With a swift shoulder shove I force open the front door. Like an intruder, sunlight breaks into the dingy townhouse sending cockroaches scattering over dusty floorboards. I step inside, my eyes surveying the scene. Some might focus on the crumbling walls, the pigeons flying about, or the time and resources renovation projects demand. But I envision a $120,000 payday.
Property renovation can be frustrating or rewarding – the difference being preparation. To create income renovating real estate I created a system I call FREEhabbing, which allows me to renovate fast, easy and with little to no money down. Here’s how it works:
“Eyeballing” the Project
Crucial to your pre-contract negotiation with the seller is your ability to identify to determine potential cash flow or equity. Look for Value Deficiencies – deficiencies in the property that create value to you, the buyer. On a yellow legal-size pad and clipboard, list items that need attention and their approximate cost. By doing so, you will better understand the scope of the project and gain negotiating leverage. Consider bringing someone along who knows renovation until you develop cost estimating proficiency.
Controlling the Property
If you determine rehab. profit potential, your next step is to control the property with a contract. The easiest way to do so is a straight cash purchase, but there are also creative alternatives such as negotiating a lease with option, short-term annuity, partnership, and/or delayed settlement. Using these methods, you can put off payment for the property until your rehab is complete.
Once your purchase or option agreement is ratified, you’re ready to begin FREEhabbing! Begin by purchasing drawings and a “Spec’s Book” from a local architect. The drawings will give your contractor a guide for layout, and the specifications book will tell the contractor exactly what materials will be used, the color of paint, etc. For standardization, I use the same Spec’s Book for all of my projects. (Buy it for $99.)
Select a Contractor
Your Spec’s Book is an essential tool because it allows you to collect apples-to-apples bids from contractors. Set an appointment at the property to meet three to five general contractors. Give each contractor a copy of your Spec’s Book and drawings, a deadline for the project, and a two or three week deadline to turn in their bid.
As bids come in, perform your due diligence. Study each contractor carefully. Is their bid complete? Was it presented on time? Are they professional and polite? Do they have business cards and stationery? Visit their current project. Note the condition of their clothing, truck, and tools. Call references and explore past relationships in detail. Verify their license and complaint history with the licensing board, and their bond with their insurance company. Ask for a copy of their credit report. Have a detective run a criminal background search. You will be married to the contractor for 2-6 months, so be sure before you say, “I do.”
In addition to the due diligence above, the best way to protect yourself from financial losses is to PAY UPON COMPLETION. “Will anyone do that?” people ask in my seminars, “What about a third up front?” Actually, payment upon completion is standard in the commercial contracting realm; the investor can simply refinance the property when the job is done to pay off the contractor – no money needed. At that most, I would consider paying upon completion of phases. Ignore this advice at your own peril!
A final note about selecting a contractor – don’t be your own G.C. You might save a little money, but you will lose time that could be used to put together other deals.
Once your contractor is on board, hold him or her accountable by diligent project management. Verify exactly how work will progress, and make both scheduled and unscheduled appearances at the job site.
Usually, the Schedule of Work begins with the Alarm and Roof phases to secure the building. An alarm can be installed even without a phone line. Board up ground level windows to keep out would-be thieves.
Next, move on to the Demolition phase. Create a clean and efficient job site by removing all debris at once. If there is a considerable amount, the cost of a dumpster is usually cheaper than paying per truckload. Some municipalities will even provide and remove a dumpster for the block at no cost. Once the walls are “open,” assess the structural condition of the Sub-Floors. If floors are not level, repair or replacement of joists may be necessary to create a solid foundation on which to build.
Heating, Cooling, Ducts, Plumbing in Rough, and Electrical phases are performed together. Regarding heating, radiant heat is the most efficient so if it’s fairly new, there is no need for replacement. If you’re adding central air, you will need to install ducts and possibly upgrade the electric. Make sure to size the A/C unit properly, (1 ton effectively cools 600sf). Convert fuses to breakers, and test plumbing before closing in walls.
When the house can sustain a temperature of 65 degrees, joint compound can cure, so begin Framing, Drywall, Doors and Interior Painting. When you reach the Floors, Stairs, Trim phase you’re halfway done! Because I hold my projects for rental, I prefer hardwood and tile over carpet and vinyl; they look better, are more durable, and add greater value to the property.
The Kitchens, Bathrooms, Fixtures and Exterior phases can be completed simultaneously. Make sure to tell your architect to design the kitchen with pre-built standard-size cabinets in mind. You might also consider using tile on the countertop which saves money, and looks better than laminates. Unless you plan to Landscape, Punchout is the last phase, and consists of addressing any items which still need work.
Whether you intend to lease or sell, consider signing an agreement and taking a deposit from your tenant or buyer prior to completion, so when the job‘s done, you can profit immediately.
They say renovation projects always take twice as long and cost twice as much as projected. If that were true, Mr. Trump, Mr. Rockefeller and Mr. Rouse would be poor men indeed! But look at the tremendous failure of “The Big Dig” subway project in Boston – millions over budget and years behind schedule. The difference between the two is preparation. So the next time you walk into a crumbling building, what will YOU see?
Investors United School of Real Estate is America’s first professional school dedicated exclusively to real estate investment training. With personal mentoring, state-of the-art resources, and a practical hands-on approach, members “earn while they learn.”
Republican presidential candidate Willard Mitt Romney was born on March 12, 1947. He was named for his father’s best friend, hotel businessman J. Willard Marriott and Milton “Mitt” Romney, a relative who played football for the Chicago Bears. His father, George W. Romney, was a former Michigan governor, Housing and Urban Development Secretary, American Motors chairman and presidential candidate. His mother, Lenore, was an unsuccessful U.S. Senate candidate in 1970. Romney married his high school sweetheart, Ann Davies, in 1968. They have five sons, Tagg, Matt, Josh, Ben and Craig and ten grandchildren. Ann Romney was diagnosed with multiple sclerosis in 1998.
