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Wednesday, May 13th, 2009

Enneagram Personality Tests (Free)

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The Enneagram is both a figure (see the nine-pointed figure  in the circle below) and a typology (a model of 9 personality types).

the-enneagram-personality-testssvg

You can find out what Enneagram Personality Type you are by taking one of the free tests out there.

Here are two free Enneagram Personality Tests I’ve personally taken (each took about 10 to 15 minutes):

I took both so I could confirm my type.

When you’re done with the test, you should print out or copy the results and then go to the Nine Enneagram Personality Types to learn more, including famous people (including business-people) who share your type!

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Monday, May 11th, 2009

3 Simple Steps To Run An Effective Meeting: The GAP Approach

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I get asked about how to run effective meetings all the time. As I wrote about in my Daily Huddle Article, how you run meetings has a material effect on your business.

If You Run Poor Meetings, No One Will Show Up

If You Run Poor Meetings, No One Will Show Up

I believe that the difference between a dull meeting and an amazing meeting is how you organize it.

I originally heard about one meetings format used by a consultant to a Johnson & Johnson subsidiary and I think it works just great.

It’s called G.A.P and it stands for Goal, Agenda and Preparation.

I believe every meeting should have all three!

Goal

The goal, or purpose, of the meeting needs to be stated upfront. A good way to remember what goes into a goal (for meetings or anything else) is that it should be a SMART Goal as in:

S = The goal should be Specific

M = The goal should be Measureable

A = The goal should be Achievable

R = The goal should be Relevant

T = The goal should be Timely (it should be reachable by the time the meeting ends)

That gets you off to the right start to a SMART meeting!

Agenda

When you hold a meeting, you need to have an agenda…even if the agenda is to have no agenda. Huh?

What I’m saying is that you as the meeting organizer need to state how the attendees are going to use the time at the meeting. The agenda could be something as simple as:

  1. Description of Problem You Face (10 minutes)
  2. Input From Each Team Member (10 minutes)
  3. Recommendation on Next Steps (10 minutes)

Or, if you’re not going to have something so structured, then state that the agenda is:

  • Open Discussion (30 minutes)

Preparation

A key to most meetings is preparation (by you the meeting organizer and by the attendees).

So, if you call a meeting, tell the attendees what they need to do to prepare.

When they join the meeting, should they have already reviewed a spreadsheet that you sent out? Do they need to have collected information from someone inside or outside the company?

Tell them how to prepare…if there’s no advanced preparation then I like to just say: “No Preparation…Just Bring Your Brain.”

If you use online calendars to schedule meetings, you should put the entire Goal, Agenda and Preparation (GAP) within your calendar invitation.

Follow GAP and you’ll have better meetings.

Note: You may have heard of another “GAP” used in business: the GAP Analysis strategic planning tool. Read How to Do A Gap Analysis for more on this valuable tool.

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Sunday, May 10th, 2009

A Simple Formula For How Much to Pay for a Customer

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I’m going to give you a formula to determine how much you should invest to acquire your typical customer.

I call it “Desired Customer Acquisition Cost.” I also saw it referred to as “Allowable Acquisition Cost” in Ready, Fire, Aim: Zero to $100 Million in No Time Flat, an excellent book I recommend by Michael Masterson (I borrowed a couple of his ideas for this article!).

Note: I’m going to write a separate article on customer acquisition strategies, customer acquisition programs, customer acquisition networks and the overall customer acquisition process — please come back for those!

How Much is Your Customer Worth?

How Much is Your Customer Worth?

Ok, on to your Desired Customer Acquisition Cost.

For starters, you’re going to need to do a few calulations of your own…don’t worry about having the perfect answers — just give it your best shot!

Calculate Your Customer Lifetime Value (aka Gross Sales Per Customer)

You need to estimate the lifetime value of your customer.

Let’s first define customer lifetime value. It is how much a customer will spend with you for their lifetime (i.e. the total number of products they buy from you over time multiplied by the price of each product).

