Business Not As Usual: How to Win Managing a Company Through Hard and Easy Times

BUSINESS NOT AS USUAL

Volume 1

How to Win Managing a Company

Through Hard and Easy Times

Hugh Aaron

Published by Biblio Publishing at Smashwords

Copyright © Hugh Aaron 2013

ISBN: 978-1-62249-058-5

Contents

Forward

Preface

About This Book

Introduction

Chapter 1 – On Starting Out

Why I Went Into Business

Getting Started

No Cause for Regret

Time For a Change

Chapter 2 – On Free Enterprise

The Immorality of Capitalism: A Capitalist's Dilemma

The Free Enterprise System: At What Price?

The Dark Side of Capitalism

Hooked on Growth

Something's Wong With American Business

Where the Greenest Grass Grows

Worse than Recession: Striking Back Against Employees Turned Rivals

The Cruel Free Enterprise System

Chapter 3 – Irrationality in Business

Businesses Don't Fail, People Do

The Enthusiastic Company

Always Take a Second Look: A Recommendation From the Board of Directors

Two Cultures, One Company

Coping with a Rebound

Change Your Corporate Culture, And Win

Seven Deadly Small Business Sins

The Machine That Changed the World: A Review

The Managing Collective

Experiments With Time

Increase Productivity, Work Less

It's the Culture Stupid: Poisoning the Atmosphere

The Many Lives of a Business

Debunking Conventional Wisdoms

Downsizing for Profit

The Status Quo Be Damned

Shaping the Bottom Line

Chapter 4 – On Selling

Business: The Perpetual War

Who Needs the Customer Anyway?

Selling a Relationship, Not a Product or Service: A General Approach

Compensating Salespeople in the Real World

An Understudy's Dream

Lead Us Not Into Temptation

Chapter 5 – On Motivation

Opening the Company

The Open Company: How Open?

Motivation American Style

Defining Incentives

The Birth of an Incentive Plan That Works

An Incentive Plan That Works: Reward for Excellence

Computing a Hypothetical Incentive Plan

What Makes a Team Go?

The Successful Team

Are Team Incentives Un-American?

Recognition Versus Monetary Reward

Chapter 6 – On Profit Sharing and Employee Ownership

The Limitations of Employee Ownership

What's Wrong With an ESOP?

What's Wrong With Profit Sharing?

Stock Options, the CEO, and the Employees

Chapter 7 – On Managing Through Recession and Reversal

During Recession, Manage Defensively

Coping With Recession: An Identity Crisis

Making the Most of Recession: A Summary

Why My Business Almost Failed, But Didn't

Chapter 8 – On Employees

Curing a Dysfunctional Company

Fitting the Job to the Person, Not the Person to the Job

Making the Most of Our Differences (The Previous Essay from Another Angle)

Preserving Brain Power

Recession-Proofing a Company's Employees

The Alcoholic Employee

Breaking the Discrimination Barrier: Self-Imposed Affirmative Action

The Myth of Indispensability

The Manager That Would be His Own CEO

The Obsolescent Specialist

Beyond the Bottom Line

Making It On the Dole

Chapter 9 – On Chief Executive Officers (CEOs)

The Education of a Businessman

My Worst Mistakes in Business

The CEO as Superman

The CEO's Reward

Is Exorbitant Monetary Reward Necessary?

Sex and the CEO

Rotating CEOs

The Successful CEO

Facing the Awful Truth

What's a CEO Worth?

Who Says the Big Boys Are Smarter?

Who's On Top When?

A CEO's Life Cycle

The Crossroad

What Makes a CEO Go?

The Public Company: Who is Responsible When Businesses Go Awry?

Chapter 10 – On Entrepreneurship

Reflections on Being an Entrepreneur

What Makes an Entrepreneur Go?

Business Success: Luck or Ability? – Six Characteristics of a Successful CEO

What's Talent Worth?

How to Become a Millionaire: The Old Way Versus the New (An Ode to the Nineties)

Chapter 11 – On Partners, Friends, and Relatives

Who Needs Partners

The Business Partnership: Marriage Without Sex

Beware Friends and Relatives at Work

Chapter 12 – On Leadership

Leadership and Trust

Leaders are Made, Not Born

CEOs Can Strike Too

Dishonesty Pays, But…

Whose Fault Is It?

