Spark Magazine Autumn 2018

spark THE FUEL FOR BUSINESS

M A G A Z I N E

M ENTORING 21C WILL YOUR BUSINESS FUND YOUR RETIREMENT? AI THE DRIVING FORCE BEHIND AMAZON

From an 8 to 5-hour work day ISSUE NO.14 AUTUMN 2018

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Spark Magazine is “The fuel for business”.

The target audience is business people, with an interest in innovation, technology and new ideas. We provide the ideas, motivation, and inspiration for success.

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MASTHEAD SPARK MAGAZINE

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EDITORIAL

Paul M Southwick paul@psfj.co (+61) 424 70 40 10

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Paul M Southwick paul@psfj.co (+61) 424 70 40 10

CREATIVE DESIGN

paradiseinvitations@gmail.com The information in Spark Magazine is of a general nature only and should not be relied upon for individual circumstances.

In all cases take independent and professional investment, financial, tax and legal advice. Spark Magazine and all persons and entities associated therewith accept no responsibilities for loss or damage related to any inaccuracies, errors, or omissions in the magazine, or reliance on anything in the magazine. The views expressed in the magazine are those of the authors and do not imply endorsement by Spark Magazine, its controlling entity or associated persons. Similarly placement of an advertisement in the magazine does not imply endorsement by Spark Magazine its controlling entity or associated persons. In some cases journalists writing for SPARK Magazine may consult to or provide corporate writing for companies mentioned in articles. The journalists or Spark Magazine do not accept payment from companies to cover or include them. ©2015 ©2018 by byPow PowWow WowPty PtyLtd. Ltd.All All Rights Rights Reserved.

Reserved. Reproduction Reproduction in inwhole whole or or in in part partwithout without permission permission is is prohibited. prohibited.

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Contents 16 6 10 16 22 28 33 37 39 42 44 46 48 52 55 60 65

The business lifecycle Mission impossible Dexus workplace report AI driving Amazon Mentoring 21C 3 Ways to break your addictions From an 8 to 5-hour workday

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Never hold meeting in the afternoon Never ask customers Truth is more than a fluffy cultural value Curiosity the key to innovation Brand personality Leaving the email onslaught What makes a CRM succeed A business without bosses Will your business fund your retirement?

The articles in Spark Magazine are of a general nature only. Always seek independent financial, investment, tax and legal advice.

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W ELCOME T O S PA R K M AGA Z I N E As Spark Magazine approaches three years in production (a few cynics said that the publication would not last three months) we are attracting some fantastic expert writers.

In this issue we have a strong theme of the non-technical, so called “soft” elements that so greatly impact, in either a negative or positive manner, organisational performance.

We welcome Dr Amantha Imber, with four concise and easy reading articles, with advice that will make a big improvement to personal and business productivity.

There is a great summary of research on Aussie workplaces carried out by listed property giant, Dexus – that perhaps reflects the fast-changing nature of our offices and those who staff them.

Digital expert, and regular contributor, Mark Cutfield will get readers thinking, and maybe just a little scared - but that’s good, on the topic of artificial intelligence.

Peak Performance’s CEO, Linley Watson,

who has written for Spark Magazine a lot over the years, has come up with another great article, this time about mentoring, and how it differs from coaching.

Don McKenzie carries on where he left off last issue with a challenging piece called “Mission impossible, hell no!”

There are many other thought provoking articles, that take Spark Magazine to the edge of thinking in business 2018. We have always said “the fuel for business” and the longer we go on the more true that seems to be.

As we go to press, the business world is quite settled. It’s that time of the year when the main public holidays have passed, people are not yet seeking to flee winter to Europe or Queensland, and quite frankly a lot of work gets done.

Perhaps within these pages lie the tips and ideas to get business through the mid-year tunnel and out the other side of record results and bonuses for 2018!

CEO and Editor paul@psfj.co

Paul M Southwick

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The business lifecycle: from the eyes of an advisor

Damien Palmer

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business can go through many phases during its life. From start up to succession planning, it’s important to have a trusted advisor.

However, some businesses look to save money by not seeking support from advisors when needed. When money is tight, particularly in the early stages, not engaging advisors can seem like an easy way to keep costs down, however this can come at a great cost when things go wrong.

There are several professionals who can offer value to businesses throughout different stages of the business lifecycle. Some of the advisors to keep in touch with include, accountants, solicitors, brokers, and financial advisors.

Outlined below are some of the business lifecycle phases and opportunities where it might pay to seek expert assistance:

Start-up phase At the start-up phase, excitement levels are high, everything is happening fast, and it can be easy to just jump in and overlook the fundamentals.

During this time, businesses need to lay the foundations for success.

Advisors are critical at this point but the cost of seeking advice can be a deterrent.

At this phase, business structure needs to be considered. In doing this, an advisor can help a

business owner decide on the most appropriate structure. There are several considerations, including: • Cost to establish.

• Tax minimisation.

• Reduction or mitigation of exposure to business risk.

• Compliance or other legal requirements to operate (e.g. some customers will only work with a company structure in place, some professional associations will only allow a sole trader structure).

• Flexibility to bring in new business owners or partners.

• Flexibility to restructure in the future if needed.

• Ease of exit or succession planning.

Along with business structures, areas such as personal insurance, employee agreements, registrations and legal requirements all need to be considered.

Growth phase While all companies seek to grow, owners are often time poor and experience business growing pains.

Through their experience, advisors can help owners walk through this tough time and assist with several matters often encountered at this stage.

Business owners might look to employ staff to help manage the demands of their growing business.

An advisor can identify the key areas where they need support to ensure the owner can do what they do best.

An advisor can also assist with employment compliance matters such as payroll tax, Australian Taxation Office (ATO) reporting, superannuation and WorkSafe insurance. Advisors such as solicitors can offer value with matters around workplace and industrial relations, employee termination and wrongful dismissal claims.

As the business develops, the need for capital often follows and therefore business loans are sought. To help grow, businesses need extra money for things like plant and equipment, business premises. Overdrafts can also be needed for working capital.

Advisors can analyse whether it’s suitable to borrow in the first place or use available cash. They can also help suggest the most appropriate types of funding to maximise faster claims for goods and service tax (GST) refunds.

At this stage, the business may look to buy other companies or new premises to operate from. An advisor can help to provide due diligence or valuation services and identify whether another business is a good or a bad buy; whether the asking price is too high; or whether it is an opportunity too good to miss out on. Business owners can jump without seeking advice. This results in paying the price down the track if the value they thought was there never was. Unnecessary risks can be avoided with good advice from the start.

Many research and development tax incentives exist along with export market opportunities that are often overlooked by business owners.

Advisors are great for identifying significant cash concessions and

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grants available for business.

This can provide not only a boost to cash flow but new products or revenue streams to grow a business significantly.

• Using other business structures, such as superannuation funds, that might not have been considered or required in the heady growth stages.

Another item in the growth phase that can be critical and missed by the business owner is agreements such as a partnership or ownership agreement. These spell out how business owners want to work together and can help deal with unexpected conflict down the track should it occur.

• Analysis to maximise profitability of the business and therefore value of the business.

Maturity phase Also known as the plateau stage, the maturity is a phase of less intensive growth, but no reason to take the foot off the pedal. It’s often a consolidation phase where maximum value out of a business can be generated.

By this time in the business lifecycle, matters that typically occur and where advisors are needed include: • Admitting new business owners, whether that be key employees or merging with another business.

• Other changes in management, including making decisions like the establishment of a board of directors or committee of management.

• Trying to grow to a scale that so the business might be an attractive acquisition for a larger company.

• Considering whether to float on the Australian Securities Exchange (ASX).

• Considering whether to become a target for a private equity buy-out.

Succession planning phase At this stage, a business owner is looking to either slow down or cease running their business completely. This may be as simple as just shutting the doors one day or selling up and maximising the years of hard work and sacrifices made along the way.

Advisors will help with succession planning including valuing a business for sale, setting a price, structuring a sale to maximise value or minimise tax, and preparing or reviewing contracts of sale.

Once a business owner has exited their business, superannuation, wealth management, and retirement planning are major factors. Advisors can steer business owners through the maze of legislation to help achieve a desired retirement outcome or ideal tax benefits by conducting well thought out planning at this phase.

Conclusion While engaging professional advisors can be an expensive exercise, it is money well spent, and can avoid costly pitfalls down the track or identify opportunities that business owner might not

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have thought of.

The business lifecycle is a journey that can be shared by both the business owner and their trusted business adviser. Don’t attempt it alone and seek advice no matter how far into the business lifecycle you may be.

About the author Damien Palmer is a Business Services Partner at AFS & Associates Chartered Accountants, a regional accounting and business advisory firm based in Central Victoria.

Having previously been a Senior Consultant in Corporate Tax at Ernst & Young, Damien now helps lead the regional firm to achieve business success for their clients. d.palmer@afsbendigo.com.au www.afsbendigo.com.au

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Mission Impossible hell no!

Don McKenzie

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ision and mission often mean different things to different people. There are differences in what they are supposed to achieve, differences in how they should be constructed, and differences in how they should look.

Here is an easy to formulate structure developed off the back of the work of Dr Ichak Kalderon Adizes (founder and chief executive officer, Adizes Institute).

Definition of mission The proposed structure of mission advocated in this article is best described as “internal” mission. It

is not the fancy words often hanging in reception that no one in the organisation cares about, nor can remember.

Those types of missions are external and more often used for marketing purposes.

Those statements are seen all the time in all types of organisations. They have often cost a lot of money to construct, however for the majority of staff, it really doesn’t make a difference to them, nor could most of them explain what the mission of the company is. This is a problem.

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The purpose of the mission The purpose of the mission is to energise the organisation and direct all this energy into a specific direction. And due to this definition of purpose, it is constructed more like a military mission.

It is to energise and direct, for a specific period of time, until the mission is achieved, or the mission needs to be changed due to a new input.

Start - at the beginning The change loop, described by Dr Adizes, is the basis of where we should start. This holds the key to long term success. Change is what creates the problems and opportunities.

When looking at Simon Sinek’s method of “Start with Why,” it always comes back to change.

Why did Y happen? Because X had changed. This could be change in technology, change in consumer demands, change in competition, change in perspective, change, change, change.

Look at any failed organisation and it’s easy to see they didn’t manage the problems and opportunities caused by change. People in an organisation need to manage these problems and opportunities that are caused by change.

It is an infinite loop. Of course, it if were easy, everyone would do it. But why do once successful companies disappear?

(decide and implement) needs to speed up as well. Often however, it doesn’t, as the big named companies mentioned above found.

Part of the key lies in the ability for an organisation to redo its mission regularly to respond to change.