If you’ve been in business already, you might know your Customer Lifetime Value. In fact you could simply divide the total amount of sales you’ve had since you began by the total number of customers you’ve had).

If you’re in a new business, I suggest you research competitors or other similar companies to yours to get a sense of their lifetime value.

For now, if you don’t know what your Lifetime Value is then you could use the range I use: where Lifetime Value is typically about 2X to 6X the price of the first product your customer typically buys from you.

For example, if you customer is likely to pay around $50 for the first product they buy from you, you could expect the lifetime value of your customer to be anywhere from $100 to $300.

Where’s the 2X to 6X range come from? That’s just my experience with businesses I’ve seen. Remember, your business and others can be very different.

Sidenote: If you are selling a subscription-based product (e.g. Netflix, DirecTV, Sports Illustrated) as your first/primary product, then your lifetime value is going to be very different. The lifetime value of a cable/satellite customer may be 10 to 40X the first month’s price since they are likely to stay with their service for a few years (i.e. 10 to 40 months).

We’re going to use a Lifetime Value of 3X for this exercise.

Obama’s Lifetime Value

Let’s pick a fictional company to make this easier…we’ll call our pretend company Obama Enterprises (they sell a set of information products on how to become the next President!).

Obama’s flagship product is a $50 DVD that he’ll ship you on the basics of what it takes to be Mr. President; he has more expensive products that he sells you on the back-end.

So, let’s use $150 (3X the price of his first product) as our Lifetime Value.

Calculate Your Refunds, Cancels, Bad Debt, etc

If your business is like most, your customers will cancel or request refunds, or simply not pay you.

This varies by industry and by business.

For Obama Enterprises, we’re going to assume that 10% of the sales will be refunded, canceled or otherwise just not collected as cash we keep.

So, Obama’s Refunds & Cancels is $15 per customer (10% of $150).

Calculate Your Cost of Goods Sold

First off, most people who know what Cost of Goods Sold is call it “COGS” (sounds cooler, right?).

Here’s the COGS definition:

  • The materials cost used in creating the goods plus
  • The direct labor costs used to produce the goods

Note: COGS excludes sales, marketing and distribution costs.

COGS varies by industry but are typically in the range of 20% to 50% of the price of your good.

For example, the retail industry is known to mark items up by 100% so in essence their COGS on a $20 shirt is 50% or $10.

In the Software or Internet industry, the COGS is very low (typically just 20% of the sale)…for example, if Microsoft is selling you a software product for $200, it likely only costs them $40 (20% of that) to create/produce.

Since the COGS for Obama’s video product are pretty inexpensive (Discs, box, etc.), we’re going to use 20% of $150 (or $10) as his COGS estimate.

Calculate Your Overhead Costs

Let’s define overhead cost: It’s simply all the costs that are NOT associated with any specific business activity we mention in this article.

Examples of Overhead costs include: Payroll (All Payroll except that included in COGS), Insurance, Rent, Utilities, Legal, Accounting, Travel and Entertainment.

Again, you’re going to have to research your business’s math (or that of your industry if you’re new), but a good rule of thumb is that Overhead will eat up about 33% of your Sales or Lifetime Value (most of this is due to your labor costs).

So, Obama’s Overhead costs are about $50 (33% of $150).

Now, the only other cost we haven’t covered so far is the Customer Acquisition (or Marketing) cost…we’re going to skip that for now as that’s what we’re trying to determine.

Calculate Your Desired Profitability %

Let’s skip to how much profit you want.

Profit is how much money you want to keep after all expenses (except taxes) are paid…you know it as the “bottom line” (Google and Microsoft tend to keep a profit of 20% to 30% while other businesses are more modest with a profit of 5% to 10%).

Obama’s people are not greedy, so we’re going to pick a profit goal of 10% for Obama Enterprises.

So, Obama’s Desired Profit is $15 per customer (10% of $150).

