth to your business right now, you can estimate. For instance, a bank that worked with Bain & Co on a Net Promoter project calculated that they are worth $9,500 more to the bank than a Detractor.

On the other hand, Detractors are responsible for 80 to 90 percent of negative word of mouth, and actually have a negative lifetime value to your company. You can see why you’ll want to figure out how to not acquire these people as customers in the first place.

8 Principles of using NPS systematically

If you are going to use NPS in your business, there are principles that the authors have learned through hundreds of successful implementations that you’ll want to keep in mind.

Principle 1: Ask the Ultimate Question and very little else

The tendency of most people who use NPS for the first time is to want to add in a bunch of other questions. If you do want more detail after you’ve asked the Ultimate Question and one follow up (which should focus on having the person explain their score, or suggesting improvements that would make it more likely for people to recommend), the appropriate action to take is to call the person and interview them.

Principle 2: Choose a scale and stick to it

The 0 to 10 scale has many advantages. It makes intuitive sense, most of the world uses it as a measuring stick (like in hospitals asking about the severity of pain), and makes it easy to spot differences in behavior that a 5 point scale would miss.

Principle 3: Avoid confusion between internal scores (‘bottom-up’ or ‘touchpoint’) and external scores (top-down, benchmark or ‘relationship’ scores)

Larger companies will sometimes have external firms to do random checks on customers to produce a score that can be compared to customers of a competitor. These are helpful to benchmark performance, but they are not the same thing as the scores generated after specific touchpoints, like asking the question to a customer soon after they purchase. These touchpoint surveys are where you’ll find the “golden nuggets” you need to fine tune every part of your customer experience.

Principle 4: Aim for high response rates from the right customers

It would be great to get feedback from all customers, but you should begin with the customers you care most about – your core or target customers. The goal of NPS is to predict hard, quantifiable behaviors, and for that you need large sample sizes.

Reichheld suggests that if your survey response rates are lower than 65 percent, your process needs to improve. There’s a good reason for this. There’s a tendency for people to assume that the distribution of non-responders are like the distribution of responders. However, that’s not true. Non-responders tend to be Passives or Detractors, so a low response rate will almost certainly show you a better NPS score than you really have.

Principle 5: Report and discuss NPS data as frequently as financial data

If you only measure and discuss your NPS scores once a year or quarter, nobody will pay attention to it except when the results come out. Which, of course, is not often enough to drive the changes in your business that will lead to more Promoters and less Detractors.

Principle 6: Learn faster and improve accountability with more granular data

There are two things you can do to create more granular data.

First, you can ask the Ultimate Question at each customer touchpoint. For instance, after a customer service call, you could ask the customer whether or not you resolved their problem, and then the Ultimate Question.

Second, and this follows from the first, you should empower everybody in the organization that touches the customer to collect the information and insights needed to change internal behaviors.

Then, you hold the people responsible for those interactions for increasing the NPS associated with those interactions.

Principle 7: Audit to Ensure Accuracy and Freedom from Bias

The closer you get to granular insight and accountability, the more bias will creep into the process. Every time I buy a car I’m reminded by the sales rep that “anything less than a perfect score on the customer satisfaction report is considered a failure, so please give me a perfect score.”

There are multiple sources of bias which you’ll need to fight against, but one of the easiest ways to do that is to use a software system and email deployments to collect the information. If you do need to use phone calls to collect the information, using a third-party to do them will help eliminate most of the bias.

Principle 8: Validate that Scores Link to Behaviours

Finally, the entire purpose of the NPS process is to ensure that you are generating more of the customer loyalty-type behaviors that drive business results – referrals, buying more and taking time to give constructive feedback.

For instance, check in periodically with the people who are giving you 9s and 10s on the surveys to ensure that they are making referrals, buying more and giving you constructive feedback. If they are not, you need to revise the way you gather feedback until you are seeing the scores and expected behaviors lining up.