Romney grew up Bloomfield Hills, Michigan, along with his three siblings, Lynn, Jane and G. Scott. After attending Stanford University for two semesters, Romney took a leave from school to serve a 30-month mission in France as an LDS missionary. When he returned to the states, he transferred to Brigham Young University, where he graduated summa cum laude in 1971. In 1975, he graduated from a joint JD/MBA program between Harvard Law School and Harvard Business School.
Born: March 12, 1947
Famous For: Republican candidate in 2008 presidential election. As governor of Massachusetts, he achieved a balanced budget every year.
Significant Quote: “It’s time for innovation and transformation in Washington. It’s what our country needs. It’s what our people deserve.” (announcing his candidacy for President)
Fun Quote: “No, I represent the people. You represent the media. You’re supposed to be unbiased.”
After college, Romney spent some time working for the Boston Consulting Group before becoming a vice president at Bain & Company, another Boston-based management consulting firm. In 1984, he left the company to co-found Bain Capital, which soon grew into a highly successful private equity investment firm.
In 1990, Romney was asked to return to Bain & Company, which was facing financial collapse. Within one year, he led Bain & Company through a highly successful turnaround and returned the firm to profitability. After that year, he returned to Bain Capital. During Romney’s time there, the firm founded or invested in companies such as Staples, Brookstone, Domino’s and The Sports Authority. He left Bain Capital in 1998 to head the 2002 Salt Lake City Olympic Games Organizing Committee. In 1999, Romney was hired as the president and CEO of the Salt Lake Organizing Committee. He contributed $1 million to the Olympics and donated his $825,000 salary to charity. It was here that Romney first gained national recognition.
In 1994, Romney won the Massachusetts Republican Party’s nomination for U.S. Senate, but Senator Ted Kennedy went on to win the election with 58% of the votes to Romney’s 41%.
In 2002, after a battle over residency requirements, Romney was elected governor of Massachusetts with 50% of the vote over the Democratic candidate. He did not seek re-election. Instead, on January 3, 2007 (just two days before he stepped down as governor), he announced the formation of a presidential exploratory committee. On February 13, 2007, Romney officially announced his presidential candidacy.
As governor of Massachusetts, Romney supported education reform and abortion rights, but has since described himself as pro-life. He supports the death penalty and advocates making health care more affordable.
Romney is one of only a few Mormons, including his father and Orrin Hatch, to run for president.
Mitch Mueller writes on a variety of web topics, always trying to make it easy for folks to use the web to better their lives.
And what does one do with an MBA anyway? What kind of role does an MBA typically fill? What kind of tasks is he/she responsible for? Who are the more popular recruiters?
Below are three commonly filled roles by newly minted MBAs. Keep in mind that these are broad categories and there are many types of opportunities available inside and outside of these descriptions. Still, the companies listed below hire MBAs year after year and are used to offering the kind of exposure, experience, and compensation that an up and coming executive expects.
oManagement Consulting. These firms help solve high level strategic problems at the nation’s top companies. The executives will ask you a tough question that challenges their business and you will work hard to find the answer. Market research, competitor analysis, and historical trend research are some of the tasks involved in this role. Top firms in this area are McKinsey & Company, Booz-Allen & Hamilton, Bain & Company, The Boston Consulting Group, and Accenture.
oInvestment Banking. These firms advise companies on issues of financial strategy. They help companies trade securities, raise money, and manage financial assets. Accounting knowledge is very important because “bankers” are excellent at understanding how money flows through a company and pointing out a company’s financial pain points. Examples of top companies are Merrill Lynch, Smith Barney, Morgan Stanley Dean Witter and Goldman Sachs.
oBrand Management. These companies make many of the consumer products you use everyday. Kraft, General Mills, Procter & Gamble, Nestle, and Coca-Cola are examples of large firms in this area. This role functions a lot a like a general manager where you are responsible for the profit and loss of a certain product line. Your job is to understand the vision for the particular “brand” and work with your team of experts to create promotions, extensions, and ultimately a profitable product line.
These three roles are very popular career choices amongst MBAs. The companies listed here recruit MBAs on an annual basis from top MBA programs. If you are interested in an MBA degree these are the kind of positions you can look forward to. Study the companies included in this article to see which company makes the most sense for you.
Did you find this information on MBA jobs useful? What MBA job are you looking for? Do you know where MBAs typically struggle in their career? Find out for free at http://www.EvenBetterConsulting.com
Creating your own wealth requires a foundation strong enough to resist the temptations and stumbling blocks that are continually put in the path way of those who seek true financial freedom and wealth. Only those who truly embark on this quest will be faced with the most opposition. In the following article I will attempt to outline four simple ways I have found effective in building a strong foundation to creating my own wealth.
Admit it! You are you because of you
I heard a saying once that went something like this “Mum and Dad got me started, I did the rest”. It’s a simple but true analogy. Recognising that we are where we are because of our own decisions, I believe is the first step to a good foundation of wealth. You must first admit to yourself that there is only one person to blame if life has not turned out the way you had anticipated, that person is you. George Bernard Shaw said: “People are always blaming their circumstances for what they are. I don’t believe in circumstances. People who get on in this world are the people who get up and look for the circumstances they want, and, if they can’t find them, make them.” (Quoted in John Bartlett’s Familiar Quotations, 15th edition, ed. Emily Morison Beck, Boston: Little, Brown, and Co., 1980 p. 680.)
The reason I believe that this should be the first step is simple; Work from the inside out, not from the outside in. Blaming outside influence and circumstance is not going to bring you peace and happiness, only frustration. True happiness comes from within, and step one is; Admit it! You are you because of you. Now you can begin working on creating your own wealth because you have found out who is responsible for this life. You hold the power to creating the life of your dreams.
Time is your greatest Investment
The world has set the standard of work for us. Most people work 9am – 5pm or something similar and have the weekends off if they’re lucky. Our time is so precious and we spend most of it working for money that barely gets us by. Some are lucky enough to save a little of that money while others don’t have that privilege and just scrap by from pay cheque to pay cheque. I grew up in a poor area in New Zealand called Cannons Creek, Porirua. My family has always been poor it’s only now that I realise how little my parents knew about money. Funny thing is most people are no different to my parents. These days I spend my time doing the exact opposite to what my parents taught me financially. I realise now that time is my greatest investment, what I spend my time on is largely influenced by my personal goals and dreams.