Ok, now for the good part. Here is how you calculate your Desired Customer Aquisition Cost:

Desirable Customer Acquisition Formula =

  • Lifetime Value minus
  • Refunds & Cancels minus
  • COGS minus
  • Overhead minus
  • Desired Profit

So the formula for Obama’s customer acquisition is:

  • $150 Lifetime Value minus
  • $15 Refunds & Cancels minus
  • $30 COGS minus
  • $50 Overhead minus
  • $15 Desired Profit

…And thus the amount Obama can spend to buy one customer, drumroll please, is…

= $40

And There You Have It (Your Desired Customer Acquisition Cost)

So, if our assumptions are ballpark-accurate, Obama can go out and spend an average of $40 to acquire each customer who buys his $50 DVD product, and still have all his expenses paid and a desired profit of 10% of all he sells.

For example, he could offer to pay you $40 for each customer your Web site sends over to his…and if you sent him 1,000 customers, he would gladly pay you $40,000 (1,000 times $40) because he would eventually receive about $150 in Lifetime Value from each of those customers and eventually receive a profit of $4,000 (the 10% Desired Profit he calculated) on his partnership with you.

Caveat here (which you probably already figured out):

Since Lifetime Value is over time, Obama has to make sure that he has the proper cash flow to afford to pay all bills while he earns the lifetime value for customers.

That’s called “Cashflow” or “Working Capital” and it has to wait for another day!

Though, if you want to improve your creditworthiness (so you can get better/larger loans or credit card limits), you should read How to Boost Your FICO Score.

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Saturday, May 9th, 2009

How to Fire Someone…Includes A Script

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I’ve had to fire or let go a handful of people in my career. Firing someone can be tough, but if you follow these guidlines you should do just fine.

Here are my learnings:

It's Ok to Fire Someone (Fairly)

It's Ok to Fire Someone (Fairly)

Make The Decision Fast

The adage, “Fire Fast, Hire Slowly” is very true.

On the firing side, I have never regretted firing someone who was a consistent problem. On the flip side, I have often regretted moving too slowly on firing someone.

If your gut tells you that a person isn’t working out, you owe it to your business and the employee in question to move fast.

Clarify The Reason You’re Firing Them

You need to identify the reason that you’re firing your employee (for yourself first; and then later to explain to the employee). It could be for performance..or it could be that they did not fit into your culture.

Whatever the case, have it well-thought out for yourself and have specifics (examples or data) to back you up.

Document The Reason You’re Firing Them

You should make sure that you or the hiring manager document the reasons for the termination before the actual firing.

The most common way to do this is in a performance review (also called a Performance Appraisal) in which you share your feedback with the employee in question.

I should write an entire article on Performance Reviews…but in the meantime, check out Performance Appraisal for more background.

The most important point is that the employee should not be surprised that they are not working out…and the details of this should be documented so that if the terminated employee ever tries to to sue you for Wrongful Termination, you will have written details to show a hudge.

Determine Their Last Day

Now that you’ve decided to be decisive (good for you!), you should determine when you’d like the person to leave.

If the person you’re firing has done something crooked, you may be choosing for their last day to be immediate.

In most cases, the person you’re firing is just not performing to your standards or is not a good fit with your culture or values. In that case, I try to be consistent with all employees by using a standard amount of notice (2 weeks, 30 days, 2 months, etc.); though this may vary based on how long they’ve been with you or what their seniority is.

If you don’t have a standard, then use your next firing to determine your standard (so that this is easier on you in the future!).

If your company is small, like many I’ve worked in, it’s ok for you to learn as you go!

Determine Their Final Deliverables

Figure out exactly what you need from them between the time you fire them and their last day.

I prefer to make this list a fairly short list of deliverables to allow the fired employee to have some extra time to search for a job.

Determine Their Severance (if any)

Next you need to determine what severance payment if any you will pay them.

Again, this should be consistent where possible. There should be a minimum severance package for an employee who had just recently joined the company (i.e. less than a year) and there can be extra severance based on longevity and seniority.

