Executive Depression Archives - Page 2 of 2 - TurnAround Social Sector Coaching

Exactly 10 years ago as I write, I applied for a Vice President position at Edwin Gould. I just checked the cover letter and it was a masterpiece. Of course, one reason that I’m writing this is that I was rejected. No one could have known that Edwin Gould would be acquired by the former Leake and Watts in 2018.

How did an agency started in 1939 have trouble as a going concern with a revenue of about $30 million and fundraising costs of $118,047 at Ciprianis in 2008 when I applied? It’s like the Sears of Foster Care!

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What Incidental Factors Don’t Matter in Going Concern Troubles?

Labor Efficiency Ratio – This is the biggest shock to me in the book. I preach labor efficiency with any company that I coach. It saved the nonprofit that I direct. It’s a simple ratio that X dollars of revenue must come into your company for every dollar paid to employees on the front lines. Nonprofits are often sloppy and overstaff programs and the results can drain cash. One of our programs had a labor efficiency ratio of 1.3   For every $1 paid to our program staff, we got $1.30 paid to us by the City. Suddenly, we couldn’t afford classroom supplies! Usually a LER of less than 1.5 is not possible to sustain. For profit business normally has a LER range of 3 -7. That means that for profit companies expect $3-$7 to arrive in sales for every $1 paid in compensation.

Amazingly, Edwin Gould had a LER of 1.77. For a social service agency that needs credentialled staff, I would assume this to be a well managed agency. The supervisors kept labor costs in check but it did not save the company.

Accounts Receivable – Many nonprofits bleed to death while waiting for government to pay. I could see how that would create a going concern issue. The going concern group of nonprofits in this study had about 17% of revenue still unpaid by the government. That is on the low side of normal in this study. Children’s Village has total revenue over $80 million with 24% Accounts Receivable. The highest A/R in the study was 39% of total revenue and that nonprofit continues to placidly sail along.

Assets / Equity – A normally leveraged for profit company should have some debt – generally under 40% of assets. That would give a ratio of 1.67. Most of the nonprofits in the study had an acceptable balance, including those in the Going Concern group. While most nonprofits don’t use assets or equity efficiently, they have so much trouble getting lines of credit and term loans that their fiscal structure remains intact. Edwin Gould and Sheltering Arms (a similar nonprofit) had negative equity. This can happen when an agency is in such dire distress that it records liabilities for the agency in excess of assets. Otherwise the Assets to Equity balance is not a good indicator of Going Concern issues.

# of Payrolls in Cash – Nonprofits are slowly losing their ability to have cash for paychecks. Some of the payrolls are over a month in arrears. I assumed that this would be a big signal of Going Concern. Amazingly, the Going Concern Group members had as much or more cash on hand as anybody else.

 

The Three Critical Factors of Going Concern

  1. Management Leadership

From the 990 alone, Board Leadership appears to have made a Succession error. There was 50% continuity on the Board of 12 persons from 2008 – 2016. However, three managers including Executive Director Audrey Featherstone lead the agency for about 10 years. Revenue increases and the agency survives a crisis in Foster Care in NYC in 2005.

There is a catastrophic loss of income in FY 2014 of $1.7 million as Featherstone leaves the agency. Two or more financial leaders turn over successively. With Featherstone gone, the Equity actually goes under water to negative $1 million in two years.

Kingsbridge is a similar agency in the Bronx with a going concern paragraph in their last published audit. In the case of Kingsbridge, a long term Executive Director appears to have misjudged the rapid changes in the non profit world.

The common thread in narratives of the Going Concern group is poor attention to selection or supervision of the Executive Director to make sure that the Director changes the agency nimbly to adapt to the funding available with a good strategy. Boards generally are too conservative on participating in and requiring reports on strategy. Both for profit and nonprofit agencies go out of business with plenty of assets.

  • Edwin Gould has $30 million going into the acquisition.
  • In 2005, Edwin Gould was ranked first in Foster Care Agencies in NYC (NYTimes 11/07/2007)
  • In 2011, Edwin Gould received $101 million grant from NYC for five years of children’s services

The right director could probably create a strategy to use those resources and network and keep an agency in operation.

  1. Net Income

Going Concern Group members generally have a persistent deficit over a period of years. Many of the Scaling Group members have occasional deficits which they quickly reverse with a change in strategy. There is simply no way to live with lines of credit, spontaneous financing, and deposits for future services over the longer period. All companies must have a positive net income.