In a normal scenario 80% of my time was spend on things I did not want to do and the other 20% was spent on things I actually enjoyed, that’s if I had enough energy after working so hard. I have changed that scenario around; I now spend 20% of my time working and 80% of my time working towards my dreams and goals that will ultimately lead me to financial freedom and wealth. My time is now spent on my future and the future of my family instead of bills that will never go away unless I make them by changing my circumstances. So what changed my mindset from dreaming to doing? Simple I began to invest time into my self-development and mindset. I decided to hang out with millionaires who started from similar circumstances to mine. They shared their advice and guidance without criticism or doubt in my abilities. They were always available for a quick or long lesson 24 hours a day. I didn’t know these people personally but I begun hanging out with them through books, I ordered my first book from a website the best part, it was free! I read this book and began my journey to success. I took action and have never looked back which leads me to my next point of a good foundation to wealth.
Learn the Master trade of Goal setting
I am a tradesman and I know my trade well, I also know how long it takes to learn my trade properly. Just like any trade goal setting is not an easy task when you do it right. Anyone can set a goal but not many (in my experience anyway) achieve that goal. The main principle I think we need to understand about goal setting is it’s a two part package, just like buying a new pair of shoes, you get two shoes in the box one for each foot. To my knowledge there is not a shoe shop in the world that only sales one shoe without the other. Goals are the same, you first set them then you achieve them you can’t have one without the other and if you do its just as pointless as wearing one shoe.
Russell M Ballard said this about the importance of goals; “I am so thoroughly convinced that if we don’t set goals in our life and learn how to master the technique of living to reach our goals, we can reach a ripe old age and look back on our life only to see that we reached but a small part of our full potential. When one learns to master the principle of setting a goal, he will then be able to make a great difference in the results he attains in this life”. I honestly believe that half our problem lays here in the early stages of goal setting. If we can cultivate an understanding that goal setting has a counterpart and that counterpart is goal achieving, we are on our way to building a foundation of wealth. The following is an example of how one might go about learning the master trade of goal setting.
1. Set your ultimate goal
This is the goal of goals, sometimes this goal is five to ten years in the making. Personally I like to take things year by year. This goal is the goal that will ultimately change things for you whether it is financially, health or relationships it does not matter in which area what matters is that this goal is your big one the thing you feel you want most. It’s ok if you change your mind over time; just have a starting point, something to aim for.
Note: Aim high!
2. Set sub goals to achieving your ultimate goal
If I was given the challenge to eat an Elephant (not that I would accept such a thing) I would need to plan out my steps to take in order to meet such an enormous task. I would look at things such as; where would I store this Elephant; I can’t eat it all at once so I would need to store it. What equipment would I need, who can I ask for help and what kind of time frame is realistic here. By understanding the challenge I can be more accurate in pin pointing the sort of sub goals I will need to set for myself. The main ingredient to setting sub goals is they are all helping you achieve your ultimate goal. Be specific about when you will accomplish these sub goals and have them planned so that by achieving them you will eventually meet your ultimate goal.
3. Break down your sub goals into yearly, monthly, weekly and daily practices
Now that you have outlined to yourself exactly what you want to achieve you need to design a master plan. This plan is going to be your work ethic; your yearly, monthly, weekly and daily practices are the most important part of achieving your goals. Unfortunately this is where most people fail themselves by not putting in the effort to planning out how they will actually achieve their goals. Although it is quite simple this part of setting goals is the most time consuming, but don’t rush this part, it may take you a week before you get the hang of this and for some even longer, that’s ok you will get better with more practice. Bear in mind the principle “If you fail to plan, you plan to fail”. Ask yourself the questions: What can I do monthly to achieve my sub goals? What can I do every week to achieve my sub goal? What can I do daily to achieve my sub goal? Then do it!
4. Review your goals, sub goals and daily plans every single day until you achieve our goals
I once watched a free DVD that taught; the only difference between Millionaires and Billionaires is that a Millionaire reviews his goals daily every day a Billionaire reviews his goals twice daily every day. I review my goals twice a day once in the morning upon rising and once in the evening before retiring. For me reviewing goals is now a habit and because I do this every day my goals are a part of who I am. You must make time to review your goals each day it is essential to your success.
5. Learn to master time and measurement
Whatever you do don’t set yourself up for failure. Sometimes we can get a little carried away with what we want to achieve by a certain date. Give yourself time to grow towards your goals and learn realistic time frames from your past experiences. This is not to say you can only grow at your past speed, not at all, but when you are starting to master goal setting it’s important to keep the time frames and measurements realistic. For example if you have never run 40km straight before but that is your goal, you will need to build slowly towards that goal by running 2km by month one then 3km by week six then 4km in week 10 and so on. If you find yourself getting close to the time when your goal is due for completion don’t set yourself up for failure, reset the goal date and change the sub goals and practices so you can achieve your goal by the specific time. It’s important to have a time frame so you can measure your success. Be realistic about your time frames, be honest with yourself and always look to improve the way you set and achieve your goals.
Self Discipline the only true discipline
Benjamin N. Woodson said the following statements in regards to self discipline:
“The longer I live, the more weight I attach to a man’s ability to manage and discipline himself. The longer I live, the more firmly convinced I become that the essential factor which lifts a man above his fellows in terms of achievement and success is his superior capacity for self-discipline”.
“Education is a priceless aid to success, of course, but education is not the difference. The educated derelict is a common sight, and so is the man who has achieved resounding success without the opportunity for, or the advantages of, a formal education. It seems a valid conclusion that while formal schooling is an important advantage, it is by no means a guarantor of success, nor is its absence a fatal handicap.”
“I believe that when we have the proper attitude, when we learn to reach our goals, then when we apply the ingredient of self-discipline, there is not much that any one of us in this audience tonight could not accomplish, if we are willing to pay the price”.
Such powerful statements as these taught me the superior qualities that self discipline offers to those who truly discipline themselves to achieving their dreams. Self discipline is to me the ability to do something with full purpose regardless of outside influence. Many will try and convince you otherwise on your quest to financial freedom and wealth but self discipline will push you forward even when you want to listen to what others may say.