Closing the Loop with Customers

Finally, in order to make NPS a successful part of your daily workflow, you need to close the loop with customers.

Closing the loop on the front line level means following up with as many Detractors as possible to identify any insights you can gain into why their experience was a negative one. Once you’ve pooled the insights, make decisions on what needs to change and make sure all front-line staff are notified of those changes.

Closing the loop for mid-level managers means using feedback from your Promoters to create products and services that are designed to attract and retain more Promoters.

Please share this with a friend/colleague

The Upside of Stress

By: Kelly McGonigal

Periodically, I share a favorite book review from Readitfor.me.

There is never enough time to read all the latest books – this tool is a great way to learn and to stay on top of the latest topics and new ideas.

The Readitfor.me tool has grown into a great resource for both personal and team growth, offering book summaries, micro courses and master classes. Check out this link: Readitfor.me. See how these tools can help build you personal and Team Strength.

Here is a summary of the Book
The Upside of Stress
 by Kelly McGonigal

Book Review by Readitfor.me

As it turns out, whether or not stress is harmful has a lot to do with how you view it.

Read on to learn how to change your mindset about stress.

Stress is bad for you, right?

As Kelly McGonigal tells us in this fascinating book, the research that scientists have done on stress tell a slightly different story.

As it turns out, whether or not stress is harmful has a lot to do with how you view it.

Consider the following research findings comparing people who view stress as harmful to people who view stress an enhancing.

People who believe stress is enhancing are less depressed and more satisfied with their lives than people who view stress as harmful. They have more energy and less health issues. They are more productive at work and are happier doing it. They also have a greater confidence in their ability to cope with challenges, and even find meaning in difficult circumstances.

That’s a pretty long list of benefits just for changing your mind about what stress means to you.

Join us for the next 12 minutes as we explore what stress actually is, and how you can completely change your relationship with it.

You might even learn how to harness the stress in your life to create a more meaningful, fulfilling life.

Let’s get started.

What is stress?

We first need to start with an understanding of what stress actually is. When you are feeling stress, your body releases cortisol and adrenaline.

From an evolutionary perspective, this stress response is designed to help you. But – like stress in general – it is more feared than appreciated. We’ve come to associate stress as toxic a state which we should try to minimize as much as possible.

But, as we’ll describe as we work our way through this book, your stress response is a resource to rely on rather than an enemy to eliminate.

How stress got a bad name

We won’t spend much time on this section. Basically, a scientist by the name of Hans Selye did a lot of stress research in the 1930s and 40s that showed that stress caused negative physical reactions.

He became known as the Grandfather of Stress, and was nominated for the Nobel Prize ten times, and devoted his life to spreading the word about his research, leading us all to believe that stress is toxic.

The problem is that all of his research was performed on rats, and in situations that bear little resemblance to everyday human stress.

This is what a typical day looked like for one of Selye’s lab rats. You’d start off with unpredictable, uncontrollable shocks. Then you’d get thrown in a bucket of water and forced to swim until you started to drown. Then, finally, you’d get put into an overcrowded cage with other rats where you would fight over an inadequate supply of food.

That, McGonigal rightly points out, isn’t stress – that’s the Hunger Games for rodents.

Nonetheless, Selye made the leap from rats to humans, and from torture to every day stress, and voila – we all developed a negative view about stress.

So now you have a negative mindset about stress

In recent surveys, the American Psychological Association has found that most people in America perceive their personal levels of stress as unhealthy.

These people believe that experiencing stress:

• depletes their health and vitality
• debilitates their performance and productivity
• inhibits their learning and growth
• is negative and should be avoided.

People who have this mindset about stress are much more likely to say that they cope with stress by trying to avoid it. They are more likely to:

• Try to distract themselves from the cause of the stress instead of dealing with it.
• Focus on getting rid of their feelings of stress instead of taking steps to address its source.
• Turn to alcohol or other substances or addiction to escape the stress.
• Withdraw their energy and attention from whatever relationship, role or goal is causing the stress.