  1. One Source of Revenue

The Going Concern Group members only have government contracts as a source of revenue. The Scaling Up Group members have a 2nd major source of revenue – Charitable gifts (Individual, Foundations and Corporate Gifts), Donor advised funds, or Fee for Service. The unrestricted and surplus funds from these other sources are at least 10% of the net income.

Steven Rathgeb Smith (1993:133) outlines the fickle demands of regime funding. These are the contract funds from government which change as political priorities change and are willing to spend any amount of money to monitor the process. In addition, regime funding is the overwhelming majority of the Accounts Receivable that most agencies struggle to work around.

Edwin Gould, for example, received about $300,000 in fund raisers and contributions in FY 2016. The 1% of the net income that this provided was dwarfed by $550,000 of deficits in the regime funding programs. This is a perfect example of a large effective agency which would be in great operating condition today with $1 million annually in gifts and grants to provide the financing that fills in the gap created by inadequate contracts from government.

Conclusion

10 Nonprofits have just merged in New York City. It’s an industry with too many organizations who believe that regime funding is a Strategic Plan. If a nonprofit is weak in two or more of the critical factors, it’s time for an entire board meeting to occur on partnering, merging, or being acquired. Conversely, an agency with strong critical and incidental factors is in a place to extend it’s work for the public good through an acquisition.

Did you work harder after you hired more people? The reason to hire more staff is because there is too much work. How can more people create more work instead of less work?

Companies go through ‘valleys of death.’ This is commonly described as any nonprofit between $1-6 million in revenue. This is the growth period where the need for more office support (administrative, legal, hr, accounting, etc) is high but the cash is really not there to pay everyone.1118_4740631

Valleys of Death – Employees

Another Valley of Death happens when the staff team grows and changes.

1-10 Employees

Companies usually start with the vision of one person. How many times have you seen a great visionary start a small homeless program? The new company is built around the passion and skill of the founder. Of course, the owner cannot prepare food, clean and recruit clients so helper people are hired, 2 social workers, a kitchen assistant, and a custodian. This model climbs to 10 employees. The new staff are owner-helpers. They don’t have much authority. The director/owner sets the rules for the shelter, orders the supplies and keeps the books. The helpers clean and help. It is critical that the director/owner trusts the helpers.

10-25 Employees

Over 10 staff and more is needed than loyalty to the director/owner. Good food and safe housing created a flood of applicants for the housing program. The director/owner helpers are replaced by staff who have the ability to make good decisions when the director/owner is not there.

26-100 Employees

The staff team over 25 people is the highest level of director/owner failure. It is possible for the owner to work too hard in the 10-20 staff member range and not hire capable people to exercise independent judgment. If the director/owner continues to add 30 helpers without independent good judgment

  1. The director/owner will collapse from overwork OR
  2. The agency will lose newer staff and cycle between shrinkage and growth with 25 staff

The director/owner must prepare for a constant change in role during growth. There is a steady shift from

  • Leader doing all of the work with help
  • Skillful staff taking over marketing, accounting, client engagement
  • Leader becoming a visionary and values thought leader with managers
  • Leader setting 3 year highly achievable goals with management team

There is a saying that at 10 staff the owner needs to hire someone identical to herself. At 100 staff, she needs to hire someone much different from her style to fill in missing skills.

Any problems?

  1. The director feels too badly to transition staff who helped to start the company but don’t have a place on a larger team. One for-profit owner had two CEOs who could not grow as the company expanded to 5 sites around the world. He simply added them to his research staff at their same rate of pay – until he was no longer breaking even.
  2. A nonprofit director lost many younger staff when three ‘original’ staff were mean and dismissive and no longer playing valuable roles. She couldn’t face the stress of honesty and transition.
  3. A director liked to hire managers who were not threatening. They had less ability than the director. The agency could never break growth barriers because the team lacked skills and experience to take it to the next level.

There are personnel companies who can be hired to review job descriptions and actually transition unproductive managers when the owner/director or board does not feel capable of the task.

Conclusion

Leading a growing company is a difficult and constantly changing job. Your role requirements will not stay the same for 12 months.  While sufficient cash is a challenge, the balance of effective people on the team at different stages is critical. The CEO job is challenging. A business coach can help and contact me if your team needs support to go through this process.

This weekly club meeting talks about stress that CEOs and Executive Directors feel when2_2501249 employees don’t do the right things at the right times and life gets difficult.  Perfectly happy Directors and Presidents are not eligible for membership. This week, I want to deal with the stress of the 18-36 month window.

ReHire
When you first take the CEO job, you have to rehire all of the people who report directly to you. Perhaps you assumed that they are good sheep and will simply change to a new head sheep?