There are lots of other aspects to wealth creation that are not mentioned in this short article, but I am convinced that these four principles will provide anyone wishing to start on the journey of creating your own wealth have a good solid foundation to build upon.
If you would like to read more of my articles with such titles as: The mind of a fighter, Overcoming robot syndrome email me at email@example.com or visit my site [http://www.richlifecreation.com] I also have step by step programs to help you break down your goals better. I hope you enjoyed reading this article and look forward to your feedback.
ACTUAL CASE HISTORY: Fourteen years of hard work had paid off for Enrique: he’d risen to Executive Vice President of a privately-held firm that was one of the country’s largest providers of continuing medical education for surgeons. He was number two to the firm’s founder, and the only non-family member among the senior-most executives. Enrique was considered by all to be a good prospect to run the company one day. The founder, who was 64, had been speaking of retiring for some time.
One Friday morning, in a private meeting with the firm’s founder, Enrique was notified that the family had decided to sell the company to a “private equity” [sometimes called "PE"] firm, a company that invests the capital of pension funds, endowments, trusts and wealthy individuals in companies with an eye to revitalizing them so they can later sell them or take them public at a large profit. Enrique was assured that if the sale went through, he would have job security, because the buyers were intent on hiring him to run the firm for them. Enrique would also be receiving a hefty bonus – a “success fee” – if the deal closed, to encourage him to remain through the closing, and to align his interests with the family’s.
After meeting the “PE” firm’s team, who were headquartered in Boston, Enrique was convinced he was soon to have his “day in the sun.” Not only would he become the firm’s CEO, but he was being offered a share of the PE firm’s profits on the eventual resale of the company. Enrique did all he could to make the family’s sale happen, and the transaction was slated to close in a few weeks. One problem arose: Enrique just couldn’t seem to get the attention of Jeremy, the PE firm’s partner who was shepherding the deal, to discuss his own terms of future employment. Enrique was hoping to “raise the platform” he’d enjoyed these past years, with hefty increases in base salary, incentive compensation, benefits and longer-term compensation, in line with his new, CEO-level responsibilities. However, he was unable to get Jeremy’s attention, until the day before the closing.
Just hours before the sale was to take place, Jeremy called Enrique and outlined the proposed terms of his new employment: first, his salary would be cut by “only” 20%. Second, benefits and perq’s were to be lowered significantly. Third, Enrique was to be rewarded with a share of the PE firm’s profits (as they defined them) when they sold the company in a few years, provided he was still then in his job, which was not guaranteed. Perhaps most troubling, Enrique was guaranteed only one year of employment, but his contract included a three-year “non-compete” agreement. His attorney commented, “Your contract has more loop holes than a hooked rug.”
Enrique signed his new contract, the closing took place, and he did become the company’s CEO. The “ride” was not at all what he had expected, though. It just wasn’t the same company. Significant debt was immediately added to the company’s balance sheet, which was used to reward the PE firm’s investors. Expenses, including employee compensation at every level, cherished benefits and many customary holidays, were slashed. Yes, it was a different company, with different goals, and different values. While Enrique was CEO, financial constraints left him with little say or true control over how the company was operated…It was now a “portfolio” company, one that was held, first and foremost, only to be soon sold, as “inventory.”
LESSON TO LEARN: Working for a company owned by a Private Equity firm is different in fundamental ways from working for either a privately-held company, or a publicly-held corporation. Why? Because the goals, and the values, of Private Equity firms are essentially different from those you’ve likely been used to, and those you may be expecting.
PE firms typically seek to re-energize by refocusing, restructuring, reinvigorating – and then sell firms on a short-term horizon, generally 3 to 5 years. While PE firms commonly take a management fee of 1.5% to 2% off the top each year, their primary goal is the eventual payoff: 15% to 20% of profits upon sale or public offering. Their business emphasis is not on operating businesses for a profit, or even building businesses over the long haul, but on buying-and-selling businesses for a profit. And therein lie the indicators of how they’ll seek to employ you and others: low overhead, hard-driving, with a potential opportunity for eventual riches.
Those seeking or expecting to be employed by a “portfolio company” of a Private Equity firm should not analyze their likely future employment relations from any perspective but the perspective of the PE firm. And you must understand that the business you know today is not going to be the business you will work for, for fundamental change in the entire operation will inevitably take place.
Jeffrey A. Sonenfeld, Professor of Management at Yale University has been quoted as saying, “Private equity is becoming a life-stage for CEO’s. It’s something we’ve never seen before.” Perhaps the lesson to remember best is this: the Private Equity world is now attracting the “best and the brightest” of the corporate world… that’s who you’ll be negotiating against.
WHAT YOU CAN DO: We’ve repeatedly encountered these “7 surprises” that we think you should expect.
1. Limited Review Time: You can almost count on being given very little time to review and negotiate the terms of your future employment. We don’t know if it’s intentional, but almost every time we’ve negotiated employment for senior executives with PE-purchased firms, we’ve been pressured by time, with urgency at the last minute, and pressured also by the notion that “the deal will fail” if we don’t give in on critical points. A related hint: expect an onerous non-compete provision.
2. Lower Base Salary: When it comes to your base salary, you can expect two things: slim and slimmer. Private Equity firms compete with each other on overall “return on investment,” often called “ROI.” Since they commonly invest significant sums to revitalize companies, that reinvestment capital has to come from somewhere, and it often comes from your paycheck. Many times we’ve been told “compensation must be consistent with our other portfolio companies.”
3. Reduced Benefits: Don’t expect to know the details of your benefit plans, your insurance plans, your bonus plan, or any other incentive or equity plans when you “sign on” for your deal. Either they won’t yet be “finalized” or inevitably they will be changed later. You must, though, be prepared for a significant, if not drastic, cut in all such benefits.
4. New Debt: PE portfolio companies commonly borrow large sums of money for capital improvements and investor payoff. If any of your bonus, commission or incentive plans are based on company profits, anticipate that company profits will be lower in the future for one big reason: the added interest costs of new leverage on the company’s balance sheet. This commonly yields lower bonus payouts for those whose bonuses are calculated on “profits.”