For example, some companies pay a minimum severance of 1 or 2 weeks to anyone they let go and then an additional week of severance for each additional period they’ve been there (e.g. an extra week of severance for every year they’ve been at the company)).

Your industry may play by different rules so you should ask around.

And, again, if you don’t have a standard set of severance packages yet, that’s ok — you can use your next firing or two to establish one.

The point is to be standard/consistent so that this will be easier for you in the future.

What to Say When Firing Someone (Write a Firing Script)

Now we’re getting closer to having to actually fire the person. This is a very important conversation and I urge you to write out a script of what you’re going to say.

Here’s a script that I used to fire Cooper (don’t worry, I’ve never fired a real Cooper before):

1. “Cooper, this isn’t working out between us.”

2. “The primary reason is [fill this in with the reason(s) that you already identified above] “E.g.: “Cooper, the reason this isn’t working out is that we believe we need a more experienced person in your position to help us reach our objectives.”

3. “We value you immensely, Coop (list all his contributions and really make him feel loved).”

4. “And what we’d like to do is give you time to figure out your transition.” (This is optional based on when you determined their Last Day (see above) to be).

5. “Since we know it’s easier to find a job while still an employee, you can remain a paid employee until [fill in the date (see above)] ”

6. “Between now and [fill in the date], we ask that you complete the following deliverables, and you can feel free to use your remaining time as “flex time” to search for a job.

7. “We’ll do our best in supporting whatever next job you get.” (e.g. You say you’ll be willing to act as a reference (assuming you see some positive things in the person) or at least will confirm that they worked at your company)).

Dress Rehearsal

I recommend you practice the script with a fellow executive, your manager or a mentor.  Do a dry run-through together — it will make you much more comfortable with the difficult conversation you’re about to have.

Really dig into what Cooper’s pain point is going to be regarding his imminent employment termination. It may be that he is driven by some extra money (i.e. severance) or it it may be that it’s very important for him to save face.

The Actual Firing

Ok, now comes the part you probably fear the most (I did too): You have to tell the employee that he or she is out of here.

Here’s what I do:

  • Follow the Script — I go through the script (see above) step by step from memory (I keep the bullets in front of me on a notepad just in case)
  • Listen — After going through the script, I sit back and do nothing but listen. It is very likely that Cooper is now going to begin experiencing the “5 Stages of Loss” (especially the first three or four):
    • Denial — Cooper may deny the reasons that you give him for termination
    • Anger — Cooper may become angry either at you or someone else in your organization who he tries to blame
    • Bargaining/Negotiation — Cooper may begin to negotiate (i.e. offering to take another position or lower pay, etc.)
    • Depression — Cooper will likely experience this most after the meeting is over
    • Acceptance — Cooper will eventually accept the decision
  • Stay Firm — Cooper may argue that it’s an unfair termination — stick with your script and decision. Don’t send mixed signals.
  • Be Compassionate — This is going to be hard for Cooper, so show compassion.
  • Be Respectful — Treat Cooper with the utmost respect, regardless of the circumstances — Take the high road!

Most of the time, Cooper will eventually accept the decision; though he may try to bargain a bit in which case you should be open to exceptions to any of the terms you outlined if Cooper makes a strong case). But if you’ve done your homework, your Severance and Timing will have been fair and Cooper will accept it.

Other Things To Consider

  • Getting Cooper to Sign a Release — Get the person you’ve fired to agree that they accept the Severance terms along with their Final Deliverables and what their last day of employment (this can be in print or even email is fine).
  • Termination Letter (aka Notice of Termination) — Cooper may ask you for a termination letter…you should give it to him with the basics mentioned in the 7 Steps above (keep it short and to the point).
  • Communicating that the Employee is Leaving — If Cooper is managing people, you may consider allowing Cooper to communicate his departure to his team (to save face); Otherwise, it will Cooper’s manager’s responsibility to communicate Cooper’s departure to team members (keep the message simple and tell others they can contact you directly if you have specific questions).
  • The Threat of a Wrongful Termination (or Unlawful Termination) Suit — If you have followed all the steps and have documentation of the situation, it is rare that Cooper will sue you. If he does, you will be prepared with documentation to get a fair hearing.

