Author: William N Thorndike Jr
Format: Audible / Kindle
Subject: Capital Allocation
The outsiders is an investigation into what makes a truly great CEO. The Outsiders is written about eight exceptional CEOs. These CEOs delivered returns that trounced the S&P500 over the long-term. These CEOs are in many ways the polar opposite of the household name CEOs we think of today. The book spends a significant time covering the importance of sound Capital Allocation strategies.
- CEOs need to do two things well to be successful: run their operations efficiently and deploy the cash generated by those operations.
- There are two basic types of resources that any CEO needs to allocate: financial and human.
- Stiritz “disdained the false precision of detailed financial models” and instead focused on a handful of key variables: market growth, competition, potential operating improvements, and cash generation.
- These CEOs “used leverage selectively, bought back a lot of stock, minimized taxes, ran decentralized organizations, and focused on cash flow over reported net income.”
- Warren Buffett has proposed a simple test of capital allocation ability: has a CEO created at least a dollar of value for every dollar of retained earnings over the course of his tenure?
- Buffett believe the key to long term success is “temperament,” a willingness to be “fearful when others are greedy and greedy when they are fearful.”
- Buffett upon finally closing Berkshire’s textile business: “Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.”
- “It is impossible to produce superior performance unless you do something different.” – John Templeton
- You are not wedded to a particular business or industry
Capital Allocation Tool Kit
- Raising Capital:
- Tap internal cash flow
- Issue debt
- Raise Equity
- Invest in existing operations
- Acquire other businesses
- Pay down debt
- Issue dividends
- Repurchase stock
I had the privilege to attend a local Vistage meeting as a guest this morning. The speaker was Craig Weber and the topic was about piercing conversations and conversational capacity. Weber is an engaging speaker and did an excellent job of educating the group on the concept of conversational capacity.
The idea behind conversational capacity is that for any given group of people, there is a list of topics and / or issues that we could rank from most difficult at the top to the easiest at the bottom. If we started at the bottom of the list the group could have productive conversations and proactively solve issues. But as we work our way to the top of the list, the group will eventually stall out and become unproductive. The higher up the list a given group can productively converse is a measure of its conversational capacity.
Weber states that when conversations get difficult most people tend to begin either “minimize” the conflict or trying to “win” the conflict. The problem is that these two behaviors are unlikely to lead to the best possible outcomes. And the most effective teams will find a way to operate in the “sweet spot” which is the middle ground between minimizing and winning.
After explaining the concept, Weber went on to provide some tips on how to build the conversational capacity in our given groups.
Tips for Maintaining the Correct Mindset in Meetings:
- Ask yourself, “What am I seeing that others are missing?”
- Ask yourself, “What are we all missing? What are our blind-spots?”
- Ask yourself, “What do others see on this issue that I don’t?”
Actions for effective decision making:
- State your Position.
- Explain your thinking.
- Test your hypothesis: “What am I missing?”
Common behaviors of Minimizers:
- Passive body language.
- Withholding their concerns.
- Asking leading questions in an effort to backdoor their positions.
- Feigning agreement.
- Emailing opposing ideas as opposed to face-to-face conversations.
Common behaviors of Winners:
- Aggressive body language.
- No inquiry into opposing ideas or positions.
- Dismissive of others ideas.
- Stating opinions as fact.
- Use of hyperbole.
- Asking leading questions in order to sabotage other persons position.
Other interesting ideas and quotes from the presentation
- Management’s business is building an organization that works!
- Authority figures should generally weigh in last.
- Your ego is the biggest enemy to your conversational capacity.
- “Be that as it may,” is a very sophisticated way of saying “Whatever!”
- A drowning person might know that they are drowning, but that is no substitute for knowing how to swim.
- Most often in life, in order to actually get smarter, we have to feel dumber first.
- The job of the executive is to to be right at the end of the meeting, not at the beginning of the meeting.
Harley Davidson Decision Levels:
- Top Down – No input required.
- Consultative – My Decision, but I want input.
- Consensus – Group Decision, and group input needed.
Author: Jeffrey Thull
Format: Audible / Kindle
I recently told my boss that if I had to do it again, I would have focused my early career in sales. Great sales people are immensely valuable and incredibly hard to find. A few weeks later, a member of our board of directors recommended I read Exceptional Selling. In fact, he was even kind enough to send an electronic copy of the book directly to my Kindle. But as usual, I opted for an Audible copy as well.
Thull’s research is based on some of the most successful salespeople in the world. And one key point that stuck out to me is that the most successful salespeople in the world are comfortable talking about pricing. Their comfort is driven by the understanding of the value they bring into collaborating with the customer in an effort to solve the customer’s problems. Thull also spends a lot of time covering his four-step sales sequence: “Discover, diagnose, design and deliver.”
Side Note: Hat Tip to Mickey Miller for recommending this book.
Qualities of a good Diagnostic Sales Proposal:
- Contain no surprises (good or bad.)
- Will have the customer’s fingerprints all over it (uses language and terminology used by the customer.)
- Will Solicit feedback (which allows for fine-tuning before the final proposal.)
- Will be formally presented, in part by the customers own people.
- We need to be professionally involved and emotionally detached from our customers.
- The customer is the judge and the jury in the sell, but you are the expert, the guide.
- Silence is a sign of wisdom. It is okay to think.
The Value Triad:
- Sources of Value
- Uses of Value
- Absence of Value
- When you’re feeling pressure, you’re doing something wrong.
- Do not answer unasked question.
- The initial contact with a prospective customer is the most critical.
- Salespeople are guilty until proven innocent.
- When in doubt, do the opposite of what a salesperson would do!
- In absence of quality decision process, the decision will degenerate to the lowest common denominator: price.
- Diagnosis is something you do with your customer, selling is something you do to your customer.
- You can’t lose something you don’t have.
- You are either part of your system or someone else’s.
- Do Not allow the customer to self diagnose.
- One opinion does not make a consensus.
- People never say what they really mean at first.
- You must always protect the customers self esteem.
- Needs do not equal expectations.
- You have competitors; your customers have alternatives.
- The purpose of a proposal is to reinforce decisions that have already been made.
- When you are presenting on a piece of a larger solution, don’t confuse selling with installing.
- Professionally involved, emotionally detached.
- If you don’t have a cost of the problem, you don’t have a problem.