Not so.

Someone who now reports to you isn’t confident and you make them nervous. Someone else wanted the job that you have. Someone else has been cutting corners (with time and attendance, expense account, etc) with the last boss and wonders how to test your tolerance. And so on. You thought it was a greener pasture, but all greener pastures have manure!

Meet with each direct report and help them show their best side to you. Recognize their talents, skills, values and passion. Meet together as a team and give staff an idea of your most important values. My own personal values include:

  • I don’t hire assistants. I hire people smarter than I am who own their part of the company – In your area, take responsibility and authority and bring me solutions as well as problems.
  • Be a continuous learner. I expect to offer more skills to my job one year from now. I expect you to offer more one year from now. I read one book a week. What is your goal?
  • I pay 75 percentile for your position. I think that great managers need to be compensated so they don’t worry about job and home. I pay for professional development. I offer flex time and remote work where possible. I respect your valuable contribution to this company.
  • I only want people in this company that you would enthusiastically rehire. Does anyone need more attention on your team? Does anyone need to transition? Those will be my questions.

Result
The result of the rehiring – people feel respect for who they are and what they have accomplished and they have a clear idea on how to work with you. In most cases, this is a great start.

Review
Research shows that effective CEOs will need a 50% change in leadership team in the 18-36 month range. The management mix requires a team that can be effective under your leadership. In some cases, the reporting managers also see this and create their own retirements and resignations. This is not a sign of poor leadership as long as the revolving door stops within 24 months. It’s what is needed to take the organization to the next level.

The review period is where you set up a job scorecard for each position with the help of the leadership team. The process is necessary but it will point out some managers who are not in the right seat or not a match for the next phase of the company.

Repair
The discernment process is a time where you meet with some direct report about needed changes that may bring about transition. It’s also a time to see if you have followed the Rehire and Review process.

Failure to rehire can cause leadership challenges in the first 12 months.

Failure to retire people that you do not enthusiastically want will cause problems in year 2. According to the Rockefeller Habits Question 1, you need a leadership team that understands each other’s differences, priorities, and styles and a team that is able to engage in constructive debate. And you need team members who function flawlessly so that you are leading instead of repairing problems. Here are 3 Repair Steps.

  1. It is never too late to say to a direct report ‘I apologize for the awkward start to our relationship and I’d like to hear more about your talents and interests as we continue to create the team.’ No one is perfect and you are opening the rehiring question and giving them respect and a chance to join your team.
  2. It is never too late to state your values and apologize if anyone is surprised.
  3. It is never too late to start a repair or termination that you delayed out of fear or misplaced sympathy. I hate to fire people – until they start making me do or fix their work, or until they start to create trouble on the team.

CEOs can let problems slide, but my Personnel Consultant always said, you can’t cure cancer with aspirin.

  • They’ve worked here for 15 years.
    • I respect that but the company is growing and changing and needs staff who empower that change. Can they change? I’ll help.
  • They probably can’t get a parallel job with their training.
    • That is a choice that they made when they decided not to keep learning. It’s tragic, but respect their choice.
  • They have a lot of friends on the staff team.
    • Very likely, but employees protect their own job first. There may be muttering but none of us are as popular at work as we hoped 😊

The CEO job is challenging. A business coach can help and contact me if you need support to go through this process. But with or without support, most Executive Directors inherit leadership teams with issues. The issues can be managed – and the Board was wise enough to hire you to do it.

Rehire, Review, Repair.

 

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Leadership has a hidden cost of loneliness. Many CEOs are excited by the chance to be a leader or the chance to make a difference with a great product or service. The raise in pay certainly feels good too!

 

Various studies have been done that show that deep feelings of loneliness permeate the leadership job. Example – You suddenly have to deal with a manager who is not doing the right thing and there may be no one in your agency who should know about your inner struggle to choose the right course.

One category of loneliness is about planning to handle bad things that may not happen. Examples may be a financial risk that has not yet happened, a key resignation looming, or funds that may be missing. Imagine telling anyone on staff that payroll may not be paid but don’t worry because it is still just a risk.

There is also the loneliness of unpopular decisions. It’s easy to make most decisions. That’s surfing. It’s those other decisions where you need to take a risk and a stand.  That may be magnified if people perceive your leadership as a support to a group of stakeholders. Gay presidents, women CEOs’, persons of color as Chairs of Boards can face double burdens to defend some leadership decision if a stakeholder group is surprised by the decision.