The Innocent CEO

Chapter 13 – On Bankers

A Banker's Faith

The Banker: Friend and Adversary

Chapter 14 – On Government Versus Business

Government: Friend or Adversary?

The Penalty of Success

What's So Bad About Inflation? – A Little History

Government's Role in Creating Jobs

Run the Government Like a Business, Mr. President

Treat Business as Your Partner, Mr. President

Locating the Company in Paradise

Chapter 15 – On Taxes and Business

Taxes and the Business Person

Small Business and the Capital Gains Tax

Small Business and Taxes

How a State and the Nation Can Beat a Recession

Chapter 16 – On Morality and Responsibility

Approaching Middle Age: A View of the Economic World

A Model for Poor Nations to Follow

Chapter 17 – On Selling the Company

Evening the Score of Caveat Emptor

How to Sell a Business and Survive

The Business Six Years After the Sale

Chapter 18 – On Retirement

Borrower Versus Lender, Businessman Versus Retiree

Neither a Borrower Nor a Lender Be

Social Security: The Big Deception

The CEO in Retirement

FOREWORD

It is common for authors of book introductions to say that they've known and admired the book's author for years. Not so here: until recently I didn't know Hugh Aaron from a Maine hole in the ground. I met him a year or so ago in the pages of The Wall Street Journal; the admiration dates from that introduction.

You see, I'm a business information junkie. I devour whatever I can, convinced as many of us are, that much of what we've been doing in business has been wrong-headed and needs to be jettisoned. In Forbes, Harvard Business Review, Business Week, Fortune, Business Horizons, books by the dozens by-you-know-who(m), and, of course, The Wall Street Journal. Enter Hugh Aaron.

I read one of Hugh's Wall Street Journal essays about his CEO experiences and was taken by its honesty, decency, logic and practicality. So into the permanent file, not recognizing the author's name, or even - I'm now embarrassed to admit - remembering it. About the fourth time this happened, I asked my secretary to get his address so that I could thank him for his unique contributions to the crowded business literature. Now you know.

Now, too, you have the opportunity to see why the prestigious Wall Street Journal has given so much space to Hugh Aaron's essays (9 as of this writing) and why so many strangers send him mash notes.

Here's just some of what you'll find in this book. First and foremost, the thoughtful observations and experiences of a CEO who faced, successfully, virtually all of the vicissitudes, challenges, frustrations and satisfactions of any business, of any size, in any business category. And with apologies to my friends in the academic world, here is the real blood, guts and giggles of running a business. This book, for example, strongly makes the point - regrettably underemphasized by some academics - that people really are the very essence of a business. Really.

More than that, Hugh Aaron used his company much as a scientist uses a laboratory: to test his hypotheses against reality and, by so doing, was willing to challenge his intuitive sense, was willing to discover that his instincts might be wrong. Many such experiments were conducted and much knowledge was gained.

The beauty part of all this: so much of what he learned is generalizable; his life, our gain. Your move.

GEORGE M. NAIMARK, Ph.D.

***

Dr. Naimark, a management consultant, has been a director of seven companies and is president of Naimark & Barba, Inc., Florham Park, NJ. He has written for management, marketing, advertising, scientific and medical journals and has authored two books: COMMUNICATIONS on COMMUNCIATIONS and A PATENT MANUAL FOR SCIENTISTS AND ENGINEERS.

PREFACE

For sixteen years after graduating college I was somebody's employee. During that time I held more than twenty jobs, among them waiter in a restaurant, quality-control technician, office manager, printing facility supervisor, plastic materials salesman, and manager of a small manufacturing division of a large corporation. I rarely lasted more than three years on a job—more often less than a year—usually because I was critical of the way the company was managed.

I saw that most management either denied the truth about what was happening or chose to ignore it. When I suggested change, the boss consistently shot down my ideas. Eventually I would be fired or I'd quit to search for the holy grail, the enlightened, progressive company.