5. Expect Change, Maybe Your Own: Expect change, and understand that the “change” may be your own. It’s not uncommon at all for PE firms to hire “turnaround consultants” to advise on their refocusing, retooling and restructuring efforts. Even if you have 15 years of experience with the company, you may be asked to leave. In fact, chances are you may be asked to leave because you have 15 years of experience with the company.
6. Solicitation of Investment: Don’t be surprised if you’re asked, pressured or even required to invest your own money in the new company. This is especially common for long-tenured executives who are entitled to a large cash payout on the closing of the purchase by the PE firm. Some PE firms require that a percentage of salary be deferred as an investment. It’s all a matter of your – and their – cash flow.
7. Carefully Watch the Dealer’s Hands: Your future “pot of gold” may not be quite as golden as hoped, and it’s possible it may never even arrive. First, the definitions and calculations of “return on investment” or similar expressions may be very subjective, and may serve to diminish your share of their returns. For example, the ROI may be calculated to first deduct all sorts of financial items that you wouldn’t likely expect. Likewise, your entitlement to share in the eventual return on investment may be entirely dependent on your employment on a certain date. If your employment contract doesn’t guarantee you any job security at all, you may not be around long enough to collect your “prize.” Lastly, there are many who believe a “bubble” of sorts is developing in the prices being paid by PE firms for the companies they’re all competing to buy. This doesn’t bode well for eventual payout terms.
The Private Equity world is a very freewheeling world. It is entrepreneurial, competitive, hard-driving, and unforgiving, in part because it is both numbers-oriented and short-term. Employment in the PE world is not likely to be what you’ve experienced before in either publicly-held or privately-owned businesses. And for that reason, it presents its own challenges.
Our “7 Surprises to Expect” list is not exhaustive, but instead describes the “surprises” we’ve encountered with most frequency. Every person, every circumstance, every opportunity and every challenge is unique, and must be treated as such.
A note about our Actual Case Histories: In order to preserve client confidences, and protect client identities, we alter certain facts, including the name, age, gender, position, date, geographical location, and industry of our clients. The essential facts, the point illustrated and the lesson to be learned, remain actual.
Alan L. Sklover, Founding Member of Sklover & Donath, LLC and Founder of Sklover Working Wisdom, empowers employees worldwide to stand up for themselves at work.
From his offices in New York City’s Rockefeller Center, Alan has devoted his 28 years of professional life to counseling and representing employees worldwide on how to negotiate and navigate for job security and career success. Mr. Sklover’s practice concentration is in the negotiation of senior executive employment, compensation and severance agreements, and in counseling senior executives in career navigation.
Learn the trade secrets and ‘uncommon common sense’ of Attorney Alan L. Sklover, the leading authority on “Negotiating for Yourself at Work?” at http://skloverworkingwisdom.com.
Do you know that in ancient Greece, business owners would collect on their overdue accounts by throwing stones at the non-paying customers?
It seems nowadays clients should have the right to stone some of the consulting firms that fail to deliver the value they have promised.
So, what causes this discrepancy between value promised and value delivered?
It seems the problem lies high in the management hierarchy of consulting firms.
But before we dive deep into the topic, let’s take…
A Closer Look At History
Once upon a time consulting firms were happy to do their client acquisition because they knew they were positioned as respected experts and potential clients wanted to talk to them to define whether or not to hire the firm.
Peer-level connections between buyers and sellers were vital. Senior managers from buyers’ companies were interacting with high level people in consulting firms.
Then someone had an incredible idea to be more efficient…
“Hey, we’re professionals. Client acquisition is just too low of a function to our highly respected stature. Let’s hire some grunts to bring in clients on a reward for performance basis.”
But this mentality has created an attitude among many consultants that selling their services is far too low for their stature, and they’ve decided to assemble separate sales forces on a pay for performance basis to bring in new business.
These salespeople are not subject matter experts. They are salespeople who sell used cars for a while then used coffins for a while and now they sell consulting services.
There is a mistaken belief that there is direct correlation between salespeople’s commission and the revenue they generate.
But not all revenues are equal, and not all clients are equal.
And to maximise salespeople’s revenue performance, some firms include various closes in their contracts to cap salespeople’s commissions.
But have we thought about the attitude of these commissioned salespeople who are hired as mercenaries, and what happens when they start operating as mercenaries?
Most consulting firms have never looked at the dark side of pay for performance.
So, it’s time we do here and now…
So How Does The Pay For Performance System Work In Consulting Firms?
Consulting firms are supposed to be a non-compartmentalised business structures.
In industrial plants you find independent silos where – very often – the left hand has no idea what the right hand is doing. And it works because they are independent silos. It’s like a symphonic orchestra. You play your part of the piece from your sheet, and that’s it. You watch the conductor and your sheet.
But a consulting firm is like a jazz combo. There is no sheet music. There is no conductor. Members pass around the role of the next solo in a pretty even fashion. They can change from bebop to R&B in a fraction of a second, and no one will miss a beat.
But can this band-wide capability broken down to individual performers? Yes, a pullover can keep you warm at winter but which fibre keeps you warm. Which fibre do you want to reward for helping you to survive the winter?
Consulting firms sell 5-6 or even 7-figure engagements, and there is no way one person can be singled out for the completion of that sale. It’s always a team effort both on the buyer and the seller sides.
Some Drawbacks Of The Pay For Performance System
1. Ignoring The Firm’s Perfect Client Profile
Consulting firms should have Perfect Client Profiles to attract the kind of clients the kind of engagements with whom they can do their best work.
But when salespeople are in a pay for performance system, they don’t care about what kind of client they land. They need their commissions to pay the mortgage, the kid’s college tuition and put food on the table. So all they need is a live body with a cheque in hand that clears the bank, so they get paid. From their standpoint, the rest is just irrelevant.
Yes, it’s nice to have great clients, but they can’t afford to turn down money.
And even if they land a troublesome clients, who cares? It’s the consultants who have to work with them not the salespeople.
2. Focusing On What The Seller Wants
We only have 100% of our focus and energy. The more salespeople focus on what they can get out of the deal, the less they focus on prospects.