A final reminder that I can’t emphasize enough: Deal with the issue swiftly.

You owe it to your company, yourself and Cooper to be decisive.  Plus, the sooner you act the more flexibility you have in helping Cooper on his way (and the more money and headaches you save everyone).

And if  you want to minimize the number of people you fire, please read You Must Topgrade.

If you have questions not covered in this article, please comment below (it can be anonymous).

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Friday, May 8th, 2009

2 “Moneyball” Tactics to Hire Undervalued People

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I was inspired by the book MoneyBall by Michael Lewis who chronicles the Oakland A’s baseball team and its strategy of focusing on undervalued players in the Major Leagues.

The Oakland A's Proved You Don't Need The Most Money To Win With Hiring

I’ve found some success in applying this to business. Specifically, I am always on the look out for undervalued people.

Here are two examples of undervalued people I look out for and find:

Falling Stars (or “Falling Angels”)

Falling Stars are workers who hit a certain apex in their career and then for some reason fell — often far — from that level.

The reasons they  are “falling” may include personal problems such as divorce, substance abuse or alleged unethical or illegal activity.

Such Falling Stars are worth a close look to be given a second chance, especially if they proved themselves for a long period of time before their fall from grace.

I recall an attorney who was having a challenging time on the job market because one of his prior employers had run into trouble with the Federal Government and this had tainted the attorney’s reputatin…but closer scrutiny showed that this individual had done nothing wrong and in fact had a track record of 25 years or proven value! He was a fallen star.

Note: Since I wrote this post, I read a good post by Dallas Mavericks owner Mark Cuban in which he used the term “fallen angels”  to describe players who were former stars on the decline in performance, but whom improved in the right new situation.

Mark gets it.

Diamonds in the Rough

A second example of undervalued people is what I refer to as “Diamonds in the Rough.”

Diamonds in the Rough are different than Fallen Stars…as the label implies — they are quite valuable individuals who are simply not appreciated for their potential.

Diamonds in the Rough usually exist because of poor managers or leaders surrounding the Rough Diamond.

A good place to look for such Diamonds in the Rough are mismanaged companies as they sometimes forget to dig deep enough to find their diamonds.

A good sign of a mismanaged company is one ego-driven management; they typically take their Diamonds for granted.

A great time to hire Diamonds is when their employer is not doing so well in business…perhaps their sales have flattened or profits are down. The Diamond will have his or her antennae up a bit higher during those times…and you can scoop in and hire them!

MoneyBall Author Michael Lewis has written a couple of other good books I recommend (especially if you like “inside baseball” type books with real-life characters being written about as if they were fictional:

Liar’s Poker: Rising Through the Wreckage on Wall Street (in inside look at Wall Street from his four years working at Salamon Brothers) and

The New New Thing: A Silicon Valley Story (About Jim Clark who founded Silicon Graphcis, Netscape and Healtheon)

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Thursday, May 7th, 2009

Bill Gates, Steve Jobs & Me

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I had the good fortune of interviewing Bill Gates and Steve Jobs (separately) early on in my career when I was a journalist.

On May 31, 2007, Jobs and Gates agreed to a rare appearance together onstage together at the All Things Digital (D5) conference at the Four Seasons Hotel Aviara, just north of San Diego. It was put on by the Wall Street Journal and felt like a rock concert!

I was lucky enough to attend and I couldn’t resist asking them their advice for entrepreneurs (as part of the question and answer section).

Here’s the video (and below that is the transcript) of Gates and Jobs answering the question (yes, that’s me being a bit nervous!).

[Beginning of Transcript of Q&A With Jobs, Gates]

Rob Kelly:  I’m here with my business partner, we have a 100-person Internet media company, and I’m wondering what would be the single most valuable piece of advice you would give us to even attempt to create some of the value that you guys have done in both your very impressive companies?

