Ram Charan What Every Company Should Know

I love getting questions from readers, and I try to answer them whenever I can. In fact, beginning with this column, you can contact me at info@charanassoc.com with your questions and comments.

Here's an email I got the other day:

Dear Ram:

Implementing some of your ideas has helped us boost revenues tremendously, and our margins are up as well. But:

1. How do you keep people from burning out if they are working feverishly to increase profitable revenues?

2. How do I keep finding profitable growth projects that will make a meaningful difference to our company? At $10 million in sales, a $1 million new idea represents 10 percent growth. At $50 million, it is just 2 percent.

3. When, if ever, do I take money off the table and simply bank our (increased) profits, instead of investing them back into the business?

Thanks.

David

These are great questions, David. You'll see that the answers to all three have a common theme: A requirement for you to take a step back and seriously prioritize what's important to the company -- and to you personally.

That said, let me deal with the questions individually.

Preventing Growth-Related Burnout

There are numerous variables a business leader can't control -- the competition disrupts your best plans, the economy goes into a tailspin, or your best customer gets acquired by a company that prefers to work with someone else, for instance.

All these can account for stress in the workplace. But burnout is a separate issue, because it's something you can control.

Burnout is usually caused by employees being forced to confront frustrating situations at every turn -- endless meetings where nothing gets accomplished, say, or ones where previously decided issues are brought up again -- as well as by unreasonable deadline pressures.

It's not created by working on profitable growth ideas. People tend to find this energizing, and certainly prefer it to endless rounds of cost cutting (the only other alternative for increasing return on investment).

If your people are feeling burned-out, you need to make sure they're working on tasks they can accomplish. And be sure to celebrate once those tasks are accomplished, otherwise employees may feel that they're on a treadmill moving relentlessly from one project to the next.

Your job as a leader is to make sure employees have both the resources they need and the cooperation required to get tasks done. You may have to remove bottlenecks they face, and ensure that they're getting help from other departments, if that's what's required to create the growth initiative.

If it's a matter of having too much work to do, you need to help them prioritize. Use the 80-20 rule: 20 percent of your projects are going to yield 80 percent of your earnings.

So you need to determine what the company's most profitable projects are, and have your direct reports concentrate their efforts on those. Expecting people to do everything on your wish list is unrealistic -- you only have a limited amount of resources, and you want to use them effectively.

If your employees are already spending all their time on projects with the highest potential and are still feeling frustrated, you need to get to the root cause. Are they locked into only one approach because they all have the same background or perspective? Is the team leader ineffective? Or do you just need more people? All that profitable growth you've experienced allows you to hire more people if you truly have to.

All growth initiatives involve risk. But unlike the economy or your competition, burnout is a risk you can control. Make sure you have the right priorities and the right people to execute them. The key to creating profitable growth is thinking things through ahead of time, not feverish, last-minute activity.

Making Sure You Grow Enough

As for ensuring that the growth initiatives you're working on are big enough to make a difference, again, it's a matter of prioritizing. You don't want to tell your direct reports, "Only think of big-growth projects." That could limit the ideas they come up with, which is something you never want to do.

Indeed, one terrific way of ensuring steady, profitable revenue growth is going for what I call "singles and doubles": Relatively small wins based on improvements to, or extensions of, your business' strategy. Just like in baseball, combining enough singles and doubles is as effective as hitting a home run (which, in the context of profitable growth, is a breakthrough idea).

When your direct reports suggest ideas, you need to decide which ideas to pursue. Clearly, you now have the resources to take on projects that can generate $5 million to $10 million in increased sales -- projects that will increase the overall revenue of a $50 million company by 10 to 20 percent.

But the real question is whether you have the people to manage projects of that size. You may not. Either you have to make sure they learn the skills such projects require, or you need to hire people with those capabilities.

When to Take Money off the Table

I'm assuming that you own your own business; otherwise, the decision to bank its profits rather than invest them back into the company isn't yours to make.

If you do own the business, you have to determine your personal ambition. Sam Walton had the drive to be the No. 1 retailer in the world, and Bill Gates wanted Microsoft to be the world's leading software company.

Clearly, you may not have that kind of goal. If you've reached a point where you want to take money off the table because doing so will make you personally happy, do it. But you need to be aware of what will happen to your company if its stops growing.

Growth is the juice of life, and coming up with new projects keeps your business' muscles in shape. Zero growth, on the other hand, means your company is running in place, and eventually it'll lose market share to competitors who continue to grow.

If you're truly happy with where the company is now, seriously think about selling, otherwise the value of your business will decline over time. No company can run in place for long.

The Common Denominator

At some point, everyone running a growing enterprise will have to confront the questions you ask, David. And the issues you raise often seem to come out of nowhere. We're so busy performing our day-to-day jobs that it's easy to lose sight of the big picture.

As you've seen, the common denominator in addressing the issues involves taking some time to figure out what's important to the business -- and to you personally -- and then doing whatever's necessary to make sure you can accomplish your goals.

Ram Charan can be contacted at info@charanassoc.com.