Companies with a strong and functional mission one day, find themselves dying off if stuck in the past. This goes for one-person businesses, through to the world’s largest organisations.

Organisations fall behind, and ultimately die off because they haven’t identified and addressed their problems and opportunities as fast as the change is occurring.

Blockbuster, Kodak, Dick Smith, Toys-R-Us and Nokia Mobile were all at the top of their markets at one point. Powerful organisations with resources. What happened? The change loop wasn’t managed.

Managing is just deciding what to do and then implementing those decisions.

Organisations that can respond to this change loop year in year out, are the ones that prosper. Having a process to continue to evolve an organisation’s mission is key.

When we manage, we create more change, and so it continues.

When change starts to speed up, the organisation’s ability to manage

Therefore, the mission must support the organisation managing this change loop ongoing.

“The mission must

help leaders create an organisational culture and climate, that can identify and address problems and opportunities, in the face of day to day demands. “

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Organisations that do this will reap the rewards.

Good leaders help manage this by leading the change loop process.

Great leaders institutionalise the ability for an organisation to manage the change loop without them.

How to construct the mission By accepting that creating a culture and climate that can manage this change loop, irrespective of leadership and market conditions, an organisation will be in an ideal position. The mission will then be able to be constructed from this understanding.

1. Who it is and what business it is in.

2. What is changing externally.

3. What is changing internally.

4. In light of these external and internal changes, what problems and opportunities are forecast.

5. In response to these problems and opportunities, what the business will do.

6. How the organisation will do what it is going to do.

7. When the organisation is going to do the things it is going to do.

8. Who is going to be involved.

9. What needs to be removed, strengthened or added to support the mission.

This structure is longer than the average mission: maybe 2 pages.

However, the entire organisation will know what needs to be done, by when, by who, and especially important, why it is being done.

Staff make micro decisions every

hour. If they aren’t clear on what the mission is, those decisions may move the organisation towards achieving the mission, or away from the mission, without even realising it.

This process has been used with organisations from two people through to 200,000+ employees.

The only difference with larger organisations is it takes a bit longer to create and cascade an understanding and engagement through every level. But it works.

It doesn’t replace the fancy “external” mission that hangs on the wall. The internal mission is the tool that will achieve the external mission over time.

Who should create the mission?

It should not be the executives in isolation. The further up the executive tree, the less real knowledge of what is happening in the “coal face” branch. The people at the coal face are mostly going to have to implement the mission, so

involve these people from the start.

Choose a cross functional, cross hierarchical team.

Understand what is changing at each level. Understand what problems and opportunities exist at every level.

Of course, this sounds scary and time intensive, and it is, if it’s done without support and a tested process.

Even getting a group of people to agree on what is actually changing outside the organisation can lead to destructive conflict, if the process isn’t carefully managed. But with the right process, these people will harness the different views and experiences, and coalesce the output into a clear and concise description that will have meaning for everyone.

When to redo the mission Again, the change loop is the key.

Align to the change loop.

If a company is a fast-paced technology business that is experiencing rapid change, it may need to review the mission every six months. If the company is a realestate business with longer time

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horizons, maybe it is every two to three years.

The key is to institutionalise the change loop into the organisation so that the organisation itself, not the reliance on one or a handful of leaders, can come together to stay ahead in an ever-changing world.

Additionally, in my previous article “Why starting with strategy is a bad idea,” this goes for the mission as well. The organisation needs to have the capability and capacity to identify problems and opportunities first, categorise, prioritise and then resolve.

If an organisation doesn’t have this capability before coming together to create a mission that the whole team can get behind, it will end in disaster. https://issuu.com/bsicomms/docs/ spark_mag_jan_final.compressed

Other tips and tricks 1. High change means lots of problems and opportunities.

This also means lots of potential conflicts. Be sure to have a tested process, and for the first one or two times, do this process with a suitable professional that is experienced and qualified in helping organisations institutionalise this process. The professional isn’t there to do the process for the organisation,

not even to be part of the formulation of the mission.

The organisation must learn to do this by itself, without being reliant on an outside resource.

2. One of the biggest risks of destructive conflict is the conflict of definitions. Pay extra attention to defining key issues, or risk wasted time and energy dealing with this issue.

3. The mission will highlight structure changes. These need to be done in parallel as structure achieves the mission.

This is a complex area and will be the topic of a future article.

Review any successful mission or strategic change, and behind it was a structural change to support it.

About the author Don McKenzie is the Managing Director of the Adizes Institute Australia.

Don has built businesses both organically and by acquisition in different parts of the world and includes being the youngest Managing Director of an ASX listed business at that time. The Adizes Institute is a global management consulting firm that is ranked in the top ten best consulting companies in the world, according

to the Leadership Excellence Journal.

Successful companies do only two things: they identify and resolve their problems quickly, and they identify and capitalise on opportunities faster than their competitors. The Adizes Institute has been working in over 70 countries for nearly 50 years helping organisations do exactly this.

Contact details Email: don@adizes.com ​LinkedIn: https://www.linkedin.com/ in/domckenzie ​Web: https://www.linkedin.com/in/ domckenzie Mob: +61 412 667 471

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Dexus Workplace

Paul M Southwick

report

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exus, a publicly listed company that owns 1.8 million square metres of office space nationally, commissioned independent research

by Think Global Research to better understand what Australian business executives in growing SMEs are looking for in their workspace to make them inspiring places to work.

Here are some of the headline stories emerging from that research: Kids and pets not welcome New research has found that when it comes to employee benefits, kids (and fur kids) are definitely NOT welcome at the majority Aussie workplaces.

While some organisations provide onsite childcare and still others allow pets at work, more than 80% are not set up to accommodate either of these

family members.

Realistically, the infrastructure required for onsite childcare is beyond most SMEs, accounting for the low reporting of it being offered within the workplace (15%), and adding to the long waiting lists for mainstream childcare.

For those 85% of workplaces without onsite care for kids, the ability to help employees get priority access to childcare can be an appealing enticement when searching for the best place to ‘set up shop’.

Any employee of a business housed in a Dexus building can literally jump

the childcare cue thanks to their program called ‘Childspace’ which is an alliance with Guardian Early Learning centres, which has 100 centres across the country, many conveniently located near Dexus owned offices.

With almost 3 in 4 Australian business executives indicating that their workspace directly impacts team engagement, productivity and job satisfaction, the importance of getting their office space right is vital for this growing sector.

Is the bonus a dinosaur?

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topping the list for 2018 is a communal rooftop/outdoor terrace – which may alarm bosses who may wonder why their offices are suddenly empty of employees who gather outside to seek the sun.

Interesting to note that only 21% of Aussie businesses offer this amenity, which highlights a significant mismatch between what employers are willing to provide and what their executives actually want.

Other ‘hot’ items on the list include: an onsite Gym – 47% a quiet or chill out zone – 45% health and wellbeing classes – 43% flexible work conditions – 43%, a stocked kitchen – 42% New research has found that only 11% of Aussie executives rate the annual bonus as their most motivating factor Executives were far more likely to be loyal and stay put because of benefits and environmental factors they could enjoy on a day-to-day basis, rather than a one off ‘pat on the back’.

Combined salary, employer benefits and a great workspace accounted for 56% of what will keep executives motivated and loyal.

When considering what factors aid retention of valued employees, the

research found that the quality of the work/life created by the company was significantly important for executives, as it was something they had to live with each day and this was preferable to occasional monetary recognition.

#1 Thing on Aussie executives wish list for 2018

onsite chef/cafeteria – 41% The research also showed that 80% of the responses highlighted a need to upgrade/improve office spaces to make executives more productive.

Melbourne executives prefer perks over pay

Melbourne businesses rate employee benefits (23%) and workspaces (16%) three times more When facing the back-to-work blues, important than salary (only 13%) as a major factor in their willingness to Aussie executives have compiled a stay in the same job. ‘wish list’ of what will get them over the line and productive in 2018.

While being paid a suitable amount is of course important for attracting New research has shown that

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the right staff in the first place, it seems employee loyalty is firmly steeped in the type of added employee benefits and work environment that the company provides.

More Aussie executives want an on-site nap than a coffee Despite 21% of Aussie businesses having an onsite barista, most Aussie executives would prefer sleep pods so they can take a nap, instead of a shot of caffeine.

New research shows that a massive 39% of Aussie executives would like to have a sleeping pod in their workplace, compared with 35% who want an onsite barista.

And it seems they could be onto something. Mark Rosekind, head of the National Highway Traffic Safety Administration in the US, has said that “a 26-minute nap improves performance in pilots by 34% and alertness by 54%”. Former UK Prime Minister Margaret Thatcher famously took regular afternoon naps.

The Financial Times in the UK reported late in 2017 that sleep pods have been popping up regularly in Silicon Valley for the past 10 years, and have become regular features in leading

companies like: NASA, Samsung, JetBlue, Zappos, Google, Cisco, PWC, and KMPG. When considering how to improve productivity, job satisfaction and retention, the research shows that a variety of employee benefits other than salary, including sleep pods, will have a dramatic effect for employees.

56% of NSW executives want to work smarter not harder in 2018 vs 38% in VIC 38% of Melbourne executives clock 40+ hours work time each week, compared with only 26% of Sydney executives who work 40+ hours.

However, Sydney-siders, while they may work less than Melbournians, have also staked a claim to work smarter than Melbourne executives – with 56% of them declaring ‘smarts’ as a goal for 2018, compared with only 38% of Melbournians who claim to want to expand their brains-trust.

The research showed that Melbournians are chasing a better work/life balance as a priority (52%) and want to outsource more than their Sydney cousins, but this seems elusive as their reported hours of working outstrip those of executives in Sydney.

56% of NSW executives want to work smarter not harder in 2018 vs 38% in VIC

With only 26% of executives in Sydney clocking 40+ hours, it seems Sydney executives are already working smarter than their Melbourne counterparts who tip the scales at 38% working 40+ hours.

And the trend is set to continue with new research showing that 56% of Sydney executives plan to work smarter in 2018, compared with only 38% of Victorians who want to work smarter.

The work/life balance rating for Sydney-sider tipped the scales just slightly below the ‘smarts’ goal, coming in at 55%. But flexibility didn’t rate as high for Sydney executives (27%) compared with Melbourne executives who want flexibility (35%).

Close to 75% of Australian executives say their office space directly impacts job satisfaction & productivity While many small businesses have a ‘make do’ attitude to office space when starting out, what they may not realise is that as they grow, the impact of their office space on their staff’s productivity and job satisfaction may be holding their business back.