Bill Gates: I think actually, maybe in both cases, correct me if I’m wrong, the excitement wasn’t really seen by the economic value.

Even when we were down at Microsoft in ’97, a computer at every desk and in every home, we didn’t realize that okay, we’re going to have to be a big company (laughter).

Every time, I thought, oh God, can we double in size…geez can you manage that many people…will that feel fun still, you know, and so every doubling, it was like, okay this is the last one.

So the economic thing wasn’t at the forefront, but the idea of being at the forefront and seeing new things, things we wanted to do, and being able to bring in different people who are fun to work with eventually with a pretty broad set of skills…and figuring out how to get those people with broad skills to work together has been one of the greatest challenges.

You know I’ve made more of my mistakes in that area than probably anywhere, but you know eventually getting there and some of those things work really well together.

I think it’s a lot about the people, the passion and it’s amazing that the business worked out the way that it did.

Steve Jobs:  Yeah, people say you have a lot of passion for what you are doing, and it’s totally true and the reason is because it’s so hard that if you don’t any rational person would give up.

It’s really hard and you have to do it over a sustained period of time.  So if you don’t love it, if you’re not having fun doing it, if you don’t absolutely love it, you’re going to give up.

And that’s what happens to most people, actually.

If you look at the ones that ended up being successful in the eyes of society, often times it’s, the ones that are successful love what they did so they could persevere, you know, when it got really tough.

And the ones that didn’t love it, quit.  Because they’re sane, right? Who would put up with this stuff if you don’t love it?

So it’s a lot of hard work and it’s a lot of worrying constantly and,  if you don’t love it, you’re going to fail.

So, you gotta love it, you gotta have passion.

And I think that’s the high order bid.

The second thing is, you’ve gotta be, you’ve gotta be a really good talent scout because no matter how smart you are, you need a team of great people.

And you’ve got to figure out how to size people up fairly  quickly, how to make decisions without knowing people too well and hire them, see how you do, and refine your intuition,and be able to help build an organization that can eventually just build itself.

Because you need great people around you.

[end of transcript]

The video continues with a couple of other questions (I didn’t transcribe those) and I encourage you to watch the other videos of Steve Jobs and Bill Gates Together.

By the way, Steve and Bill share the same personality type — If you want to see more about that, go here: Bill Gates and Steve Jobs’ Personality Type

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Tuesday, May 5th, 2009

The 16 Carl Jung Personality Types

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There are 16 personality types, inspired by the works of Carl Jung (with subsequent products based on those types trademarked by Myers-Briggs).

Below is a list of the 16 Jung Personality Types.

Click on any one of them to learn more details such as good careers and famous people for each type.

If you haven’t already taken the quick test, take it here: Personality Type Test — It’s free!

There’s also a fun Simpsons TV Show Personality Test.

If you enjoy personality types, you might also enjoy the The Nine Enneagram Personality Types

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Tuesday, May 5th, 2009

Free Carl Jung Personality Test

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There’s a free 72-question online personality test (don’t worry, it’s all yes/no questions) that you can take to help determine which of the 16 Carl Jung personality types you are.

Some people call it the Jung Typology Test.

Here are some tips for you BEFORE you take this really valuable test:

  • Answer the questions honestly (if you try to game the system you it will mistype you)
  • Answer the questions quickly — Don’t spend more than 10 seconds on each question (you’ll finish in about 10 minutes or less)
  • Go with your gut — Click Yes or No based on what your gut tells you
  • When you’re finished, copy and paste your type AND the numbers associated with your type (those numbers will be helpful for you to dig more into your type later if you’d like to (without having to take the test again!).
  • No Wrong Types — Remember, there are no wrong types.

Ok, enough pep-talk. Click here to get your Free Personality Test

One more thing: Afer you’ve taken the test, don’t forget to check out The 16 Personality Types so you can find out more about your particular type (including careers that make sense for you and famous people who are your personality type!).

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