But in those sixteen years of tumult, I learned, if slowly, how not to manage a company, and I recognized that I had to be my own master. Once on my own I learned to face the truth no matter how unpleasant or devastating it might be. This often meant accepting responsibility for bad decisions, not only mine but others' as well. When a recession struck, it would have been easy to sit back and say, I'm not responsible. Nothing can be done. I could easily have blamed my workers for their poor productivity. But blaming others, blaming fate, blaming forces beyond my control would have been irresponsible

With hardly a penny to my name, I joined three cohorts in a business venture, which for the next nine years endured one crisis after another. I found contending with partners draining and inhibiting. But in the tenth year, after buying out the last partner, with my employees as stockholders, I was free to experiment with a long list of innovative management ideas. Until I sold the company ten years later, it had become a virtual management laboratory.

The essays that follow are an autobiographical account of my failures and successes, under business topic headings, in dealing with the company's problems and my own private problems as CEO. I have tried to be objective and honest. My theme throughout the book is: accept responsibility for what happens; face the truth no matter how brutal it is; and don't expect to find quick fixes and easy solutions.

If the reader finds these experiences and my message helpful in his or her own pursuit of solutions to business problems, I will be gratified.

ABOUT THIS BOOK

These essays were written throughout the 1990s and the early years of the twenty first century. Eighteen of them were published in the Manager's Journal column of The Wall Street Journal; the remainder were accumulated with the aim of being published, or not, at some uncertain future date. They were not composed as a continuum; they were simply a vehicle by which I could formulate my thoughts in reaction to what I read or experienced in so-called retirement. As a consequence, in some essays the reader might recognize aspects of the same situation in references to my former company and the events that affected it. For this I seek the reader's patience. I present each essay from a different angle so that it would stand alone, and hopefully give fresh meaning to what had already been established.

INTRODUCTION

From our company's beginning, with one employee and myself in a small garage with a dirt floor and a leaky roof, to its eventual sale in the comfortable seven figure range almost twenty years later, I learned much about business—what not to do and what was right to do.

I learned four important lessons: 1) a business depends on human relationships; 2) the bottom line is the truth, and it must be heeded with the least cost to human happiness; 3) nothing in business lasts, including the business itself; 4) and eventually the demands of a business exceed the capability of a CEO to meet them wisely.

Regarding relationships, everything that benefits them benefits the business. Failure to nurture those relationships, whether with employees, customers, vendors, banks, investors, the community, or the nation, damages the business. That fact wasn't obvious to us at first.

After selling my business, it never occurred to me that I had anything to say, that what I had learned from the experience would be valuable to others. I took our company's experimentation and achievements for granted. Only after The Wall Street Journal published my letter to the editor as a piece in their Manager's Journal column did I realize how unique yet universally applicable my experience had been.

CHAPTER 1

ON STARTING OUT

WHY I WENT INTO BUSINESS

The small publicly held company on Long Island was in trouble. It was running out of cash and, worse yet, bank credit. Only the tiny satellite division I managed in New England made a profit, and that was being drained off. (In effect we were the child supporting the parent.) Barely two years old, the division was producing a then-innovative product that allowed the fabricator of a plastic item such as a toy to color the plastic material at one-third the cost of the usual method.

Meanwhile, a large, successful, publicly held company in New York had opened a facility in Atlanta to produce the same type of product. Management at that facility, after two years of mounting losses, had become desperate. The necks of the brass were in jeopardy.

The New York company approached me to identify and solve their problems. They offered a hefty salary and an executive position. Having lost confidence in the company I worked for, I took the job.

The plant was in an industrial suburb, but its administrative staff worked from luxurious offices in a downtown skyscraper. I resided, at company expense, in a high-rise hotel nearby. On my first tour of the enormous plant, I was impressed by the array of equipment and the sophisticated lab, with its costly, state-of-the-art analog computer. The operation was obviously the realization of an engineer's dream. By comparison, my old operation was in the dark ages- but it made money. But by the time the tour was over, I knew what was wrong.

• The plant was designed for lengthy production runs, but the market was still young, and orders for large volumes were rare.

• Because the machines were so large and sophisticated, they were down more often than up.

• The company chose an unfortunate market to pursue almost exclusively. The highly competitive and fickle automotive field imposed strict specifications on its suppliers and showed no mercy when breached.

After a few weeks I also observed:

• Computer formulating, then in its infancy, took more time and labor than the old-fashioned way, and the formulations were often inferior.