With the importance of office space rating in the top 25 percentiles for 300 growing SMEs recently surveyed, it seems the recycled student desk and kitchen

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chair may need a rethink for the 2018 business year.

High on the list of most desirable office amenities that were noted to impact both satisfaction and productivity included things like communal rooftop space, an onsite gym and a chill out zone.

While some of these amenities may be out of reach for the average SME, innovative companies are looking to house their businesses in shared office spaces that bring together like-minded growing businesses who can all reap the benefits of office spaces specifically designed with these things in mind.

Australian executives say upgrading/improving their office space would make them more productive While many small businesses have a ‘make do’ attitude to office space when starting out, what they may not realise is that as they grow the impact of their office space on their staff’s productivity may be holding their business back.

With the changing/redesigning of office space or improving facilities being nominated in a massive 80% of responses from growing SMEs recently surveyed, it seems the recycled student desk and kitchen chair may need a rethink for the 2018 business year.

And businesses who have moved beyond this level of rudimentary

office furniture are not immune, as the survey also showed that flexible workspace and an improved sense of connectedness with fellow executives are also high on the list of workplace ingredients that impact productivity for the SMEs surveyed.

End of the I Gen/the rise and rise of team In a recent survey of Australian executives, the subject of motivation revealed an interesting trend away from the ‘I’ generation and highlighted the importance of ‘team’ when it comes to motivation in the workplace.

When asked specifically about what motivates them in the workplace, 45% of respondents nominated the team they work with as being most important, three points ahead of personal pay and bonuses.

As the ‘team’ factor rose in importance for motivation for 2018, the research also indicated that the same number of people who want to work flexibly matches those who want to inspire their team (28%).

This finding also outranks the ‘I’ focused need to ‘have more fun at work’ (26%), and shows that team is significant when it comes to workplace productivity, motivation and retention.

#1 Motivator for WA executives to work harder in 2018 is a great team When a recent survey asked Aussie

executives what motivates them to work harder in 2018, WA scooped the pool when it came to acknowledging their mates.

The importance of team and work colleagues in WA outranked every other state in Australia, coming in at a whopping 60% in terms of what motivates them in the workplace.

Achieving personal goals ranked at 44% of what motivates West Australians, showing that the team comes first, but personal achievement is part of what makes the team great too.

Also, key for WA executives to give their best was a great workspace (40%) – also the highest in the country - and this was on par with personal pay and bonuses, along with new challenges.

Not content to rest on its laurels, WA respondents also stated that an improved workspace would make 2018 their best year yet (52%).

Across the survey, workplace improvements that were nominated by WA respondents included a chill out zone and a communal rooftop space (both 48%), an on-site gym (44%) and a dry cleaning service (40%).

Rounding out the wish list of WA executives at 36% were benefits like on-site childcare, sleep pods, meditation space and hot-desking facilities.

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AI the driving force behind online retail behemoth

amazon

Mark Cutfield

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s Amazon a tech company, online retailer, or both?

What is certain, is that the burgeoning success of this marketplace monster is 20 plus years in the making; no overnight success here blood, sweat and digital tears have formed the greatest technology, logistics, robotic workforce and rapid growth show on earth.

adopting new digital elements into their own businesses.

SME’s can learn and adopt modern digital business principles from the world leading digital and logistics business: not necessarily replicate - more to utilise the range of AI and data management tools available for their own business success; leverage the largest online marketplace as a sales channel; and thread like online recommendation engines into ecommerce channels.

The common understanding is Amazon is just an online retailer.

Google it and you’ll see its more of a tech giant competing in the new race; the ‘AI race’ with its marketplace peers Facebook, Apple, Microsoft, Google and IBM.

There is no escaping the need to manage and synthesise multiple sources of data a business produces, collects and analyses; if a business is looking to compete, gain an edge, and commercialise its data. Amazon is a model all SME’s can reference, when

It seems the beast; that is Amazon has a less publicised aspect to its large stomping, all conquering digital footprint.

Artificial Intelligence (AI) is the

operations.”

When the late Stanley Kubrick, former Sci Fi writer and director, teamed up with Steven Spielberg to produce ‘AI’ the movie, what was possible in AI and its sub elements – machine learning and

Amazon CEO Jeff Bezos said: “Artificial intelligence is seeing an ‘amazing renaissance.’ AI is solving problems that were once in the realm of science fiction.” engine that Amazon attributes much of its recent success to.

Bezos goes on to say “Much of what we do with machine learning happens beneath the surface.

Machine learning drives our algorithms for demand forecasting, product search ranking, product and deal recommendations, merchandising placements, fraud detection, translations, and much more. Though less visible, much of the impact of machine learning will be of this type — quietly but meaningfully improving core

deep learning was just a figment of their wonderful imaginations. Fast forward a decade or so and AI is taking root in everyday life.

To give a quick history lesson: Much of the very early pioneering in computer science and AI owes its tributes to the late genius – Alan Turing. Turing, a British mathematician and WWII code breaker, is widely credited as being one of the first people to come up with the idea of machines that think.

American cognitive scientist Marvin Minsky picked up the AI torch and co-founded the Massachusetts Institute of Technology’s AI laboratory in 1959. He even advised Stanley Kubrick on “2001: A Space Odyssey,” released in 1968, which

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gave the world one of the best representations of AI in the form of HAL 9000.

We are still a few years away from having robots at our beck and call, however with machine learning and robotics evolving at such a rapid rate, there is good reason for public concern.

Take the more recent back flipping ‘Atlas’ robot from Boston Dynamics and a window into what is possible is revealed, albeit inadvertently – maybe Kubrick and Spielberg had futuristic eyes beyond their imaginations.

Elon Musk was appalled and clearly disturbed, prompting a call for future governance, via this Twitter reaction: “This is nothing.

In a few years, that bot will move so fast you’ll need a strobe light to see it. This AI is a rare case where I think we need to be proactive in regulation than be reactive.”

He continues – “I mean, biological warfare? Very bad, very deadly, but still in the hands of humans.

But a robot apocalypse? Very bad, very deadly, but also literally unstoppable. Once neural nets fully take off and form connections beyond our comprehension, robots are going to become self-governing and super dangerous.”

With anything unregulated, there is the potential for conceptual labbased developments to pervade the consumer and human sphere in a less than positive way. Robots talking to each other and learning through human data algorithms.

Then taking over the world in an apocalyptic catastrophe is possible; and the stuff of good old Sci Fi classics, being played out.

Certainly, with the latest McKinsey 2030 “jobs won, jobs lost” forecast, produced to quantify the trend in automation, machine learning and robotics; there definitely will be jobs lost and new ones created, notwithstanding the possible bot threat.

The McKinsey team outline some fundamental statistical evidence to support the hypothesis: Even if there is enough work to ensure full employment by 2030, major transitions lie ahead that could match or even exceed the scale of historical shifts out of agriculture and manufacturing.

Their scenarios suggest that by 2030, 75 million to 375 million workers (3 to14 percent of the global workforce) will need to switch occupational categories.

Moreover, the thesis predicts all workers will need to adapt, as their occupations evolve alongside increasingly capable machines.

Some of that adaptation will require higher educational attainment or spending more time on activities that require social and emotional skills, creativity, high-level cognitive capabilities and other skills relatively hard to automate.

It seems that the soft skills of interpersonal communication and empathy, may still surpass the robotic future, and a more harmonious human and bot coexistence more likely.

What has all this got to do with Amazon? The original humble online bookstore; who has more than just evolved its virtual product shelves to become the US$552.38 billion monster it is today.

Amazon is clearly an online retail juggernaut with highly sophisticated AI at its heart: With forecasts from MKM’s Rob Sanderson conservatively predicting Amazon.com Inc. could be worth $1.6 trillion in less than a decade.

The thesis of a $1.6 trillion valuation by around 2025 rests on the company’s surging retail business gobbling up 15.5% of the U.S. retail market—in part thanks to its Whole Foods Market Inc. acquisition—and its Amazon Web Services (AWS) cloud-computing division growing at 20% a year.

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What’s evident is that while its big data is being scrutinized by machines, Amazon is enjoying fruits from its own AI pioneering roots, selling AI software applications via its AWS (cloud computing division) onto developers, machine learning researchers and data magicians.

A collaboration with Microsoft, Amazon, and MS joint venture created ‘Gluon’ an open source software for developers to develop machine learning systems and apps that can learn is just a part of AWS. All this is part reason for the 20% annual growth the technical area is experiencing.

The recommendation engine Amazon deploys through its online store and CRM systems, is responsible for 35% of all its online retail sales. We’ve all seen Apple iTunes, Netflix and co monitor browsing and purchase history, firing up automated recommendations on site and via email. For Amazon - this is staggering and pure fact that machines drive a substantial profit for Amazon; not to disregard that AI is now offered as a consumer product – selling back what it has developed for itself.

Think ‘Echo’ powered by Alexa the voice activated command centre,

competition for ‘Google Home,’ delivery drone ‘Prime Air’ and ‘Amazon Go’ and it is clear - tech is Amazon’s future. Jeff Bezos in his latest memo to shareholders stated – ‘To remain a day one company; Amazon is investing in AI, as this is the future and key to the company’s survival.’ More reinforcement that Amazon is classified rightly so; as a tech company.

Several of Silicon Valley’s biggest players have huge expectations for what the artificial intelligence market’s value may be in the coming years. Sundar Pichai, CEO of Alphabet’s (GOOGL) Google, said on the company’s most recent earnings call that advancements in machine learning and artificial intelligence, such as natural language processing, voice recognition and computer vision, will pioneer the next wave of innovation in consumer internet, according to Barclays.

And executives from Microsoft (MSFT), Facebook (FB) and Nvidia (NVDA), among others, have also expressed similar sentiments and are making big bets on AI. So it’s a real AI race, a new race, built on fiction and made into reality, seemingly of Amazonian proportions.

Lessons SME’s can learn from

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Amazon, and of course their rivals, are many; most prudent, is that platforms like Amazon, Google, Instagram, and Facebook, are monumentally altering the business landscape. This means business models are sometimes moved to adapt to platform business models, to widen reach and grow in ways not previously possible; some SME businesses are leveraging Amazon as their major sales channel, and utilising AI and data management tools, without reinventing the wheel – its plug and play - cloud business.

In summary, SME’s can leverage the available platforms tools; everything from: search engine marketing tools; marketplace commerce and shopping, analytics and AI tools, data management and dashboards. Essentially the platforms are now geared for micro businesses, SME’s and in some instances large organisations to run significant elements of the sales/marketing and operations, via the digital behemoths that have us firmly in their grip.

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Mentoring 21C

Linley Watson

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raditionally, mentoring has been an informal, internal relationship between someone older and more experienced, and a more junior person in the organisation.