I’m also speaking from personal experience leading agencies for 30 years. And that’s why I’m in coaching now. You’re probably watching this because you need an outside voice to help you get clarity, keep you on track with the decisions that you’ve made and be available during dark hours.

It’s not only for peace of mind. Think of all the wasted leadership and sleepless hours on loneliness. Your company mission and money will bounce up when you can place your energy where it’s critically needed.

If you want One Minute TurnArounds by email, please sign up!

GDPR – Your email is collected by an automated system so that the One Minute Manager posts can be sent. You will be invited twice a year to a two hour Scaling Up workshop for CEOs and EDs. Annually, you will be offered an Ebook and asked whether the resources of TurnAround Business Coaching are helpful.

A maximum of 10 companies per year develop a relationship for Business Coaching to turn around their company or scale up past a growth barrier.

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I picture my work with a glass of wine and a cup of coffee on my desk. When I start the day, I reach for the coffee. I decide what tasks to do today and I place any of the hard, nasty ones at the top of the list*. I think you know the kind of work that I mean.  I hate to respond to regulatory orders for audits and information so that needs to happen with coffee. Fire someone – definitely coffee.

 

At some point in the day, I can switch to the glass of wine. What’s the difference?

 

Reaching for wine is when I’m working on the stuff that I’m really good at and love. I’m thrilled to spend time out of the office thinking about the whole company. I’m good at the Strategic Plan and building systems to protect the company. That’s why I consult in these areas. It’s drinking from the wine glass.

 

Do you ever stop drinking coffee?

You can kill off your zeal and joy by only drinking coffee. We all have some hard tasks that need to get done. The trouble starts when you never have time to get to the wine that revives your vision and gives you new energy.

 

We are all exactly equal in one way. TIME

Maybe you read this as owner of a 10,000 worker company. I direct 150 staff. The President directs 4 million workers in the Executive Branch. It doesn’t matter. We all came in early this morning with the same exact amount 10 hours to work. The day marches forward for princes as well as paupers.

You are probably doing some coffee work that wastes your essential leadership time and robs the joy.

  

Outsourcing

I listened to one leader who tries to outsource everything except his core strategic tasks. What a fantastic idea! In my workday, I need to get more contracts for my company and build relationships with owners. Or I can spend the day hunting for the last audit and certificate of incorporation. Which use of my limited management 10 hours will move the company forward the most?

 

Outsourcing Benefits

  1. The company that accepts your outsourcing knows how to do that one task
  2. You don’t have to hire excess capacity or worry about hiring/supervision/unemployment because everyone is working for the other company.
  3. Some outsourcing reduces criticism

 

Outsourcing Cautions

  1. Choose an outsourcing company that is similar to your size. ADP is too big for most companies and they don’t really need your money.
  2. Plan how to measure whether the outsourcing is effective and how often to monitor. If you fire the janitors and bring in a cleaning company, you will need to have clear measurements of success, monitoring, and fraud control for theft. If you just give some strangers the keys and go back to your Strategic Plan, plan for a lot of coffee in days ahead 🙂
  3. Be careful of agencies which do so many kinds of jobs that they know a little about a lot of things. That’s like hiring yourself 🙂
  4. Watch for business changes and make sure that the contracted outsourcing still meets your needs. I use Netflix and recently got Amazon Prime. Suddenly, I wonder why I am still paying monthly for Netflix which I don’t watch that often.

 

10 Good Outsourcing Examples

  1. Payroll and Human Resources with a company such as APS. For us, APS is not too large so we can always speak to someone. Payroll is not that complicated for a payroll company. The software calculates taxes and pays employees. It’s ok not to watch them too closely since the employees and IRS are also watching. Many will also store required company documents and appraisals, training videos, time off requests. Etc. If it’s easy to use, then there is no downside to outsourcing.
  2. Janitorial – your part time janitors may be the worst. Few really want the job and janitors know more places to hide than the building inspector 🙂  Sadly, the janitorial company has similar trouble so you have to set this up carefully.
  3. Legal and Audit – you probably already outsource this
  4. Consultants for planning, cash management, and fraud – me 🙂 Very effective if the practice areas match your needs. Be careful with consultants who think they can do everything.
  5. Consultants to renegotiate loans, contracts and fire long term staff. Sometimes a fresh start is needed but consultants can be a buffer.
  6. Food – I’m amazed at service companies who run their own kitchen with all the problems of spoilage, regulations and staff. Outsourcing can’t be worse than what you are doing.
  7. Transportation and office equipment – lease everything and let someone else worry about repairs
  8. Clerical – we use Dropbox to store all corporate documents. 137,000 files today. A staff member in Indonesia labels them. I don’t have a filing cabinet in my office.
  9. Social media – there are a million eager workers in other countries who know more than you do about Google Analytics. Give it away
  10. Accounting and Accounts Receivable – an accounting and budgeting package always balances. You don’t have to check the assets against debits and credits! Once you have accidentally dropped a major line in an Excel chart from the SUM function, you will outsource and never look back