• The plant consistently failed to meet delivery dates

• Management had a misguided goal: running a technologically superior plant—a showplace to court their automotive prospects—rather than the lean, flexible type of operation needed to serve the existing markets.

In the next month, I familiarized myself with the details of the operation, the politics of the organization, and the personnel pecking order. Holed up in my hotel room for a week, I turned out more than a hundred hand-written pages describing what was wrong with the company and what remedial steps should be taken. I turned in the document to be typed.

Three weeks later the brass in New York called to demand that I give them something less radical. The division vice president wanted me to retract my ridiculous statements that virtually condemned the entire operation and prescribed starting over. If my paper were to see the light of day, he said, even if I were right, everyone—the manager, the engineers, the marketing and sales people, himself, his boss—would be at risk. I insisted I did what I was hired to do: write the truth as I saw it.

That Friday my check included severance pay. I knew I had to become my own master.

(Less than a year later, the division vice president and all his cohorts were fired. Eventually so was the president.)

GETTING STARTED

The first day in my own business, I felt like a man unbound, taller than before, breathing pure oxygen. Until then I didn't know how frustrating my life as an employee had been. Finally, no one could tell me what I must do. The future seemed as open as the sky.

It was never the same again. Reality quickly closed in. I soon discovered I had entered a race against unmerciful time.

For years as an employee, I waited for a chance to have my own business. I had devised a plan to make coloring products for the plastics industry, but I wouldn't do it without the prerequisites for success.

As it happened, they came together seemingly overnight.

• I had the manufacturing know-how. After managing a similar operation for a division of a large corporation, I knew the business in detail, how to formulate and manufacture the product, what equipment to buy.

• I had a superior product with distinct advantages. New to the market, color concentrates provided the customer with a less costly method of coloring plastic than the standard one in use and resulted in a reduced raw materials inventory.

• As a salesman for the division, I knew the market and the territory intimately.

• I had three willing partners: one skilled at production, one wealthy but silent, and one a supersalesman. I was a pretty good administrator.

• I had the necessary capital. Not only did the wealthy partner furnish the startup money, his father-in-law was on the board at the local bank.

• The timing was good. In 1966 the plastics industry was booming at a faster clip than the already upbeat economy.

However, one by one these prerequisites proved to be less genuine than I had anticipated. Our equipment couldn't make a product that would satisfy fussy customers, so we were limited to a low-priced, narrow segment of the market. Our product worked poorly in customers' automated handling devices due to its texture dictated by our process. The production partner chose to work banker's hours, and the supersalesman devoted most of his time to managing a marina in which he had invested.

As for the necessary capital, the key partner refused to put up additional funds for more equipment to tailor our products to the demands of the market. Furthermore, even the customers we had counted on were reluctant to buy from a new business with unproved staying power. I saw doom on the horizon.

At the end of the first year, the company showed a negative net worth and a loss equivalent to 50 percent of gross sales. Meanwhile, I had been working twelve hours a day, six days a week for almost nothing. After a large firm offered me a substantial salary to set them up in the business and run it, I told the wealthy partner (who owned controlling interest) that I would quit. When he asked that I stay until the end of the quarter, I formulated a proposal to buy out the two useless partners for a nominal sum if he would give me enough of his shares to make me a 50 percent owner. He promptly agreed. The others protested, but I remained adamant and had my way.

Before the quarter ended, the company experienced its first month's profit. A miracle? Not really. In fact it was the first fruits of my year-long effort of faithfully calling on the trade. It seems a year was enough to convince customers that we were going to last.

The other company's offer was still there and enticing. But I knew that I wanted my own business. Given the freedom to be my own master, the incentive to receive reward for my risk and my labor, and to be rid of the handicap of unproductive partners, I would stick it out to a happy or an unhappy end.

For the next twenty years, until I sold the company, despite some difficult times, it never experienced a red bottom line again. Though my wealthy partner wouldn't put up more money, his signature was golden (unlike mine in the beginning) at the bank where we secured loans to purchase better equipment to make the products I knew we could sell. What it took to succeed had come together.

Years later when my partner and I had a falling out, my decision returned to haunt me. Though I had been in the driver's seat back then, I was timid. With no record of success, I lacked self-confidence. I had made the error of not demanding full control.