Often a mentor would take someone “under their wing” and impart their wisdom by telling stories about their experiences, over a cup of coffee or maybe a beer or two. The mentee would ask questions and soak up the wise words of their role model and the mentor would help steer their younger colleague’s career.

Whilst that kind of relationship is still important, the face of Mentoring is changing, and a new model is emerging. There is demand for a more professional, structured approach, and an expectation that the process delivers outcomes that can be measured, so all parties can see the value that has been created.

External mentors are now being called upon to provide access to specific expertise, broader experience and diverse perspectives to people at higher levels within the organisation.

As well as a focus on the individual, group mentoring and organisational mentoring services are now being sought by government and commercial organisations across Australia.

The difference between mentoring and coaching In organisations, the terms

“coaching” and “mentoring” are often used interchangeably without a clear understanding of how they differ. Time and again, people ask for coaching but what they want is mentoring. Kathy McKenzie, CEO of Fire Up Coaching, makes the simple distinction that coaches use a questioning approach and are not required to be a subject matter expert, whilst a mentor is an expert who is acknowledged as being wiser and more experienced with relevant knowledge and skills to share.

A mentor challenges, guides and inspires their mentee through sharing relevant “know-how” that can be applied to identify opportunities, solve current issues faster, and develop expertise for the future. Purist coaches specifically avoid offering advice.

Instead, coachees are encouraged to draw on their own resources and competencies to devise strategies and actions to help them achieve their goals, which is why it is not essential for the coach to have more experience or relevant expertise.

A skilled mentor is likely to use coaching techniques and frameworks to guide their conversations and help their mentee come up with solutions to the issues they’re grappling with, and at the right time, add value by sharing their observations, experiences, specific expertise and connections.

What makes a good mentor?

Getting the right fit between mentor and mentee is key. Although people may have different priorities when selecting who to work with, mutual

trust, respect and candour are key to a successful mentoring relationship.

A good mentor will openly share their relevant knowledge, experience and contacts in the context of their mentees specific situation, for their benefit. They often demonstrate strategic foresight and can help their mentee see potential pitfalls to avoid and bring to light potential opportunities that may have been overlooked or undervalued But it is not all about the mentor being the wise one. Sometimes it’s about them being vulnerable.

A good mentor is comfortable in their own skin and confident enough to share their successes and their failures, their strengths and weaknesses because its often through adversity, or when things don’t go to plan, that people learn and grow the most.

From mentor to mentee More and more, top executives are seeking peer mentoring relationships with other executives who know what it is like to do what they do. They want to feel able to let down their guard, share their vulnerabilities, test their thinking, see how they’re perceived, learn from others they respect, and potentially have someone who will tell them what they need to hear.

Jack Noonan, a senior director felt reasonably confident as a leader and wanted a mentor who would challenge him and his biases, provide a different perspective and help him to develop. “My mentor Charles really challenged the way I think, the way I work, and the way I interact with others.

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I gained a greater understanding of what motivates me and what I value, how I communicate, and how these things have impacted the decisions I have made in the past. Importantly, the process gave me practical methods that I implemented during an important time of transition in my career, and I have no doubt that these methods will continue to assist me in the future,” said Noonan.

Mentoring improves individual and organisational performance It can be difficult for senior leaders to know who to turn to for confidential, objective advice and sound guidance, especially when faced with situations they’ve never tackled before.

Research outlined in a recent HBR article “CEO’s Need Mentors Too” found that 71% of CEOs with formal mentoring arrangements were certain that company performance had improved as a result. They reported that they were making better decisions, more capably fulfilling stakeholder expectations, avoiding costly mistakes and becoming more proficient in their roles, faster.

Joe Arena, CEO of Procurement Australia recently engaged mentoring consultancy, The Leaders Mentor, because he felt that a few of his executives had some skill gaps and their recent merger made it an opportune time to get them some mentoring help.

“I saw it as an opportunity for them to develop both professionally and

personally, and a way for them to get some different perspectives from mentors who have experience in other organisations and experience in actually doing what we’re asking them to do.”

He commented that the benefits to the individuals and the organisation have been immense. “Those going through the mentoring program have been able to learn from mentors who have been in their shoes, they’ve been able to avoid making some mistakes, and improve their approach to managing people. I have noticed that what the mentors have been able to impart is being retained and my people are applying what they have learned. Instead of taking things for granted or doing what they’ve always done, they’re reflecting and questioning their own modus operandi, and sometimes coming up with different answers and approaches.

Staff have also offered feedback that they have seen a notable change in attitude. The results are happier staff who are more engaged, and more productive, which positively impacts the bottom line.”

Mentoring for the next generation Whether the mentee chooses mentoring themselves, they get offered it as part of their professional development, or they’re told they need to do it as a remedial action, there is no doubt that mentoring is required to have both a strategic and development focus that benefits the organisation and the individual.

”My experience training thousands of leaders over the past 20 years has shown that when we exercise a high level of skill in both mentoring and coaching, we set up the next generation of leaders to prosper beyond our tenure,” said Kathy McKenzie.

Both approaches can speed up learning, aid in decision making, and help current and future leaders avoid common pitfalls, so ultimately they can perform at a higher level and achieve better results for themselves, their team, and the organisation.

About the author Linley Watson is the CEO of Peak Performance International and a Partner at The Leaders Mentor. www.theleadersmentor.com.au

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issue no.14

3 ways

to break your addictions

Dr Amantha Imber

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t’s 10am and you are at your desk with a mug of coffee. You don’t have a meeting scheduled so you figure it’s a good time to start work on writing that report that you have been putting off. The report is critical for moving your most important project forward and securing more funding.

It also happens to be due in your boss’s inbox in two days’ time.

You open a Word document and write the title of the report. You’re not quite sure what to write next.

Just then, a notification flashes up on your screen - you have a new email from a prospect you have a new business proposal in with.

“Better just check what they want,” you say to yourself.

You hop into your email and read it. The message isn’t actually that important and you don’t really need to respond. However, given you are now in your inbox, you start opening up emails you have already read earlier this morning and wondering

if there is anything you can send a quick reply to and feel a little hit of progress. Fifteen minutes have now passed and you remember that you’re meant to be writing a report.

You switch back into the Word document.

You’re still stuck on the first sentence. You have a few goes but nothing seems quite impactful enough. Just then your phone lights up with a notification that says you have five new likes on the photo of your son that you posted on Facebook last night. You open up Facebook and see who has liked it.

You feel smug and popular as your photo now has 40 likes.

“I might just have a quick scroll through my news feed,” you think to yourself. Forty minutes, ten likes, five comments, and one purchase of a gadget you’ll probably never use, later, you shake yourself out of your Facebook fog, and get back to your Word document.

It’s now 11am and a whole hour has passed and you’re not quite sure how that has happened.

If that sounds like your morning, you may be facing a distraction addiction. But don’t worry - you’re not alone. Research shows that we

check our mobile phone an average of 85 times per day. We can’t go a measly ten minutes without just checking our phone for something.

In addition, a survey of over 5,000 leaders showed that 78% admit to checking their emails frequently throughout the day.

And we are bombarded with notifications from our phone, our watch, and our computer every few minutes. Distractions are everywhere.

While you may think this is harmless, research from the University of London has shown that even just the presence of notifications on your screens decreases our IQ by an average of 10 points. That’s the same loss we receive from not having slept the night before, and twice as much as smoking marijuana.

So if you are ready to beat your battle with distraction, here are three tips on how to do so.

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Switch off ALL notifications

Oscar Wilde famously said, “I can resist everything except temptation.” Notifications tempt us. They flash up on our screen and scream “Read me now!” One of

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the simplest ways to break your distraction addiction is to turn off all your notifications. This means across all your devices - not just one. Removing temptations helps make it easier to keep focused on the task at hand.

While turning off notifications will probably make you sweat with anxiety for the first few days - who knows that important status update you may miss (!) - in the long run, this is the first step in changing your distraction habits.

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Switch to Flight Mode

So you’ve switched off all your notifications, but your phone still rings and beeps when people are trying to contact you through the good old fashioned phone.

While you may feel perfectly happy

sending the “Blocked Number” to voicemail, it’s too easy to pick up the phone when your partner calls and have a little chat.

engineers - the very same people that try to make gambling addictive are also applying the same tricks to your phone.

To avoid the temptation of the call or SMS, switch your phone to Flight Mode. Just like turning off notifications, if you can eliminate the temptation to begin with, it’s far easier to create blocks of distraction-free time in your day.

Beat them at their own game by switching your phone to Grayscale. As senior editor of the Atlantic James Hamblin says, “Instagram, when everything is in grayscale, looks pretty awful.”

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Turn your phone to Grayscale

Have you ever noticed how bright and colourful and fun the screen of your phone looks? Sort of like those bright and colourful and fun slot machines in Vegas.

This is not a coincidence. The makers of many of the social media applications you use on your phone employ hundreds of attention

Breaking any addition is hard, but if you stick with these three tips, I can guarantee you will have broken your bad habits in no time.

About the author Dr Amantha Imber is the Founder of Inventium, Australia’s innovation consultancy. Her latest book, The Innovation Formula, tackles the topic of how organisations can create a culture where innovation thrives.

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From an 8-hour t2o a 5-hour workday

Dr Amantha Imber

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everal years ago, I did a work styles test and it revealed that one of my strongest skills was being a “time optimiser.” I wore this title like a badge, and for the following year, it defined the way I worked.

I would frequently switch tasks, for example, when I was working with sub-optimal internet. If the page I needed was taking more than a second to load, I would “optimise” my time by changing tasks so I wouldn’t waste five or 10 valuable page-loading seconds. I would then switch back 30 seconds later once I was sure the page would have loaded up. “Efficiency” was my middle name.

At the same time in my life, I worked very long hours. I’d often arrive at the office before 8am, and while I would leave by 6pm, I’d log straight back onto my laptop almost every evening. There always seemed to be tasks left to finish.

However, over the same time period, I would often get to the end of a day, and think to myself, “What have I actually achieved today?”

Many days felt like a hurricane of tasks, but a lack of meaningful progress on projects that mattered.

I knew something had to change.

David Meyer, a psychology professor from the University of Michigan, argues that multitasking actually makes us less productive, not more.

To start with, the term multitasking is actually misleading – it implies that we are doing two tasks in parallel.

However, the reality is that our brain is unable to pay conscious attention to two things at the one time. Try thinking of a pink elephant and adding up 16 + 32. It’s impossible.

A more accurate name for multitasking is task switching. Meyer describes that two things have to happen every time you switch tasks.