Obviously, this reinforces the belief that stress is bad and should be avoided at all costs.

But as we turn our attention towards the benefits of embracing stress, we’ll find a much different story emerges.

Changing from a negative mindset to a positive one

As it turns out, you have a choice about how you respond to stress. Victor Frankl described this as the space between stimulus and response.

A minority of people in the general population believe that stress enhances their lives. These people believe that experiencing stress:

• enhances their performance and productivity
• improves their health and vitality
• facilitates their learning and growth
• is positive and should be utilized.

Where people with a negative mindset towards stress try to cope with stress, people with a positive mindset towards stress try to use it to their advantage. They are much more likely to:

• Accept the fact that the stressful event has occurred and is real.
• Plan a strategy for dealing with the source of stress.
• Seek information, help, or advice.
• Take steps to overcome, remove, or change the source of stress.
• Try to make the best of the situation by viewing it in a more positive way or by using it as an opportunity to grow.

So, just by creating a positive mindset about stress, you can turn self-doubt into confidence, fear into courage, and isolation into connection.

All without getting rid of the stress.

Which begs the question, how do you change your mind about stress?

The insight from the research is that you get what you expect. If you expect stress to be a negative experience, that’s exactly what you will get. If you expect it to be a positive experience, that’s exactly what you’ll get.

There is evidence for this in a lot of different areas of your life. For instance, how you think about getting older has some serious consequences for you later in life. People who have a positive view of aging add an average of 8 years to their life, and have an 80% lower risk of a heart attack.

Your mindset not only helps you in the moment, but also influences you to make better decisions in the future, leading to better outcomes. It’s as though mindset matters twice.

Now let’s turn our attention to the three different ways that your new positive mindset about stress will help you lead a more productive and fulfilling life.

Stress helps you engage

In this section we’ll focus on how you can transform a threat into a challenge.

Our common reaction to stress is to avoid it, and the most common advice you get when do deal with stress in the moment is to “calm down.” Basically, you should find a way to get rid of the stress.

However, viewing the stress response as a resource can transform the physiology of fear into the biology of courage. The stress response does a number of things that will help you perform well under pressure.

It focuses your attention, heightens your senses, increases your motivation, and mobilizes energy. This is true even when the stress doesn’t feel helpful, which is the case when people experience anxiety.

When you start to feel your heart pounding or your breath quickening, remember that this is your body’s way of trying to give you more energy. When you start to feel tension in your body, remember that the stress response gives you access to your strength. Are your palms sweaty? Good, that means you are close to something that you want. Do you have butterflies in your stomach? Embrace them – it’s your guts way of saying that this is something that matters.

If you take the traditional advice and try to calm down, you are preventing yourself from accessing the energy, strength and drive that the stress gives you. So, instead of trying to take a deep breathe to try and calm down, take a deep breath and sense the energy that’s available to you.

Then, use it. Ask yourself what action you can take that is consistent with your goal in this moment.

Connect: How tending and befriending transforms stress

In this section we’ll focus on how you can activate your “tend-and-befriend” response to better deal with stress.

From an evolutionary perspective, we have this “tend-and-befriend” response to make sure we protect our offspring. Rather than get paralyzed with fear (and let our offspring get eaten by that lion), we spring into action.

It does so because it increases activity in three systems in your brain.

First, it activates the social caregiving system, which is regulated by oxytocin. When this happens you feel more empathy, connection and trust.

Second, it activates the reward system, which releases the neurotransmitter dopamine. When this happens you feel more optimistic about your ability to do something meaningful, and it primes your brain for physical action, ensuring that you don’t freeze under pressure.

And third, it activates the attunement system, which releases to neurotransmitter serotonin. When this happens, your perception, intuition and self-control are all enhanced to ensure that the actions you take have the biggest positive impact.