 

Conclusion

You are probably hesitating because you have seen some expensive quotes for outsourcing. True. So it comes down to three choices

  1. You hire another executive level staff member to take many of the coffee tasks while you save your 10 hours for leadership $$$$
  2. You burn yourself out and don’t advance the company because your life is all about the coffee jobs and you don’t even look at the wine. Company hires new CEO $$$$$
  3. You outsource and pay for some of the costs by reducing some operations staff and one less supervisor. $$

The coffee jobs are required but not essential. The wine jobs are all about the leadership and joy of the job. You have to find a balance that works for you and the agency. Outsourcing is one tool to take the 10 hours you are given today and invest it wisely. Start today.

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GDPR – Your email is collected by an automated system so that the One Minute Manager posts can be sent. You will be invited twice a year to a two hour Scaling Up workshop for CEOs and EDs. Annually, you will be offered an Ebook and asked whether the resources of TurnAround Business Coaching are helpful.

A maximum of 10 companies per year develop a relationship for Business Coaching to turn around their company or scale up past a growth barrier.

 

 

*Tracy, Brian. Eat That Frog!: 21 Great Ways to Stop Procrastinating and Get More Done in Less Time. San Francisco, CA: Berrett-Koehler, 2007. Print.

They say that your 20’s are about career discernment, 30’s – overcoming failure, 40’s – accumulating money, 50’s – accumulating power, and 60’s – guarding reputation.

While there is no perfect age for leadership, strategic planning is always about managing risk. Age tends to dampen our risk appetite. It’s a reasonable feeling. I started a company which failed after two years when I was 35 years old. It took a while to get hungry again – but I had time as a salad while my risk appetite recovered.

If you’re 63 and your best judgment leads to failure, there may not be time to recover your reputation. That is understandable. Unhappily, your aversion to risk can increase incremental business failure. “There is tendency for risk management process to fail incrementally over a long period of time.”  (Fadun, 2013:231)

The people who lead are often at the age where their risk appetite keeps their company from the table of opportunity.  “Risk is an essential part of business because firms cannot operate without taking risks.” (Ibid, 225)

If you are in that exact situation, then Strategic Planning empowers you to the leadership need of the hour without forcing your risk appetite to accept what it cannot tolerate.

  • Your low appetite Strategic Plan will choose one or two big ideas but have unusual sensitivity to choose what NOT to do. Many younger leaders fail because they try to do everything. Sears is floundering as its management tries anything. They briefly attempted to be a pawn broker and then purchased “4,000 charcoal smokers and grills, almost 10,500 beer-can chicken roasters” (Duprey, 2016:1) What a tragedy.
  • Your Strategic Plan will force the big ideas to yearly and quarterly goals and to daily reporting by team members on how much they moved the success needle. You will be less tolerant of team actions that are not tied to the Strategic Plan.
  • Your Strategic Plan will probably hoard more cash so that you are succeeding in your stewardship while setting up another future win after you leave. Platinum reputation anyone?

We tend to fail by our strengths. We overuse them and then eat the bitter fruit. Overusing your low risk appetite will keep you from noticing as the company table has less and less food for anyone. Claim your low risk appetite, write your Strategic Plan to leverage it’s perspective – and make your later career so good that you bore the kids with all the stories in retirement!

If you want One Minute TurnArounds by email, please sign up!

GDPR – Your email is collected by an automated system so that the One Minute Manager posts can be sent. You will be invited twice a year to a two hour Scaling Up workshop for CEOs and EDs. Annually, you will be offered an Ebook and asked whether the resources of TurnAround Business Coaching are helpful.

A maximum of 10 companies per year develop a relationship for Business Coaching to turn around their company or scale up past a growth barrier.

 

Fadun, Olajide. “Risk Management and Risk Management Failure: Lessons for Business Enterprises.” International Journal of Academic Research in Business and Social Sciences 3.2 (2013): 225-39. Web.

Duprey, Rich. “Kmart to Sell Liquidated Goods: How Long Before Sears Merch Appears? — The Motley Fool.” The Motley Fool. N.p., 02 Mar. 2016. Web. 03 Mar. 2016.