First, “goal activation” needs to happen. Your brain says to itself “I am going to stop focusing on this task, and instead, focus on that task”. The second step is “rule activation”. This is your brain shutting down the rules for the task you are currently completing, and opening up the rules for the task you are about to switch to.

In research conducted into task switching, Meyer, University of Michigan colleague Jeffrey Evans, and Joshua Rubinstein, of the Federal Aviation Administration, uncovered a big reason as to why you might want to stop multitasking. They discovered that the simple act of constantly switching tasks costs us up to 40% of time.

To extrapolate that into a typical workday, if you happen to be a rampant multi-tasker, like I was, you are unnecessarily expanding your workday.

If you only work an eighthour day, the bottom line is that if you start focusing on one task at a time, you could leave work at around 2.30pm instead of 5pm, and achieve the exact same level of output.

So if you would like to start working a day that is a little over five hours rather than eight, simply focus on one thing at the one time.

About the author Dr Amantha Imber is the Founder of Inventium, Australia’s innovation consultancy. Her latest book, The Innovation Formula, tackles the topic of how organisations can create a culture where innovation thrives.

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Why you should never hold your management meeting in

the afternoon

Dr Amantha Imber

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hen management teams meet, one of the reasons is usually to make decisions. These might be budgeting decisions, decisions about resourcing or strategy - generally anything where the stakes are high and important.

After all, that is why managers, as opposed to others lower down the ranks, have been given responsibility to make these decisions. And in an ideal world, when management teams meet, those decisions will be effective ones.

While a considerable amount of work goes into scheduling those meetings by diligent and patient executive assistants, the effort is concentrated around finding a window of time when everyone is available. However, rather than simply focus on availability, people need to shift their attention to cognitive science to get the most out of their meetings. It turns out,

as Shakespeare famously wrote, that prisoner parole. Those who were timing is everything. up in front of the judge at 9am had good odds - they had a 70% chance of being granted parole. However, fast forward to the mid afternoon Unfortunately, each and those chances dropped to 10% hour of the workday - and that’s after controlling for all sorts of extraneous variables such is not created equal. as the type of prisoner and severity Time of day has a of the offence. When decision dramatic impact on fatigue has set in after lunch, the judge was simply taking the easy the quality of our way out.

decision making, thanks to a concept called Decision Fatigue.

Research into decision-making shows that our brains make poorer quality decisions in the afternoon, compared to the morning.

Essentially, every single decision we make over the course of the day eats away at our decision making “battery”, whereby the end of the day, our battery is running on empty. And the implication of this decision fatigue is that when making decisions, we will take the easy way out.

One of the most famous studies into Decision Fatigue examined 1,100 decisions that Israeli judges made as to whether to grant the

If we think back to the workplace, some decisions may not be overly affected by taking the easy way out.

Keeping the stationary budget at the same level as last financial year might not have huge implications.

However, if you take certain types of meetings, such as those of an Innovation Council (a group of leaders responsible for deciding which ideas their organisation should progress), decision fatigue can have dire consequences. An innovator never changed the world by taking the easy way out.

Because most managers and their executive assistants are not neuroscientists and perhaps don’t understand the implications of meeting timing on brain functioning (and thus meeting outcomes), the vast majority of meetings are scheduled at

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completely random times during the day. Worse still, some critical meetings are regularly scheduled for the afternoon or evening.

decisions are made about its innovation pipeline, are scheduled to start first thing in the morning, and conclude before lunch.

Take, for example, not-for-profit board meetings. A good friend of mine used to sit on the board of a local charity. Like all of the other directors, it was a volunteer position. And given the role was unpaid, she had a day job like all of the other directors. As such, this necessitated that all board meetings were at night. They started at 6pm and often went through until 9pm or 10pm. The meetings were scheduled at the worst possible time for effective decision-making.

In addition, full day innovation workshops are now always broken into two half days at Australian Unity.

Australian parliament is another example. When parliament is sitting (and decisions are being made), sitting sometimes begins as late as 12noon, and on most days, continues through until 8pm at night. This may come as no surprise that politicians are frequently taking the easy way out with many decisions given they are making their most important decisions at the exact worst time of day.

At health insurer Australian Unity, having a knowledge of decision fatigue and its implications have lead to a number of changes. The company’s Quarterly Innovation Review meeting, in which important

The first half day is used for exploring issues and problems and generating ideas. The group then comes back the next day first thing in the morning to make decisions about which ideas to shortlist and progress.

Changing the structure of workshops has significantly improved their outcomes.

At property and construction company Lendlease, a concerted effort is made around meeting effectiveness. Meetings tend to be scheduled earlier in the

day to combat decision fatigue.

In addition, staff are strongly encouraged to take a break between meetings. To help make this possible, meetings rarely run for a full hour, but instead finish at quarter past or quarter to the hour.

This structure helps to create a 15-minute gap between meetings to allow people to refresh.

So if you want to make the best possible decisions, think consciously about the timing of your meetings, and please pass this article on to whoever is responsible for scheduling meetings at your organisation.

About the author Dr Amantha Imber is the Founder of Inventium, Australia’s innovation consultancy. Her latest book, The Innovation Formula, tackles the topic of how organisations can create a culture where innovation thrives.

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About the author Dr Amantha Imber is the Founder of Inventium, Australia’s innovation consultancy. Her latest book, The Innovation Formula, tackles the topic of how organisations can create a culture where innovation thrives.

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ely k i l How you be ld wou ....?

Why you should never ask customers whether they think they will buy your new product

Dr Amantha Imber

issue no.14 All around the world today, thousands of companies are running focus groups to ask customers whether they will buy the new product that they have just designed.

And these focus groups all look very similar.

There will be a moderator, employed by the company or their market research agency, and they will be sitting on a table with seven or eight potential customers. They hold up a mocked up picture of the new product, perhaps a new chocolate bar. The moderator describes the new bar in generous (and delicious) terms.

The moderator then asks what they think is their killer question: “Imagine you saw this chocolate bar on the shelf of your local supermarket. How likely do you think you would be to purchase it?”

Each person thinks to themselves, “I like chocolate. And this bar sounded tasty.” They say out loud, “Yes, I would be very likely to buy it”.

Executives in the company rejoice after hearing the results of the research: Eight out of 10 people said they would definitely buy this new bar.

Six months later, when the bar finally makes its way to supermarket shelves, sales are dismal. Executives ask what has happened. “Didn’t 80% of customers say they would buy this bar?”

The marketing team shrug their shoulders and say yes, that is what customers told us.

Nine months later, the bar is pulled from shelves due to lack lustre

sales and the product is labeled as a failure.

The reason focus groups and other research methodologies that involve asking customers what they think are so poor at predicting the future is because people are bad at predicting how they will behave in the future.

Research into the relationship between our intentions versus actual behaviour shows that there is only a weak correlation between what people say (i.e. their intentions), and how they will actually behave in the future.

In order to more accurately predict the success of new products and services, organisations need to do the following. So if you want to make the best possible decisions, think consciously about the timing of your meetings, and please pass this article on to whoever is responsible for scheduling meetings at your organisation.

Put a ban on focus group testing for new product development While focus groups can be useful for understanding how people say they feel about something, they are notoriously poor at predicting how people will behave in the future. Save focus groups for research projects that are aimed at understanding the present, such as exploring people’s brand perceptions, rather than asking them to be a clairvoyant about their own behaviour.

Stop asking questions beginning with “How likely would you be…”

Outside of focus group methodology, researchers need to stop asking questions that begin with the words

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“How likely would you be…”. This question is only a measure of how someone intends to behave in the future, as opposed to whether they actually will behave this way in the future.

The only thing this question generates is false hope. People often have the best intentions, but this often doesn’t play out in real life.

Run experiments to test actual behaviour When a good idea is born that needs to be tested, run an experiment to test actual behaviour.

Experimentation involves setting hypotheses as to why an idea will add value to the customer and creating a minimum viable product (MVP), which is the most basic version of the idea that will still allow for learnings.

Experiments can then be set up to test hypotheses using the MVP. Because experiments are designed to measure cause and effect, good experiments measure behaviour, not intentions. And then based on the results, organisations can iterate or change course accordingly.

Because experimentation measures actual behaviour, it is a very effective way to de-risk innovation.

Companies from Google, through to Lendlease, through to Commonwealth Bank all embrace experimentation as a key stage in their innovation process.

And for Australian and New Zealand companies that are already embracing the benefits of experimentation, entries of the 2018 AFR Most Innovative Companies list (www.mostinnovative.com.au) are now open.

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Truth is

is more

than a fluffy cultural value

Mike Edmonds

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rust in capitalism is at an all time low. PwC’s 2017 survey of Australian CEO’s shows this issue is number one on their list of concerns for the future. Their unease about it has risen every year, having almost doubled in importance since 2013. The global CEO survey shows the same incline.

CEO’s know what we all know: people don’t trust companies.

There are several key reasons for this. For too long, too many brands have over-promised in advertising and public relations (PR) and under-delivered in the real world.

Consumers are now assailed by marketing hyperbole that we all treat as fiction because of our countless disappointments.

Too many companies present a consumer-friendly motive to the buying public only to embarrassingly contradict it by their behaviour. Whether it’s a bank claiming our personal wealth management is their priority then ripping us off with hidden fees, or an airline claiming our happiness is what drives their every decision then throwing us off their overbooked planes.

This distrust has been growing steadily for generations, with the occasional spike when someone outs a car company for knowingly selling unsafe vehicles, when a cool sports shoe brand is found to

be using slave labor, or when an oil company fumbles their response to an environmental disaster.

You might be tempted to think that the bigger the corporation, the higher the distrust. But this is where it gets interesting. Last year, US branding company Brand Keys did a survey of 740 companies across 83 industries to find the most loyal customers in America. Who do you think made the top ten in that list?

GM? BP? Coca-Cola?

No, today’s most trusted companies are ones founded by visionary entrepreneurs pursuing an authentic motive. Amazon (three entries: online retail, streaming and tablets), Apple (two entries: smartphones and tablets), plus Google, Netflix, Facebook, Samsung, Facebook and YouTube.

These are all companies who are low on exaggeration and high on delivery. Amazon’s stated motive to the world? To change the way people buy things. Their behaviour? New ways to search, buy and deliver.

A Prime service that delivers in 30mins. A new marketplace to rival eBay. Deliveries by drone. Recyclable packaging.

Netflix’s stated motive to the world? To become the best global entertainment distribution service.

Their behaviour? Faster streaming services. Intuitive menus that play video trailers when you hover your mouse over the movie title. In-house film and TV production setting new standards in quality. New downloadand-go functionality.