According to RainToday, an online knowledge base and research repository on professional services, the number 1 client complaint is that consultants don’t listen and are too quick to jump in to recommend solutions… often the wrong ones.
And in a reward for performance environment, which is really a scarcity-driven environment, salespeople have to focus on what they can get because they’re out there on a sink or swim basis. If they don’t make the sale, they starve.
3. Neglecting The Firm’s Long Term Success
If salespeople are paid for short term “quick buck” performance, they can’t focus on the firm’s long-term success.
The problem with the quick buck is that the margin on it is usually pretty thin. There seems to be an inverse proportion between the speed of landing clients and the margin on their projects.
Focusing on the quick buck also means that this firm doesn’t have built-in longevity. Here today, gone tomorrow. So, salespeople also keep their eyes open for greener pastures before this pasture gets grazed to death.
4. Competing Not Collaborating With Colleagues
Now if salespeople are paid on an individual basis for producing some quick buck, then what is their incentive to help their colleagues?? Nothing! Not a sausage. Actually they have a vested interest in stealing opportunities from my colleagues so, they can look better in their managers’ eyes and make more money.
The way I see it, there is plenty of competition in the marketplace outside the firm, so all the associates had better work together to cope with that external competition through internal collaboration.
But this internal collaboration hardly ever happens. So, we are back to competition in order to make our personal numbers.
5. Falling To Fully Engage
If salespeople are in a pay for performance system, they know they don’t really belong to the firm, and if something undesirable happens to them, they can’t expect the firm to stand up for them. They are 100% expendable.
It reminds me of a scene from the movie Ben Hur, when the new consul, Quintus Arrius, goes down to the belly of the galley and makes an announcement to the slaves…
This is the essence of individual rewards, although in the galley the slaves had to work as a team. You can’t out-row the others. Individual rewards create individualistic people who don’t care about your team mumbo-jumbo. They want to earn their money and they know how to get it.
6. No Loyalty
If salespeople don’t belong to the firm, then they don’t have to offer their performance exclusively to the firm. They are essentially free agents, so whatever business they conjure up, they are free to offer it to anyone. As mercenaries, they are free to offer opportunities to anyone that they see fit and that pays better than their own firm.
Some may call this betrayal, but my contention is that you can’t betray an institution that you don’t even belong to. And if you are employed on an “Eat what you kill basis”, I don’t feel I belong to the institution.
7. No Expectation Only Hope
As the manager of these salespeople, you have no right whatsoever to expect your salespeople to produce anything. But you have the right to hope that they do. You don’t pay them, thus they don’t even belong to your firm.
Expectation is something which we gain the right to when we make an investment. A beggar can only hope to receive some food. He wants it for free. A paying guest has the right to expect to be served in a restaurant. She’s willing to pay for it.
In the commission type compensation structure, producers receive some 10-15% of the value they’ve produced, and 85-90% goes to the employer or client. That’s well and good, but I also believe that he who is the ultimate beneficiary of the value, the party that gets 85-90%, should also make an investment in the production capability. And that’s a base salary to demonstrate that this salesperson actually part of the firm.
This is why the money firms eventually earn is called a return on investment. The current commission structure feels like return on someone else’s investment. A return for the firm on salespeople’s investment of time, money, effort, education, etc.
Otherwise work feels like communism. The people in the frontlines work hard and produce the value, then the communist party grabs it, takes it away and in the stores sells it back to the producers at a great profit.
I while ago I watched a presentation by Dan Pink, entitled “The Surprising Science Of Motivation”.
According to Dan, instead of paying for performance, we’d better give people…
Autonomy: Giving people control over how, when and where they work (ROWE)
Mastery: Helping people becoming increasingly better at work that matters
Purpose: Connecting the dots between what people do and some purpose more important than themselves
A 2005 MIT study (D. Ariely, U. Gneezy, G. Lowenstein, & N. Mazar, Federa; Reserve Bank of Boston Working Paper No. 05-11, July 2005.) reports that…
“As long as the task involved only mechanical skill, bonuses worked as they would be expected: The higher the pay, the, the better the performance. In eight of the nice tasks we examined across the three experiments, higher incentives led to worse performance.”
London School of Economics Study by Dr. Brend Irlenbusch reports that…
“We find that financial incentives can result in a negative impact on overall performance.”
So, high individual performance doesn’t necessarily translate to high firm-wide performance.
Let’s just look at the Open Source movement. A bunch of unpaid and uncertified misfits have created Firefox and Wikipedia without any supervision and tight managerial control and pay for performance.
And the market share of Microsoft’s Internet Explorer, developed by highly paid professionals, keeps shrinking.
And where is Wikipedia’s competition, Microsoft’s Encarta, again, developed by highly paid professionals?
Encarta has already disappeared. Internet Explorer is on its way out.
How is it possible? People are supposed to be too dumb to produce anything without the close scrutiny of superior life forms called management. And they’re supposed to be too lazy to move their butts without the proverbial carrot and stick.
But it seems people with autonomy, mastery and purpose do.
In my view, no one should choose a profession just because there is great money to be made in that profession. I think people should take time to discover their “callings” and master that skill at such high level that the market is willing to pay premium price for it.
Organisational Provocateur Tom “Bald Dog” Varjan of Dynamic Innovations Squad helps consulting firms to sell their expertise to premium clients at premium fees. For Tom’s complimentary black paper, “The Dark Side Of Firm Management: Ten Deadly Management (Mal)Practices That Often Bring Consulting Firms to Incalculable Suffering or Even Agonising Death”, visit his website at at http://www.di-squad.com/black-paper-eznrtls.html
I am always amazed when I see well educated, seemingly worldly people make themselves look and sound silly by promoting ever more aggressive expansion of government. We are currently in our national election cycle, admittedly the silly season for politicians. This year, however, the “nanny state” prescriptions on offer seem particularly vacuous.
The one absolute I KNOW about government is this: Government is not in business to solve problems, government is in business to institutionalize problems!
Bureaucracies evolve to protect and expand their turf. All start with claims of the highest purpose. The perceived need to address some element of life that has been under-regulated or policed will be assigned to a phalanx of bureaucrats and we, the public, will be able to sleep much better as a result.