NO CAUSE FOR REGRET

A friend phoned with a dilemma. He wanted to sound me out on whether he should accept the offer of substantial advancement in the large corporation he worked for, or start a business based on a new idea that had been on his mind for some time. A family man in his early forties, he seemed to be calling not so much to ask for advice as to learn what he himself wished most to do.

He brought to mind my own dilemma almost thirty years ago when I was his age. I was offered the chance of assuming a principal role in a large, successful organization in a field I knew well. At the time, I was running my own failing business. I had children, a house with a mortgage, car payments, and meager savings. My wife and I agonized over my options. When she said that she would go along with whatever my heart told me to do, I decided to turn down the golden offer. I knew I had to stick it out with my business regardless of the sacrifice.

My decision was the culmination of years of unhappiness and frustration working for organizations in which I felt little security due to mismanagement, the persistence of small dishonesties by my superiors, and especially the suppression of innovative ideas. Most frustrating was the inability to participate in decisions affecting my job. I longed for the opportunity to express myself and, at least to some extent, control my destiny. So I struggled. It took twenty years, but I proved to myself that I could succeed.

My friend's call was not the first of its kind that I'd received. When my daughter was about to enter her junior year in college, she was undecided about her career path. Should she aim for a good job and steady income or something less practical but more gratifying? I asked what her choice would be if she put aside practical considerations: money, prestige, security. Immediately she replied that she'd like to counsel people, to help them find the careers that best suited them. Voila! She knew what she had to do; she eventually got her PhD and became a psychotherapist. So decisions of the heart can lead to increased challenge and growth and may also lead to financial security.

After my friend had presented the pros and cons of his alternatives, I asked him the same question I had asked my daughter: in his heart what did he most want to do? Without hesitation he answered: start a new business. He said if he didn't do it then, he might never do it. For him the time was right. His decision had nothing to do with money, prestige, and security after all.

I learned that the season of a person's life is crucial to his or her major decisions. A young person starting out has time to correct a wrong decision. But a mature person may feel no such opportunity. I learned how universal those feelings are at a business psychology course at Harvard.

We were a hundred executives, most of us presidents of our own companies, gathered in an auditorium early one morning. The professor entered, studied us for a moment, and asked how many of us between the ages of thirty-nine and forty-two had made a major change in our lives: gone into business or changed jobs, gotten married or divorced, entered an extramarital relationship, done something we had never done before. Looking about the room, I was startled to see that every person's hand was raised. Such a change applied to me, as I assumed it might to my inquiring friend.

I had gone into business at forty-two. It was very late, I thought then. When I was looking for a job at thirty, interviewers had said I was too old. At thirty-five, headhunters told me I was well over the hill, that I mustn't be choosy. By forty, I felt I had one last chance to make my mark. Forty-five would be too late, and fifty was out of the question. My drive and energy quotient were peaking. The choice was clear; it was time to act from the heart. The odds are that my friend will succeed. When we do a thing from the heart, we usually do it with determination and brilliance. If we fail, at least we have no cause for regret. For how could we know the outcome if we didn't try? And how much worse would it be if we never knew? It's the same whether we're twenty, forty, or sixty. In not trying lies the cause for regret.

TIME FOR A CHANGE

I was forty-one when I took over a tiny, failing plastics materials business, and sixty when I sold it for enough money to last my wife and me for the rest of our lives. I was often asked then why I decided to sell, especially because the company, which was owned and staffed with seasoned, loyal employees, was doing so well. The best time to sell a company is when it's succeeding, I would reply. On a more personal level, I added that it was time for a change. The business was beginning to bore me.

What I wasn't ready to admit was that I had become a weary, old warrior, fearful of the struggle that defines the competitive free enterprise system.

Some people remain in it until they die. The chairman of the company to whom I sold the business was in his mid-seventies at the time and raring to go. Though I didn't understand why he hung in, I had to admire him. Perhaps he had nothing else to go to, whereas I did: I wanted to write. I know a doctor who retired at my age and does nothing but manage his investments and read books and The New York Times. He doesn't understand why I spend my valuable retirement writing, and I don't understand how he can do nothing.