You could argue that these purposeled companies are bringing the revolving door of conventional commerce creaking to a stop: that

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age-old cycle of spending huge marketing funds to lure new starryeyed consumers through the right side of the door because so many disappointed customers are sprinting out the left.

The key learning here is about the commercial viability of true purpose. These brands aren’t setting customer retention records in their respective industries simply because they’re more truthful. Millions of customers haven’t suddenly leapt up Maslow’s Hierarchy and are now only buying honest brands (not yet anyway).

Truth is not the attraction in and of itself. The appeal to consumers is what happens to a company’s products and services when they set out to prove they’re telling us the truth: improvements to products we already want, new products we never realised we needed, intuitive humanist interaction, new ways to be served.

In a world where people can expose the hyperbole behind an expensive brand image instantly and globally, truth is no longer just a fluffy cultural value. The bottom line literally - is that authenticity is now essential for a company to achieve long-term sustainable growth.

Which begs the question: what’s your truth?

About the author Mike Edmonds is the co-founder of Meerkats and author of Truth Growth Repeat www.meerkats.com.au

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About the author Evette Cordy is an innovation specialist and author of Cultivating Curiosity www.agentsofspring.com

Why curiosity

is the key

to workplace innovation

Evette Cordy

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2017 study published in the Harvard Business Review, “Are you Solving the Right Problems?” revealed that 85% of 106 C-suite executives across 17 countries, strongly agreed or agreed that their organisations were bad at problem diagnosis. Furthermore, 87% strongly agreed or agreed that this flaw carried significant costs.

In Australia, the share price of retail group Myer continues a downward trend. Under pressure from the much-anticipated arrival of Amazon, Myer has launched a new online marketplace of local and international brands, Myer Marketplace. Myer has responded to a business problem; however, the offer does not appear to address existing customer problems, evident in online customer reviews of Myer.com.au.

While it is obviously vital for businesses to stand out and stay ahead of their competition today, this is becoming increasingly harder to do. Especially if you’re a large organisation, like Myer, not as agile as a smaller startup, or the likes of Amazon. Many are investing time, effort, money and resources coming up with innovative ideas and solutions for problems that customers don’t

have.

The challenge for organisations is the incredible pressure placed on short-term results. Leaders are always chasing outcomes and immediate results. When a business problem arises, their reaction is to jump into finding a solution, without first checking if the problem they are setting out to solve is actually a commercial problem that will return the best investment.

Leaders need to not only be able to articulate their business problems, such as falling revenues or portfolio decline, but also their most valuable customer problems. The best commercial opportunities arise at the intersection of a business problem and a customer problem.

Getting curious about this is the key to workplace innovation.

Curiosity arises when there is a gap between what someone knows, or think they know, and what they want to know. That is, individuals are intrinsically motivated to seek out information. It is a mindset that can be activated.

Curiosity is the fuel for inquiry, learning and discovery – that’s why it’s critical for organisational growth and innovation.

When leaders are curious they look at how customer needs will change over the coming few years. They see how all of the current disruptions will feed into one another. They think about the biggest problems or pressures that

their organisation is likely to face over the next few years.

In today’s business world, leaders need to spend less time in the office and more time walking in the shoes of their customer. To find clues and collect artefacts that build a whole picture of their customers’ experiences. It is important to spend time discovering customers hopes, fears and values, and viewing the world through their eyes. Noticing what delights them and observing their irritations, frustrations and pain points as they interact with the world around them.

Leaders who curiously observe what people say, what they do, and seek to understand deeply what matters to them find the most valuable problems to solve.

In addition, when leaders create an environment of curiosity, they inspire their employees to ask questions, to learn, and to seek problems and solutions for themselves. When employees are curious, they are open to discovering new things, and this leads to better insights and platforms for problem finding, and ultimately innovation.

As the need for innovation intensifies, there is an opportunity to leverage curiosity as a competitive advantage. That means creating a culture for curiosity to thrive within organisations now, as well as in the future.

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Brand personality is

everything

Debbie O’Connor

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“Gone are the days when a catchy jingle,

spruiking facts and benefits, or a pretty face could sell products. Today, it’s only those brands that truly engage with the consumer to evoke an emotion that are remembered.”

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ith the average internet user served a staggering 11,250 adverts a month, consumers are almost blind to marketing.

Bad Ad Johnny’s Mehmood Hanif, a marketing strategist for the American advert blocking software company, cited these numbers in the Huffington Post. What he didn’t include was TV advertising, radio, junk mail, billboards, packaging, signage and more. Add these mediums and the number escalates dramatically.

This “noise” is presenting an increasing challenge for organisations that have relied on marketing to grow or retain their market share. With consumers

being bombarded with such a significant amount of content on a daily basis, brands are finding it harder than ever to make a significant connection that entices the customer to buy.

Gone are the days when a catchy jingle, spruiking facts and benefits, or a pretty face could sell products.

Today, it’s only those brands that truly engage with the consumer to evoke an emotion that are remembered.

Consumer psychologist Dr Peter Noel Murray notes that, “emotions greatly influence and, in many cases, even determine our decisions.”

Communicating with customers on a personal level, where they feel as though they are being heard and understood, creates trust. And trust results in purchases. It also results in brand loyalty, the driving factor behind repeat purchases. But how do brands do this? The simplest answer is that they need to have more personality.

“Rich and powerful mental representations of a brand include its personality,” affirms Dr Murray.

“Research reveals that consumers perceive the same type of personality characteristics in brands as they do in other people. And just like with

people, they are attracted more to some personality types than others – attractions which are emotionbased, not rational.”

Embedded in the philosophies of Carl Jung are 12 personality archetypes that all humans fall under. Culturally, we subconsciously know and can identify with these personalities.

When you hear the description of an innocent maiden, a heroic prince or a wise old man, you immediately place personality traits on each character. The same goes for branding.

When a brand is built with personality in mind, it looks and feels familiar. The consumer will naturally be more attracted to that brand than one without personality.

This personality determines what colours and fonts are used, the language and tone of the brand,

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About the author Debbie O’Connor is a brand strategist and founder of branding studio WRD. Find out more at www.debbieobrands.com

and even the type of customer experience consumers receive.

Apple is a great example. They realised that their customers wanted beautiful, innovationdriven technology that makes them look and feel progressive and on trend.

The general misperception that a logo is the brand needs to be replaced with the realisation that it’s the consumers who decide the brand of a company.

They are the ones that place perceptions and value on a business by developing expectations for the brand.

These expectations are based on the promises that the brand makes. Branding is all about your reputation.

If you want the reputation of being fun, entertaining and light-hearted, such as Boost Juice, then everything to do with

your business needs to reflect these values. A business that is motivating, encouraging and championing it’s customers to be the best that they can be, such as Nike, will provide an entirely different experience.

Companies enhance their reputation by delivering consistent brand experiences that are based on their personality type. It’s undeniable that this evokes a positive emotion in the consumer. What’s your brand personality?

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About the author Dermot Crowley is a leading productivity specialist and author of Smart Teams

Leading productivity away from the

email onslaught

Dermot Crowley

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or many years personal productivity has been regarded as a core skill to be developed and honed by all managers and staff in medium to large businesses.

Increased productivity was attained by running training and resourcing the workforce with the latest productivity technology.

But if we only focus on skills and tools, productivity gains are often short-lived, and rarely survive in the face of the constant deluge of emails, endless meetings and urgent issues that pervade the modern workplace.

The cost of this lost productivity is massive. An online survey of 400 white-collar workers conducted in the US in 2015 found that workers estimated that they spent 3.3 hours per day checking work emails, and a further 2.1 hours on personal messages.

Many of these workers are likely to have had some training on email management or personal productivity, yet they are still slaves to their inboxes.

To achieve a real and sustained increase to productivity, it must be seen as more than just a competency to be developed.

Productivity needs to be perceived as a leadership issue. The culture of a team or an organisation greatly influences the productivity within that group, and leaders must hold a space to allow their people every opportunity to do their work without the constant

distraction and overload that many modern workplaces have come to accept as normal.

A recent conversation with a senior client highlighted the extent of this issue. He confided that he came into the office at 6am most mornings as it was the only time he could get a clear run at his email. The rest of his day was generally spent in endless meetings.

He then told me how he loved his work, but hated his job.

He was passionate about managing his team, but was being ground down by the volume of emails, meetings and urgent issues. This was not what he had signed up for.

So, what can leaders do to create a more productive culture and environment? First, they need to ensure they are not a part of the problem.

Historically, new physicians took the Hippocratic Oath, and embraced the spirit of the Latin phrase primum non nocere, meaning ‘First, do no harm’. Leaders should take this approach to productivity, and ensure they are not dragging the productivity of their team down themselves.

If they approach work with their team in a purposeful and mindful way, leaders can reduce the unnecessary noise and urgency that can get in the way of important work. It is also critical that they lead by example, and demonstrate good productivity behaviours. That means using

email communications effectively, turning up to meetings on time, and following through on what they say they will do. A leader’s brand is always on show.

Team productivity will flourish when there are a set of agreed rules that the team can operate by. This is how society works, and while there are often rules in place to ensure appropriate behaviour in the workplace, they are often lacking when it comes to how we work together productively. Email and meeting protocols can help, but they must be led from the top, and if possible, created and policed by the team themselves, rather than management. Again, leaders need to champion these agreements, and hold themselves to the highest standard.

Finally, unnecessary urgency needs to be managed. In some organisations the main, and sometimes the only form of prioritisation, is urgency. Whatever is most urgent gets actioned.

Whoever screams the loudest gets attention.

Leaders need to create a sense of urgency, not senseless urgency.

Whilst some of our time will always be spent reacting to urgent issues, most of our time should be spent being responsive and proactive. This requires a different mindset, and again, requires a leader to create the space for the team to operate this way.

Productivity is such an important element of performance within an organisation. It is definitely worth putting time and effort into creating a culture where productivity flourishes.

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What makes a CRM implementation

succeed

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Brian Wolstenholme

RM (customer relationship management) systems have been around for decades.

Nowadays, there are many software companies in the marketplace such as Zoho, Salesforce, Microsoft Dynamics, making big promises about improving sales, increasing lead conversion, and motivating staff to perform well.

For every software solution, there are plenty more business consultants who partner with these providers to offer related services such as implementation support, training, technical support, custom development, and other associated services.

Why implementations fail Despite an abundance of software and consultants to work through these projects, a staggering number of CRM implementations are unsuccessful.

Why is this? Why would businesses invest many thousands of dollars and hundreds of staff hours into systems that are ultimately abandoned? How can these

problems be avoided so successful implementation is achieved?