Think about this fact and ask yourself: Where has a bureaucracy ever settled a problem, cured an injustice, or efficiently functioned.
Private enterprises, churches, charities and entrepreneurs live in a competitive maelstrom. They adapt to market realities or they die. Look at the original Dow Jones Industrial Average members from the early 20th century and ask, “where are they now”? General Motors, Ford Motor Company and Chrysler, behemoth international concerns, are in a real struggle for survival. Their conduct of affairs and changing business models will determine if they go the way of Montgomery Ward, Sharper Image, Wang Computer, American Motors and Bell and Howell and float off into that corporate graveyard in the sky.
The reason we enjoy the most advanced economic lifestyle in history is precisely because private enterprises can, and do fail. Not, however, government agencies and bureaucracies. They simply grow, bigger, fatter, more sluggish and flaccid. This relentless growth is accompanied by the continual whaling for more. More bureaucrats, more funding, more rules; just give us more and this time we will get the job done.
The economy is currently experiencing a cyclical softening. A study of economic history indicates that we go through something akin to this every seven or eight years. When the economy slows, tax receipts logically slow as well. What we get from government at all levels is the familiar bromide: “We are cut to the bone”!
No we are not. There is no government agency that can find the bone. The waste, fraud, program duplication, over-staffing and lack of productivity endemic in government at all levels is simply stupendous.
The government enjoys a monopoly in the running of mail delivery through the Post Office. It ain’t called snail mail for no reason. The service requires a subsidy each and every fiscal year to cover losses. If it were a business, it would be gone.
Marvin Runyan was the Postmaster General for President Jimmy Carter. The business model for what would become Federal Express was in the process of raising venture capital funding during his tenure. When asked about the concept of overnight package delivery from anywhere, to anywhere, with guaranteed next day delivery, Mr. Runyan commented: “It can’t be done”.
The perfect metaphor for government bureaucracy: “It can’t be done”!
The government must subsidize billions of dollars of losses each year for Amtrak. Passport processing is a national embarrassment. Medicare fraud is reported and confirmed to the tune of tens of billions of dollars each year. IRS computer systems, after massive spending, are archaic. The list of waste, corruption and ineptitude in government, at all levels is astounding.
We have a $9 trillion national current accounts debt. Far worse, we have a debt for Social Security and Medicare of somewhere (nobody can really calculate this accurately) north of $50 trillion! For a fraction of this level of mismanagement, managers of private enterprises are put in jail.
Whenever a city announces a public investment in building sports stadiums or museums you can count on the fact that the edifice will come in late and over budget. The same with any road project. The “Big Dig” in Boston, or the Los Angeles subway, were classic examples of incompetence and mismanagement.
Recently I visited my old parochial high school. While speaking with the Principal I noticed students unloading a truck and taking used desks into the school building. I commented about the desks, “where did they come from”?
His reply: a neighboring public high school received a grant that they used to purchase new desks. “They offered them to us, or they would be thrown away. We will get another 20 years use out of them”. Maybe this is just one small anecdotal instance, but multiply this by millions of such irresponsible decisions and the harm done to our economy, and to taxpayers, is simply too stupendous to calculate.
Why is there no outrage? In fact, we experience the antithesis of outrage: we vote the bums back in, election cycle after election cycle. Each political party, all candidates, every year promise more of what any blind man can see does not work.
There is a simple cure (it will never happen, though). No person who receives a government check should be allowed to vote. Government employees, program beneficiaries, contractors or lobbyists should never be able to vote for a politician who has the ability to promise a financial benefit paid for with other peoples money. This is bribery in its simplest form.
Since it will never happen, how about this for a dose of common sense: Simply vote for the politician promising the smallest government. The idea that the government can successfully nationalize oil companies, or manage our medical system is ludicrous. There is no evidence that government operated bureaucracies at any level will be examples of good operative governance.
Proponents of these hare brained schemes are too stupid to be entrusted with such power. They, and their acolytes, should simply be asked: “What have you ever successfully managed”? Common sense is in monumentally short supply when evaluating the real performance of local, state and national government agencies. To fund evermore waste, fraud and corruption flies in the face of everything that we empirically know actually goes on in this cesspool.
Geoff Ficke has been a serial entrepreneur for almost 50 years. As a small boy, earning his spending money doing odd jobs in the neighborhood, he learned the value of selling himself, offering service and value for money.
After putting himself through the University of Kentucky (B.A. Broadcast Journalism, 1969) and serving in the United States Marine Corp, Mr. Ficke commenced a career in the cosmetic industry. After rising to National Sales Manager for Vidal Sassoon Hair Care at age 28, he then launched a number of ventures, including Rubigo Cosmetics, Parfums Pierre Wulff Paris, Le Bain Couture and Fashion Fragrance.
Geoff Ficke and his consulting firm, Duquesa Marketing, Inc. (http://www.duquesamarketing.com) has assisted businesses large and small, domestic and international, entrepreneurs, inventors and students in new product development, capital formation, licensing, marketing, sales and business plans and successful implementation of his customized strategies. He is a Senior Fellow at the Page Center for Entrepreneurial Studies, Business School, Miami University, Oxford, Ohio.
Austin, Texas Goes Green:
From Green Hosting to Smart Grid Communities like Pecan Street, Austin Leads The Way Austin, Texas is a progressive community, leading the way in green building and other environmentally friendly initiatives. Businesses and city-wide sponsors lead the way in getting green. The capital of Texas, Austin leads the green revolution with help from Austin Energy, the local power source, the Environmental Defense Fund, the local university and the federal stimulus program, enacted in 2009, that provides loans, grants and other support to aid developers, builders and entrepreneurs go green and stay green through sound design practices that improve the air residents breathe.
Green Tech Meets High Tech For more than 20 years, Austin has fostered leading edge business development with companies like Dell computers and Sematech, a company that serves high tech businesses with innovative manufacturing solutions, so getting green isn’t a short-sighted objective of the community. In fact, green building and operational activity is right at home in the great state of Texas and has been for decades.