In other words, as McGonigal points out, the tend-and-befriend response makes you social, brave and smart. Which is a much better response than trying to avoid dealing with whatever is causing you stress.

So, when you are feeling overwhelmed, look for opportunities to do something for somebody else that goes beyond your regular responsibilities.

Fair warning – your brain is going to tell you that you don’t have the time or energy to do it. But that’s exactly why you should. The good news is that small gestures work just as well as grand gestures to activate this response, so just get into action rather than waiting for the perfect moment to do something big.

Grow: how adversity makes you stronger

In this last section we’ll focus on how stress can actually help you learn and grow.

As McGonigal points out, the idea that we grow through adversity is not new. It’s embodied in the teachings of every major religion.

The science shows that plenty good can come from stressful or traumatic experiences. Here is a partial list of some of the positive changes that are commonly reported in cases of hardship, loss or trauma:

• A sense of personal strength;
• Increased appreciation for life;
• Spiritual growth;
• Enhanced social connections and relationships with others;
• Identifying new possibilities and life directions.

The important part, McGonigal explains, is that the good that comes from difficult experiences isn’t from the event itself – it comes from you.

What it requires is for you to look back on the difficult experiences from your past, and to reflect on the positive changes that came from them. Then, when you are faced with future stressful situations, you’ll be able to recall how you were able to overcome them in the past to help you overcome them in the moment.

This creates a growth-mindset towards adversity.

Conclusion

Periodically, I share a favorite book review from Readitfor.me.

There is never enough time to read all the latest books – this tool is a great way to learn and to stay on top of the latest topics and new ideas.

The Readitfor.me tool has grown into a great resource for both personal and team growth, offering book summaries, micro courses and master classes. Check out this link: Readitfor.me. See how these tools can help build you personal and Team Strength.

Here is a summary of the Book
The Organized Mind by Daniel Levitin.

There are many arguments for having a place for everything and keeping everything in its place.

Read on to learn how to use your mind – the most powerful tool you have – to focus on the work that’s most important to your success.

The Organized Mind 

by Daniel Levitin

“The only meaningful measure of a leader is whether the team succeeds or fails.”

Each month I share a favorite book review from Readitfor.me.

There is never enough time to read all the latest books – this tool is a great way to learn and to stay on top of the latest topics and new ideas.

If you are like my clients, you work hard learning how to grow your company or organization. You invest the time and money to improve your team for better results and increased value.

How successful is your team? Are you leading your team to success?

Read on.

Extreme Ownership

by Jocko Willink Leif Babin

Readitfor.me   Review:

“So, there I was.…”

According to the authors of Extreme Ownership, this is how every story told by a Navy SEAL starts off.

“So there I was, pinned down by heavy fire, with only two rounds left in my rifle”. You know, the type of stories that probably would have turned out differently if you or I were the protagonist.

So here I am, trying to boil down some of the best leadership advice I’ve read in a long time into something you can read over your morning coffee. (Luckily, this is about as difficult as things get over here).

As Jocko Willink and Leif Babin tell us, “The only meaningful measure of a leader is whether the team succeeds or fails.” So get ready to take a good hard look at yourself as a leader, and prepare to start thinking differently about how you control your destiny.

Principle #1: Extreme Ownership

Principle #2: There are no bad teams, only bad leaders

Principle #3: You have to believe if you want to win

Principle #4: Check your ego

Principle #5: Cover and Move.

Principle #6: Keep things simple

Principle #7: Leaders need to prioritize and execute.

Principle #8: Decentralized Command

You believe your business would grow faster, if you had more cash. Or, perhaps you’d buy out that partner who’s not in sync with the direction the company is going in, if you had more cash. Or, perhaps you’d take some cash home to diversify your wealth and sleep better at night, if you had more cash. Whatever your specific need is, perhaps you’d do it—if you had more cash. That’s just the thing though.

READ MORE

How do you get more cash to accomplish your business needs, without giving up  …    read more

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