A study conducted by Merkle (Chiu, 2016), a performance marketing agency based in Maryland in the US, found that over half of implementation failures came down to two issues: lack of organisational adoption and an overly ambitious scope. The other reasons mostly related to poor project management and no executive alignment, which can be linked back to poor organisational adoption. To understand these issues, it’s important to first break down the most critical necessities for success.

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• Quicker turnaround for preparation of quotes and other tasks.

• No repetition of the same data in multiple systems.

• No boring dredging through disparate systems to find out what staff want.

• Automated responses and followups to prospects, customers and staff.

• Impaired - implementation was abandoned • Challenged - implementation was not delivered according to expectations • Succeeded - implementation was delivered on budget, on time, in full

Silver bullet Some organisations change their CRM every few years. Not only is it time-consuming and expensive to change CRMs, the fundamental problem still exists: a lack of management commitment.

What this means is that CRMs are implemented (sort of) as a silver bullet. Once it’s in, the CRM is expected to solve all issues by osmosis. When the CRM fails to deliver, then it’s the CRM’s fault, so another one is tried and another. The basic issue is that the processes have not been documented and touch points with customers/prospects have not been adequately identified and determined.

Experience shows that the implementation bottlenecks are

often with the customer: getting content for email and SMS templates is slow to come, and automation can’t be used until this is available.

What is needed to succeed?

User involvement from the outset Stakeholders need to be involved right from the beginning, so these are the people and organisations that determine what a new system should include. It should be on the basis of how things should work, not on how they currently are.

Payback Part of the “what’s in it for me” principle.

There needs to be a payoff for everyone involved in the CRM. If there is no payback, the best case scenario is no adoption or, worst case, active resistance to doing “yet another add-on task.” The CRM needs to be part of the fabric of how things are done around here.

Payback can be in terms of: • No need to write separate reports.

Process documentation If a CRM is implemented without a clear idea of processes, then it is doomed to fail. Processes should include: • Where do leads come from?

• How are they handled?

• Who should see this information?

• What timeframe is required for a follow-up?

• Who checks that things don’t fall through the cracks?

One way to ensure success in this area is by conducting a white board session - an opportunity to sit down with key staff and fully map out a process from beginning to end, capturing all the input and output points along the way. This also identifies areas for improvement, automation, waste reduction and cost savings. Including key staff in this process helps to encourage overall buy-in and participation in the project.

Organisational adoption Large-scale organisational change must be driven from the top, meaning management needs to be fully invested, lead by example, and be champions of the CRM. Senior management should be much more than just the ones

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who sign the cheques - they must be proponents of change within the business. It’s the trickle-down theory at work - if the management team is seen to be accepting and embracing the change, then the remaining layers of the organisation will generally follow suit. It’s the same with any change to the way a business operates, regardless of what the change is. An initiative that is not driven by management, rather one that is left to gain traction on its own, is doomed to fail.

So, the beginning stage of this kind of change, from a management level, is recognition that a problem (bottlenecks, delays, loss of business among other things) exists. This is generally most noticeable when looking at the time it takes to successfully close a deal; how much time elapsed between the initial lead contact and a successful sale or deal?

Depending on the industry, there are suggested benchmarks for how long the process should take.

Obviously, the quicker the close, the sooner sales staff can move on to the next deal.

Relating to this is the lead conversion rate - how many leads are successfully converted to sales. What are the reasons for the loss of a sale?

Once an organisation’s leadership understands the reasons behind a less than stellar conversion rate, the chances are good that they will be on board for a change, and a robust CRM can address these issues. In the planning stages, it’s

critical that management is aware of flaws in the system, so they can champion the improvements.

Often companies implementing a new CRM leave implementation to the external CRM consultant.

It’s important to have an in-house CRM champion who can assist users locally - someone who has the authority to ‘crack the whip’ when necessary.

Realistic project scope Another common reason why CRM implementations are often unsuccessful is that the scope of the project is too ambitious and potentially unachievable. This can be avoided by conducting a whiteboard or planning session, where processes are identified and mapped. This map is then used as the basis for building the CRM. An example of this is a business selling solar panels. The solar company receives a high number of leads through its website, which are then sent via email to the company owner, who manually enters the details into an Excel spreadsheet to be followed up by the sales staff. The owner then has to let the sales staff know about the new leads, either via email or phone call.

Presently, these leads receive no feedback that the enquiry has been received, beyond the generic “thank you for your enquiry” landing page on the company’s website. The first acknowledgement is when the sales staff phone to confirm their interest, which could be up to

several days after the enquiry was made.

The sales staff must then enter the same basic lead qualification details into multiple systems, including another Excel spreadsheet, a government application website, Energex’s online application system, a quotation form, and forms for the panel manufacturer. This is an entirely manual process, as there is no integration between any of the systems.

The owner understands the bottlenecks and response time issues and has discovered the company is losing sales because of the amount of time the sales process takes. The owner is motivated to implement a CRM as a way of automating some of these tasks, and integrating these external systems so data is only entered once.

The owner engages a consultant to make suggestions around what CRM to use, and how to obtain the best results as quickly as possible. This is where things start to come unstuck.

The business owner becomes interested in the possibilities for integration, however because of the custom development work required, it’s not going to be an overnight solution. Instead of focusing on getting some early runs on the board with the simple process improvements around making contact with leads and streamlining the initial sales process, the owner spends a disproportionate amount of time and budget on external integrations.

In the time it takes to work through the customisation, the company continues to lose business, as

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potential customers are still not being contacted quickly enough after their initial enquiry and are looking elsewhere for their solar solutions.

The business owner becomes disillusioned with the benefits of the CRM, as the project is taking longer than expected and the company is still losing business at the same rate as before and decides to abandon implementation.

In this case, the business owner’s project goals were too ambitious.

If the owner had started by fully mapping out the sales process, identifying the most serious bottlenecks and addressing those first, the company could have reduced the number of lost leads and worked on the integrations over time.

Do what is important, not everything.

What should a good CRM include?

It’s almost impossible for the uninitiated to adequately compare CRMs pre-purchase: there is simply too much detail to go through, and a comprehensive CRM would take months or years to learn in detail.

At least, have the CRM reseller demonstrate the following: • Web Forms • Workflow • Custom Fields and Modules • Email Campaign Integration

• Social Media Integration • SMS Integration • Products and Quotes (if applicable) • Reporting and Dashboards • A marketplace, where 3rd party products are demonstrated integrating with the CRM (such as electronic document signing).

Have a list of requirements available so the supplier is not starting from scratch when they arrive for the demo.

What should a good CRM consultant do?

• Work on processes.

• Discuss business requirements and what the business needs are before launching into a CRM demonstration .

• Hand over responsibility to an internal business champion at the earliest time.

• Prepare user documentation based on the business’s specific use of CRM.

Final thoughts The object of any business is to grow and be as profitable as possible, and the right CRM will make that objective a reality by: • Removing inefficiencies; • Making sales and marketing more collaborative; • Increasing visibility and accountability; and • Improving turnaround time.

The key to making the most of a CRM is to get the planning right at the very start - the devil is always in the detail.

About the author Brian Wolstenholme is the Managing Director of I Want That CRM (a CRM specialist company).

Brian reviews a company’s methods and procedures and determines the required outcomes.

With a business degree, majoring in Operations Management and Organisation Design, Brian is well qualified to assist clients with their requirements. Brian also has a Certificate in Production and Inventory Control from the US, supporting his business analyst activities. Brian comes to I Want That CRM with 25 years´ experience in CRM and more in business process improvement.

Web: www.iwantthatcrm.com Tel: 1300 369 268 Email: Brian.w@iwantthatcrm.com

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Adizes Worldwide 50 years '000's of companies 12 Governments 75 Countries

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A business without

bosses

Michael McQueen

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arge and mature organisations tend to be inertial at their core. In nature, as it is in business, size is almost always inversely related to agility.

While talk of decentralised business structures is far from new, most leaders and large organisations cling to nineteenthcentury management models. Although a rigid bureaucratic approach may promote consistency and predictability, these benefits all come at the cost of the very agility and responsiveness required to win in the twenty-first century.

Is it possible for large businesses and mature organisations to mimic the agility and responsiveness of a nimble startup? Is a truly decentralised

and network-based business model practical and possible? In short, the answer is a resounding yes.

ANZ takes a blowtorch to bureaucracy` Despite being one of Australia’s oldest banks, the ANZ is transitioning away from the hierarchical model of old and becoming ruthlessly action and outcomes oriented.

According to ANZ chief executive Shayne Elliott, the goal is to take ‘take an axe to the bank’s hierarchies and bureaucracy.’

Elliott’s goal is to ‘shift the workforce into “agile” teams, mimicking the way businesses such as Google, Facebook and Spotify operate,’ in order to act on opportunities and launch new products faster.

In the new structure, the bank will be re-organised into teams of 10-person ‘squads’ that will group together into ‘tribes’. Beyond the limiting of a team’s size and the adoption of new language, ANZ will also overhaul the company’s approach to leadership and authority. Squad and tribe leaders will be appointed based on their

adaptability and capacity to work across multiple teams rather than their tenure or career experience.

Day-to-day activities will change too. Team members will be asked to view project delivery timelines as six-week sprints, while their accountability for activity and progress will be gauged in daily stand-up meetings.

Far from bravely blazing a new trail, ANZ have taken a leaf out of the book of overseas corporate giants such as Haier and W.L Gore.

Higher-order thinking at Haier In the case of Chinese electrical appliance company Haier, the chairman Zhang Ruimin, invokes Immanuel Kant when describing his ethos for authority: “We encourage employees to become entrepreneurs because people are not a means to an end, but an end in themselves. Our goal is to let everyone become their own CEO — to help everyone fully realise their potential.”

This is more than mere rhetoric.

Ruimin has been steadily transforming Haier’s culture into one of genuine empowerment and selfdirection over recent years.

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Today, Haier’s 40 000 staff are broken up into 2500 microbusinesses or microenterprises consisting of no more than 15 people. Each microenterprise has its own P&L and is accountable to achieve certain success metrics.

Then there’s the shining example of decentralisation offered by W.L Gore. By any metric, W.L. Gore is an impressive business. Since the company’s inception in 1958, it has never once made a loss. It is consistently ranked as one of the ‘best places to work’ and is an innovation powerhouse boasting over 7,500 registered patents to date.

And yet, despite all these conventional measures of success, it is W.L. Gore’s unconventional strategy for achieving them that is most extraordinary. Unlike every one of its competitors, no employee at W.L. Gore has a title. There are no bosses and no formal hierarchy.

While W.L. Gore has no EVPs, SVPs or VPs, the company does have a CEO by the name of Terri Kelly.