The high tech sector has drawn tens of thousands of engineers, innovators, entrepreneurs and other smart energy users to create an incubator for new business – especially high tech businesses that employ green tech to power up profits. Austin’s business community proves that green is not only good for the environment, it’s good for business.
Clean tech depends on local, state and federal policies, subsidies for renewable energy use and government mandates to improve energy efficiency through the use of green building practices and renewable energy resources. Despite the fact that web hosting companies draw huge amounts of power, high tech companies have shrunk their carbon footprints in Austin, crating the perfect combination of high tech and green technologies to expand the commercial base of the city without creating a negative impact on the local environment. With the integration of clean technology into all phases of commercial development, other cities are turning to Austin to provide the road map to business expansion without the negatives associated with commercial use of traditional energy sources.
Pecan Street: The Smart Grid Community Call it an experiment, or a look into our future, the Pecan Street project demonstrates how communities can employ the latest in solar energy, smart home technology, electric vehicles and more efficient use of energy resources to create an innovative community based on the simple principle of “less is more” when it comes to energy consumption.
Located in Austin’s historic Mueller neighborhood, the Pecan Street program involves manufacturers, residential homes and clean energy businesses that focus on improving the quality of life for residents, employees and the entire Austin community.
An example? HelioVolt maintains a 12,000 square foot plant with neat rows or printing machines, chemical vats and ovens powered efficiently with a gleaming array of the latest in solar panel technology. The company is just one example of how the Austin business sector embraces the green building movement – a movement that uses thin solar panels that are more energy efficient than the thick, expensive photo-voltaic panels that were used just a few years back.
HelioVolt’s CEO, Jim Flanary, is a staunch advocate of the latest in solar tech, stating, “If you can do this really cheaply and really quickly, you’ve got a winner. We want to scale up as soon as we can.” The lessons learned from the Pecan Street smart grid program have been applied across the entire business sector of Austin, placing the big city with a small, college town feel, ahead of other green cities like San Francisco, California, Boulder, Colorado and Boston, Massachusetts.
What makes the Pecan Street project even more impressive is that Texas is a part of the “oil patch” – a large region that produces millions of barrels of oil and other traditional fossil fuels, a region that relies on traditional energy resources for revenues, employment and power. Even so, Pecan Street has received financial support from the community’s local energy supplier, community licensing agencies and smart energy advocacy groups at all levels of government.
In fact, Austin is the home of numerous green businesses usually associated with politically liberal towns. However, the Austin, Texas business community has embraced green building practices as part of the city’s innovative, hip culture, making green practices not only smart but tech-savvy, as well.
The Future of the Green Revolution The future of clean tech is evident today – right now – in Austin.
The Austin business community is ideally suited to make maximum use of the next major steps in going green, transforming the way we conduct business and manage metropolitan areas for the benefit of residents and the global environment. Austin is a leader in areas like green web hosting, digital development, smart car tech and other innovations that are good for business and good for the air we breathe.
However, Austin and its business partners still face numerous challenges including a shrinking pool of venture capital, the sometimes overwhelming costs of swapping clean tech for out-moded technologies that depend on fossil fuels, and the politics of oil, natural gas and other traditional energy resources. Budget cuts at the federal, state and city levels have pointed out the need for continued government and business support for the use of clean energy.
HelioVolt’s founder, B.J. Stanbery, a native Texan, makes a strong case for the continued support of governments and venture capitalists in the development of more clean tech energy resources, strongly suggesting that the local economies of cities like Austin will continue to rely on new energy technology to expand within areas like the Pecan Street program.
The manufacturing skills that workers have here [in Austin] are directly transferable to a thin-film solar company like us,” states Mr. Stanbery. “And the business culture is attractive here because people are used to taking risks in the energy space.
The viability of clean tech expanding within the oil patch that surrounds Pecan Street, Dell and the hundreds of other environmentally-conscious businesses that are now part of the fiscal infrastructure of Austin isn’t in doubt. The trend toward green will continue and energy smart developments like Austin’s Pecan Street, proving that clean technology works at work.
Austin continues to lead the way in green tech initiatives and smart business people take notice that clean tech is good for the environment and the bottom line – an investment in the future of our cities and our economy, providing a model for other metropolitan areas to follow.
Ms. Rosendahl has over 19 years experience in systems analysis, hosted applications, and management as well as 13 years experience in web hosting and Internet marketing. Ms. Rosendahl has a Bachelors from Houston Baptist University with a double major in Computer Information Systems and Business Management. Stephanie is the founder and CEO of website hosting firm – GreenHostIt.com green hosting.
This is my family:? Vanished without a trace?
Justin and Libby Denbe have the kind of life that looks good in the pages of a glossy magazine. A beautiful fifteen-year old daughter, Ashlyn. A gorgeous brownstone on a tree-lined street in Boston’s elite Back Bay neighborhood. A great marriage, admired by friends and family.? A perfect life.
This is what I know:? Pain has a flavor?
When investigator Tessa Leoni arrives at the crime scene in the Denbes’ home, she finds scuff marks on the floor and Taser confetti in the foyer.? The family appears to have been abducted, with only a pile of their most personal possessions remaining behind.? No witnesses, no ransom demands, no motive.? Just an entire family, vanished without a trace.
This is what I fear:? The worst is yet to come?
Tessa knows better than anyone that even the most perfect fa?ades can hide the darkest secrets.? Now she must race against the clock to uncover the Denbes’ innermost dealings, a complex tangle of friendships and betrayal, big business and small sacrifices.? Who would want to kidnap such a perfect little family?? And how far would such a person be willing to go?
This is the truth:? Love, safety, family?it is all touch and go.
A reporter covers the crime he committed.
Riding home one night, reporter Mark Wagner is harassed and knocked off his bicycle by three men in an SUV. Chased into a park, he is attacked by one of them with a knife. Cornered, he passes up a chance to run, and defends himself with his bike lock, seriously injuring his attacker before fleeing.
In the morning, his editor calls and asks him to investigate a report of violence in the park. As the days pass, Mark moves deeper into the life of the person he injured.
Mark keeps his secret from his wife, Marit, a county prosecutor who becomes involved in the case, and their conflicting roles drive them to diverging ends.