At forty-one I was raring to go. It's a critical age, when you appraise life realistically and feel that the opportunity to succeed—to realize what's left of your youthful dream—must be seized then or never. At this stage of life you may not have accumulated much in the way of tangible assets, so you haven't a lot to lose. Thus, starting a business is not only a challenge, it's fun.

You thrive on the knowledge that the business grows at the expense of the competition. When reversals occur, you shrug them off because the business is still small enough to be resilient; it hasn't become sclerotic with overhead and serious debt. Indeed, reversal only urges you to try harder.

But after a number of years of steady growth, the business tops out. The cause may be a recession or an increase in the number of competitors or the development of a new product superior to yours. You scramble to stay even, let alone forge ahead. Finally, with sheer determination and all the ingenuity you can muster, you overcome the adversity and regain your position. This happens time after time, and you come to understand that traveling the road to success is a jagged journey.

When you're forty to fifty, you travel the road eagerly, always feeling confident of winning. But as you win you're also aware that you have more to lose: a successful company saddled with substantial debt, and cars, homes, and a surfeit of personal assets. By sixty you dare not suffer losses, because you feel that you're too old to recover them. You may not have the energy and, worse, you may no longer have the imagination to ward off the reversals. You take every threat to the business as a threat to your security and pride. Your security consists of all you have accumulated during the years of triumph, and your pride is derived from that triumph.

Looking back from my seventh decade, I see that at sixty I wasn't too old by a long shot. But it's our self-perception at a given time that matters. At sixty, a president of the United States is hardly considered old. Still, I've wondered how often men in that office questioned whether their prestige and power were worth the personal price they were paying. I think ordinary citizens assume that the question never comes up. As CEO, I had unconsciously asked myself whether I was still emotionally fit to do battle in the free enterprise war. Was the risk of losing so much worth it?

So, all you entrepreneurs and would-be entrepreneurs in your thirties and forties (in your twenties you're too unsettled, and in your fifties too battle worn), seize whatever opportunity comes your way, because if you delay, it may well be too late. You need a decade or two to create and acquire too much to lose. And you'll need some time left over to do nothing, or to do something entirely different, or to keep fighting the war that you can't live without because it's all you know.

CHAPTER 2

ON FREE ENTERPRISE

THE IMMORALITY OF CAPITALISM:

A CAPITALIST'S DILEMMA

Being a product of the capitalist system, born into it, raised in it, educated in it, I never questioned its morality. I saw that it created a disparity in income and standard of living among the population but I attributed it mostly to the difference in individual native ability or education or just plain luck. Living in Chicago during my college years I saw the enormous slums and riots there more the result of racial prejudice than of the system. In other words the opportunity to succeed was always there; it's the American ethic.

Believing this as gospel after graduating college I went to work for several different companies, both large and small, in various industries for the next twenty years. There I observed that the incomes of the top managers and owners were far beyond anything that I could aspire to, at least as an employee. The solution would be to somehow start my own business, as my father did. And the underlying assumption was that money would determine the measure of my success. After all, it defined the American free enterprise ethos.

I was a perfect candidate to achieve that success. I was a believer in the system without regard for, or really awareness of, its negative aspects. It was total acceptance; I had faith in its rightness as if it were a religion. So after two decades of being a cog working for other companies, I went into business, a manufacturing business, where I thought I would have total control over my destiny, and where nothing I did could harm anything or anyone else so long as I was honest and acted within the law. I couldn't have deluded myself more.

While I was in business – having sold the business I'm now retired – you might say I was a type A personality, driven, meeting crises head on, hiring and firing people strictly from the point of view of whether they benefited the enterprise or not. We polluted the air, generated toxic waste which ended up in landfills, and sold materials which often caused environmental damage, and even health risks. Nothing that we did was illegal. Everything we did was sanctioned by our government and our community and considered beneficial to the economy and the nation.

And in some sense it was. Our company gave people employment; it manufactured much needed industrial products; it paid ever increasing taxes to our town and the nation; it contributed to the general prosperity of the community. Indeed it was a typical capitalistic model to be emulated. Yet, gradually, as over the years I witnessed our success, I began feeling something was wrong. Something was incorrect with the model, and with my thinking. I began questioning my original concept that capitalism had no downsides.

I began to be bothered seeing my workers, many years older than myself, doing difficult physical work at a time when