In reflecting on how transferable the W.L. Gore model is for other

businesses, Kelly suggests that other organisations could easily replicate the success of Gore’s model but would need to first ask themselves some important questions such as:

If it is titles, power and preferential treatment, any attempts to challenge these sources of reward will be met with active and/or passive resistance.

1. What behaviours have been rewarded and reinforced in the past?

While it’s tempting to dismiss this model of shifting authority from central bureaucracies to networks of startup-esque business units as something that ‘would never work in our business’, the author challenges this assumption. If a big bank, a Chinese multinational, and an industrial manufacturer can adopt this agile model, the biggest barriers to embracing it are not pragmatic but rather paradigmbound and power-driven.

These will have created a series of unconscious expectations that need to be addressed.

2. Do you have a culture that genuinely believes in and encourages the contributions of individuals?

While most organisations espouse the importance of empowerment, many prize conformity above individuality.

3. Does your culture foster a collaborative spirit or is your culture one of competition and protectionism?

A true collaboration culture is always focused on ideas and outcomes rather than who gets the credit.

4. What motivates your leaders and what do they value?

Regardless of whether an organisation adopts a wholesale model of decentralisation, what’s clear is that every business and leader must examine whether their culture, systems and power structures are fit for the future.

After all, if the desire for control, predictability and order comes at the cost of agility and responsiveness, this may be too high a price to pay in an age of disruption.

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About the author Michael McQueen is a 5-time bestselling author, trends forecaster and keynote speaker.

His latest book How to Prepare Now for What’s Next (Wiley) examines the key disruptions that will shape the coming decade and outlines a game plan for staying one step ahead of change. For more information, visit www.michaelmcqueen.net.

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Will your business fund your

retirement?

Bryan Worn

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usiness owners, typically envision their business as the primary vehicle for funding their retirement, having worked tirelessly to build the business over many years. They see the eventual sale of their business as the key to financial freedom in retirement.

There are important factors that can influence a business’s value.

Not all businesses are saleable.

And there are critical steps an owner needs to take to ensure a comfortable retirement.

For the purpose of this article, start-ups will be ignored (i.e. ventures whose revenue growth is like a hockey stick graph - slow at the beginning, then accelerating at great speed). These start-ups do not have a business until they have a proven product or service.

Instead, the focus of this article is on businesses the owner has started or bought, then built steadily over their working life before exiting through a sale.

Is the business owner building a saleable business?

The amount realised on the sale of a business can range from zero to a large sum that’s more than enough to fund the founder’s desired retirement lifestyle.

The saleability of a business depends on many variables that change over time. These include competition, disruptive technology, new products, government regulations, changes in consumer and customer behaviour, and tastes.

Over the past 25 years, the barriers to entry into business have been reduced by technology, new working habits and globalisation. On the one hand, this is good for people who want to start a business, but on the other hand, it can negatively affect value for sellers.

Getting rich quick doesn’t always pay off A recent Skandia Millionaire Monitor Survey, which covered six countries over three continents, provides some interesting statistics: • In the UK, 15% of respondents made their wealth from their own business • The majority made their fortune before they were 30. In the UK, around half made their money before they were 25 years old.

These statistics highlight the success stories. But not everybody who starts a business becomes financially independent before the age of 25, and not everybody creates a business that has longterm value. Budding entrepreneurs are often seduced by stories of quick paths to riches and ignore the facts: “Statistics show that the reason nine out of 10 small businesses fail in the first five years is because most employees, even college graduates with advanced degrees such as MBAs, do not possess the essential skills to be entrepreneurs. Making matters worse, of the one in 10 that does survive the first five years, nine out of 10 fail in the second five years. I know. I have been one of those statistics. I have had far more failures than successes.”

– Robert Kiyosaki, Rich Dad Poor Dad “According to the Australian Bureau of Statistics, more than 60 percent of small businesses cease operating within the first three years of starting. A few years ago, the Australian Securities and Investments Commission released a report into corporate insolvencies that found 44 percent of businesses suffered poor strategic management, 40 percent

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had inadequate cash flow or high cash use and 33 percent suffered from trading losses.”

– Huffington Post, “Why Small Businesses Fail In Australia” Early successes can cause some people to take big risks that don’t pay off. To avoid this, one suggestion for successful startups is that when they sell out, they quarantine some of the capital into passive investments that generate income (e.g. bank deposits, property and equities).

Can people retire off the sale of their business?

If a financially independent retirement is what a person wants, what do they need to consider?

First, they need to ask themselves, “Do I have a business?” Being clear about whether they really have a business they can grow to sell.

Often, the term “business” is used to describe a professional services practice or self-employed job. The table above indicates the typical characteristics of a business,

practice and self-employed job.

A business is usually saleable, whereas a professional services practice may have a low sale value and a self-employed job may have no sale value.

It’s important to keep in mind that a self-employed job can be profitable when done correctly. In one case, a man who ran a successful plumbing business recognised 20 years ago that he was good at plumbing but not at managing people. He decided to become self-employed and invest as much as he could in other investments. This strategy paid off he is now approaching retirement with a passive income of more than $100,000 per annum.

1. Set an absolute money goal Determine the specific amount of income required to fund the required lifestyle when they no longer own the business. As a rough guide, assuming a return of 5% and living expenses of $100,000, a capital sum of $2,000,000 will be needed.

The reason to pick an absolute goal is the Easterlin Paradox.

Professor Richard Easterlin found that within any given country, people with higher incomes were more likely to report being happy up to a point. After that, increases in income did not bring increased happiness. In other words, as people have more, they desire more - even though they don’t need it and it doesn’t make them any happier. If they put a cap on the amount of income they will need in retirement, they can avoid this frustration.

2. Set up a timeline of known and anticipated money events in your life Business owners should start their timeline with where they are now and end it with when they would like to retire. Decide on what income and capital sum is required to cover various life goals and events (e.g. children’s / grandchildren’s education, travel, lifestyle, home improvements), and plan for them.

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3. Decide on your investment structures

will have the capital in the future to enjoy the lifestyle they want.

A primary reason for investing money outside a business, other than to generate an income stream in the future, is for asset protection.

Getting advice from a competent accountant or lawyer on the best structure can prevent difficulties later.

6. Your goals may not be the same as your family’s goals

4. Automate your money Business owners should set up regular automatic transfers from the business to their superannuation fund, savings account investment plan, etc. These amounts are part of the business profits that go into other structures the owner controls.

Draw a reasonable salary and stick to it. The owner should not simply take money out of the business when they need it or when they think the business can afford it.

If a person invests $25,000 per year for 20 years, compounding at 4% (after allowing for 3% inflation), it will amount to $744,000. For 30 years, it will amount to $1.4 million.

5. Delay gratification Spend less on discretionary items.

For example, spending $50,000 on a new car instead of $70,000 produces a short-term saving of $20,000. If this $20,000 is invested at 7%, it will double to $40,000 within 10 years. Delaying gratification now means the owner

It’s important that a business owner explains to their family why they are doing certain things. Letting family know it’s to benefit their future will help ensure harmony at home while they work hard and squirrel money away.

What is the true value of your business?

Behavioural economics explains why people sometimes seek to obtain prices well in excess of market value.

When the owner has been attached to something for a long time (the business), they often attribute a high value to them. As Claudia Hammond explains in Mind Over Money, “This is called the endowment effect. In simple terms, it means that people tend to value more highly things they already own.”

To determine the true value of a business: • Avoid price anchoring. Often, other people indicate a value for an asset and the owner is disappointed when they don’t get offers in that region.

Some real estate agents and brokers cause this problem by indicating values that may be obtained for a property, but when it’s put on the market, the offers are much lower, and the vendors are reluctant to sign a contract because they feel they are

not getting what it’s worth.

• Be aware of loss aversion.

Studies have shown that humans are twice as likely to avoid losing $10,000 than they are to making $20,000. Owners can miss huge opportunities by not taking action when selling a business.

The best way to achieve financial independence Assuming a business will be worth nothing when they wish to exit it is the safest strategy for financial independence. The suggestion is not that people should give something away for nothing if it has value. But rather, from a planning perspective, assuming the business has no saleable value - even if they wish to sell it - and building a portfolio of other assets that will produce an income to replace salary will lead to a better lifestyle in the long term.

How to exit a business There are many ways to exit a business, from a leveraged management buyout (where senior management take over the business and finance the purchase price based on the assets of the business) to simply closing the doors and auctioning off what can be sold (effectively, a zero sale).

Many people who want to exit a business use a business broker.

This can be successful, but it can also be a high-risk strategy

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as the business owner has little control over the process and can feel powerless. Confidential information may become available to competitors, key staff become anxious about their positions and may be tempted to move on. There can also be a general disruption to the business.

knows the business can meet the repayments and is confident the employees can operate it successfully. This is often a good way to maximise the real value of the business, and the cash flow from the initial sum paid plus the ongoing payments can yield more than a market sale.

When selling a family business, there are additional factors to consider as well. It is difficult to ensure the future of family members who continue to work in the business. However, when selling a business where there are clearly defined financial ratios and valuation formulae for the industry, such as a franchise of a McDonalds or Subway, there is a lot less uncertainty about the outcome.

A retail business where the owner wants to sell, even though only fifty years of age, is a great example of the transition strategy working successfully. The owner wished to exit but was concerned about listing the business with a broker because they were not sure what they would get for it. They were also concerned about opening up the business’s financial information to competitors and staff members.

An alternative to an external sale

When asked, “Who is likely to be affected by the sale of this business?” the owner’s answer was “the staff and a key manager, who had been there for many years.” The manager would find it difficult to get a similar role at the remuneration level they currently received. So, the owner and manager (who both received professional advice) agreed on a price, as well as the mechanism for the money to be paid. The initial sum came from the manager taking a second mortgage on their home and being paid all outstanding holidays and long-service leave entitlements. The balance was payable over several years, with

For many business owners, a successful strategy is to transition from 100% ownership to a reduced ownership by allowing key employees to progressively buy the business. The owner can exit with a worthwhile amount of initial cash and provide vendor finance to staff members for a period of time. This avoids many difficulties, such as competitors getting access to financials, and ensures due diligence, as the employees know the business and its potential to grow.

The business owner (now the seller)

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interest only payable in the event of a default. In the end, the manager owned the business with no debt and the business seller received full value for retirement.

About the author Bryan Worn is an SME Business Mentor, Coach & Facilitator who is obsessed with helping business owners become financially independent in a rapidly changing business environment.

Email: bryan@bryanworn.com LinkedIn: linkedin.com/in/bryanworn Web: www.bryanworn.com Mob: +61 437 000 377

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